Shares of CATL, the world’s largest electric vehicle battery maker, fell sharply in Hong Kong after the company reported a sequential decline in third-quarter profit. New tax policies and reduced export rebates are adding pressure to CATL’s profitability, prompting ongoing negotiations with customers over cost-sharing.
CATL’s Third-Quarter Results and Share Performance
On Wednesday, CATL‘s Hong Kong-listed shares (HKEX: 3750) dropped 10.64% to HK$368, marking their lowest point since July 2025. Shares listed in Shenzhen also fell by about 12%.
CATL reported a third-quarter net profit attributable to shareholders of 21.25 billion yuan, which was up 14.54% year-on-year but down 5.77% from the previous quarter. Revenue for the quarter rose 58.58% year-on-year and 11.8% sequentially to 165.22 billion yuan. However, the company’s gross margin fell to 20.69%, its second consecutive quarterly decline.
Tax Policy Changes Impact Profitability
CATL’s earnings call highlighted the impact of recent tax policy changes on its profitability. China resumed levying a consumption tax on lithium-ion batteries and other battery products on September 1 at a transitional rate of 2%. This rate is set to increase to 4% on September 1, 2027.
Additionally, the value-added tax export rebate rate for battery products was reduced from 9% to 6% on April 1 this year and will be eliminated entirely on January 1, 2027. CATL CFO Zheng Shu explained that the consumption tax is included in product prices, making it difficult to pass the additional burden downstream without renegotiating prices with customers. Discussions on cost-sharing arrangements are ongoing.
Outlook and Industry Response
The reduction in export rebates was not fully reflected in CATL’s second-quarter sales due to timing differences between shipments and revenue recognition, but its impact was more apparent in the third quarter. The consumption tax will apply throughout the fourth quarter, compared with only September in the third quarter.
JPMorgan has downgraded CATL’s Hong Kong shares to Neutral and lowered its earnings forecasts, while maintaining an Overweight rating on the company’s A-shares. CATL management expects new products, new technologies, and ongoing negotiations with customers to help sustain long-term profitability. The company remains positive on demand, projecting 20% to 30% growth in global power and energy storage battery demand in 2027, supported by commercial vehicle electrification, the European market, and overseas energy storage demand.
Why this matters
CATL’s financial results and the impact of new tax policies highlight the challenges facing the battery industry as it navigates changing regulatory environments and cost pressures. The company’s ability to manage these changes will be closely watched by investors and industry stakeholders, given its leading role in the global EV battery market.
What this means for buyers
Buyers and industry observers should monitor how CATL and its customers respond to ongoing cost-sharing negotiations and tax changes. These developments could influence battery pricing and supply dynamics in the coming quarters.
Key Specs
- Third-Quarter Net Profit: $3.2B (~AUD 4.5B)
- Third-Quarter Revenue: $24.7B (~AUD 35.4B)
- Gross Margin (Q3 2026): 20.69%
- Share Price Drop (Hong Kong): 10.64% to HK$368
- Share Price Drop (Shenzhen): 12%
- Consumption Tax Rate (from Sep 1, 2026): 2%
- Consumption Tax Rate (from Sep 1, 2027): 4%
- Export Rebate Rate (from Apr 1, 2026): 6% (was 9%)
Images sourced from: carnewschina.com, tatlerasia.com, unsplash.com
