J.P. Morgan: Deye’s energy-storage shipments surge as gross margin comes under pressure: JPMorgan raises earnings forecasts but cuts price target

What drove growth in the first three quarters?

In the first three quarters of 2026, Deye generated revenue of 17.18 billion yuan, up 94.2% year on year, and net profit attributable to shareholders of 4.27 billion yuan, up 82% year on year, in line with its earlier earnings guidance.
Shipments were the main driver: inverter shipments reached 1.96 million units, up 54% year on year; JPMorgan estimates battery-pack shipments at 13.5 GWh, up approximately 220% year on year.
Growth came alongside a decline in gross margin: the overall gross margin for the first three quarters fell from 38.5% a year earlier to 36.5%. A greater share of lower-margin battery packs, higher battery-cell and electronic-component costs, and adverse exchange rates all exerted pressure.

Management expects revenue of approximately 25 billion yuan in 2026 and targets approximately 40 billion yuan in 2027; if market conditions are favorable, it could reach 45 billion yuan. Revenue from both energy-storage inverters and battery packs is expected to approach 20 billion yuan each.
Europe accounted for 43% of the company’s inverter revenue and 62% of its battery-pack revenue in the first three quarters of 2026, and local supply remains tight. JPMorgan expects Europe’s distributed energy-storage market to grow 50% in 2027, driven by high energy prices and renewable-energy dispatch challenges.
Power shortages and off-grid demand in India, Southeast Asia, the Middle East and Africa are new sources of growth. On products, management believes commercial and industrial energy storage could grow approximately 100%; in the third quarter of 2026, commercial and industrial products already accounted for about half of the company’s energy-storage inverter revenue.

Management expects product upgrades and cost reductions to support energy-storage inverter margins, but battery packs are the main uncertainty for profitability in 2027. The company expects battery gross margin to remain broadly stable quarter on quarter in the fourth quarter of 2026 and potentially adjust in the first quarter of 2027.
The cancellation of battery export tax rebates effective January 2027 creates pressure. The company’s battery-cell purchase prices are set using a formula based on lithium spot prices, but with a time lag; lithium prices fell from approximately 160 thousand yuan per tonne at the end of August to approximately 95 thousand yuan per tonne at the time of the report. Management believes lower battery costs can offset the reduction in tax rebates, and the report also notes that cost reductions and selective price increases can partially offset the impact.

Taking into account management’s revenue targets and operating trends in the first three quarters, JPMorgan raised its earnings forecasts for 2026 through 2028 by 8% to 16%. Its model forecasts revenue of 39.38 billion yuan in 2027, up 57% year on year, and a decline in net margin from 23.7% in 2026 to 20.7%.
Taking the broader industry-chain cycle into account, the bank cut its target price-to-earnings multiple from 23.5 times to 18 times and lowered its price target by 18% to 127 yuan, while maintaining its Overweight rating. The target is based on the average forecast earnings per share for 2027 and 2028.