HSBC: Chinese battery makers grow revenue without profit growth; overseas energy storage share provides a profit buffer

Why did profit per unit fall despite revenue growth?

In the third quarter of 2026, Chinese battery makers' revenue grew 10%–20% quarter on quarter, but both gross profit and net profit per unit fell. Higher consumption taxes, reduced export tax rebates, unfavorable currency movements and lithium price-related inventory write-downs combined to exert pressure.
Excluding non-recurring items, manufacturers' quarter-on-quarter declines in net profit per unit ranged from 10% to more than 100%. HSBC attributes the differences mainly to product mix and each company's pricing power to pass taxes and charges on to customers.
CATL's net profit per unit fell 17% quarter on quarter in the third quarter, mainly because of a higher share of domestic energy storage and the impact of some taxes and charges; domestic projects accounted for more than half of recognized energy storage revenue in the quarter.

HSBC believes the pace of margin recovery depends not only on tax rates but, more importantly, on whether the demand outlook becomes clearer. Price increases for domestic passenger vehicle batteries face considerable resistance, while overseas energy storage projects generally command stronger bargaining power.
When the demand outlook is uncertain, battery makers may prioritize sales volumes and delay price increases, postponing the recovery of additional costs. Improving demand could accelerate the pass-through; further weakening could prolong the profit squeeze.
The higher consumption tax will have a full-quarter impact in the fourth quarter of 2026, while the export tax rebate rate will be cut by a further 6 percentage points from the start of 2027. HSBC therefore expects tax pressure to persist through the first quarter of 2027.

Overseas energy storage demand is growing faster. According to SNE Research, overseas sales of energy storage cells rose 94% year on year in the first half of 2026, while the Chinese market grew 49%.
Revenue recognition for overseas projects is slower than domestic deliveries and has temporarily weighed on quarterly margins at manufacturers including CATL. As revenue from overseas projects is gradually recognized, HSBC expects a higher share of overseas business to buffer tax pressure from the fourth quarter of 2026 through the first quarter of 2027.
This path to improvement depends on overseas projects converting into recognized revenue and stronger bargaining power translating into per-unit profitability; HSBC identifies the share of overseas energy storage and its contribution to per-unit profit as key operating indicators.

As of the time covered by the report, the lithium battery index had fallen 15% over the preceding three months, while CATL's A-shares and H-shares had fallen 39% and 42%, respectively. HSBC acknowledges that the company still faces challenges from the fourth quarter of 2026 through the first quarter of 2027, but believes manufacturing yields, operating efficiency, procurement scale and self-funded R&D capabilities constitute long-term advantages.
HSBC believes the deterioration in the current business mix and industry tax pressure do not necessarily mean CATL's competitiveness has been impaired. The bank maintains buy ratings on its A-shares and H-shares, with unchanged target prices of 486 yuan and 716 Hong Kong dollars, respectively.
Downside risks listed by the bank include raw material prices rising more than expected, tax pass-through falling short of expectations, and overseas expansion execution or electric vehicle and energy storage market growth falling short of expectations.