CATL Battery Supply Chain Diversification Gains Momentum

CATL Battery Supply Chain Diversification Gains Momentum

CATL Battery Supply Chain Diversification Gains Momentum as Chinese automakers expand their battery sourcing beyond the world's largest power battery maker. CATL shares fell to a fresh one-year low on Wednesday, with A-shares down 3.84% at 304.22 yuan after briefly trading below 300 yuan. The decline followed a 6.16% drop on Tuesday. At the current price, the stock had fallen about 35% from its early-May high of 467.35 yuan, while its Hong Kong-listed shares had previously declined from nearly HK$800 to around HK$500.

The market reaction contrasts with gains among several second-tier battery companies. Sunwoda shares were up more than 12% as of press time, while Gotion High-tech and Farasis Energy also advanced. The divergence reflects a broader restructuring of battery sourcing by Chinese automakers, as a longstanding pattern in which premium new energy vehicles routinely used CATL batteries is being challenged. More manufacturers are adding alternative suppliers or developing batteries internally, reducing the extent to which CATL is treated as the default source across vehicle programs.

Li Auto has provided one of the clearest examples of this shift. The automaker moved every variant of its new-generation Li L8, launched in June, to Sunwoda cells, with packs produced through a joint venture between the companies. Li Auto is also planning to invest 2.65 billion yuan in Sunwoda Electric Vehicle Battery Co Ltd, the power battery subsidiary of Sunwoda, and would directly hold an 8.79% stake after completion. Entities affiliated with Li Auto would collectively hold 11.17%, making the automaker's group the second-largest shareholder.

Li Auto said on September 7 that its internally developed batteries would gradually be introduced across its entire lineup. The new-generation Li Mega is also set to move from CATL batteries to internally developed batteries. A recent filing with China's Ministry of Industry and Information Technology shows that the 2026 Li i6 all-electric SUV will use batteries supplied by CALB. These moves indicate that battery sourcing decisions are increasingly being integrated with automakers' broader efforts to secure supply, develop proprietary technology, and manage component economics across different vehicle programs.

Xiaomi has also widened its battery supplier base to four companies: CATL, FinDreams, CALB, and Sunwoda. Its new Sky Nomad lineup uses batteries from Sunwoda and CALB, without CATL listed as a supplier. The Aito brand under the Huawei-led Harmony Intelligent Mobility Alliance has likewise expanded beyond exclusive CATL sourcing by adding CALB and Gotion High-tech. Xpeng had already elevated CALB to its largest battery supplier several years ago, providing another example of automakers broadening battery procurement rather than relying on a single dominant provider.

Profit distribution is a central factor behind the supplier diversification described in the article. CATL reported an overall gross margin of 23.93% in the first half of 2026, while Li Auto reported a vehicle margin of 9.4% for the second quarter, 10 percentage points lower than a year earlier. CATL generated 276.9 billion yuan of first-half revenue, an increase of 54.80% year over year, and net profit attributable to shareholders reached 43.28 billion yuan, up 41.98%. By contrast, China's entire auto industry recorded only 20.9 billion yuan of total profit during January-July 2026, down 28% year over year, with a 2.4% profit margin, according to CPCA secretary-general Cui Dongshu.

A new lithium-battery consumption tax is adding another economic consideration. China began applying a 2% consumption tax to lithium-ion batteries on September 1, with the rate scheduled to rise to 4% from September 2027. Automakers that manufacture their own batteries and install them directly into vehicles can avoid or deduct the tax. This structure gives in-house battery production an additional financial rationale alongside supply-chain control and technology development, potentially reinforcing automakers' interest in reducing dependence on external battery suppliers where internal production is commercially viable.

Despite the supplier changes, CATL's operating position has not yet shown a substantive deterioration in domestic installation data. CATL recorded 32.54 GWh of domestic power battery installations in August, retaining first place with a 41.45% share, although its share declined from 42.33% in July, according to the China Automotive Battery Innovation Alliance. The overall Chinese power battery market remained strong: total installations reached 79.0 GWh in August, up 26.3% year over year and 5.9% from July, marking the highest monthly level so far in 2026. The data therefore show continued scale even as supplier diversification progresses.

Industry Impact & Outlook

The development could reshape how battery suppliers and automakers negotiate capacity, pricing, technology ownership, and long-term sourcing commitments in China. For CATL, the key issue is not simply the loss of individual vehicle programs but whether broader supplier diversification gradually reduces its share of future launches while competing battery makers gain access to more premium applications. For automakers, multiple suppliers and internal battery programs can provide additional control over costs and supply, although execution depends on technology, manufacturing capacity, and vehicle requirements. The September tax change may further support in-house production economics, while CATL's still-leading August installation share shows that the transition remains a developing process rather than an immediate displacement.

Frequently Asked Questions

Why are Chinese automakers diversifying their battery suppliers?
Chinese automakers are broadening battery sourcing by adding suppliers such as Sunwoda, CALB, and Gotion High-tech while some develop batteries internally. CATL remains the leading supplier in China, with a 41.45% share of domestic power battery installations in August 2026, but its share fell from 42.33% in July. Li Auto moved the new-generation Li L8 to Sunwoda cells and plans to introduce internally developed batteries across its lineup. Xiaomi also uses multiple suppliers, while a new lithium-battery consumption tax adds another incentive for some automakers to consider in-house production.