Battery giant Contemporary Amperex Technology Co. Ltd. (CATL) posted slower-than-expected quarterly profit growth, prompting analysts to warn that the company and its peers may struggle to manage pressure from a revived domestic consumption tax and the end of other fiscal benefits.
CATL's third-quarter earnings on Tuesday missed market expectations as each unit reported compressed margins due to rising costs and other pressures, including a reduction in the value-added tax rebate for exports. Analysts at Citigroup Inc, Jefferies Financial Group Inc. and Morgan Stanley warned of downward revisions to consensus forecasts. Citigroup analysts wrote in a note that the results carry negative readthrough for other tier-2 players, as they cannot fully pass on the consumption tax if CATL does not.
CATL's stock has plunged about 40% in Shenzhen from a peak in May as investors fret about competition and margins. The selloff accelerated last month as worries grew over "de-CATLization," the trend in which some automakers diversify supply to smaller rivals, and its potential effect on earnings and production. Beijing is also pulling fiscal levers to limit excess capacity and competition. In July, the government announced it would end a decade-long lithium-ion battery exemption from consumption taxes, with a 2% levy effective from September. It also reduced value-added export rebates for battery products and will cancel them from 2027.
CATL has already warned of volatility in domestic orders as a result. Morgan Stanley analysts wrote that price competition in the energy storage market "could weigh on unit margins," though CATL's quality premium remains. They expect a recovery, but said its magnitude will depend increasingly on product mix and competitive intensity.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing