CATL expected to top CNY 23B Q2 profit as rotation from AI builds

Morgan Stanley expects CATL's second-quarter net profit to exceed both company guidance and the bank's own estimates, as investors rotate from crowded AI trades into quality laggards.

CATL is set to report second-quarter net profit above CNY 23 billion on Friday, Morgan Stanley said, as a rotation out of overcrowded AI stocks into quality laggards gains momentum across Asian equity markets.

"We expect CATL to beat both its own guidance of CNY 22 billion and our estimate of CNY 23 billion, with a strong outlook for the second half," the Morgan Stanley team wrote in a report Tuesday, maintaining an overweight rating on the stock.

The bank cited multiple growth drivers: diesel vehicle electrification, an energy storage super-cycle, and the launch of a sodium-ion battery product cycle. CATL's 2027 growth outlook remains strong as these secular trends compound, Morgan Stanley said. The company deployed 13.5 GWh of energy storage in the second quarter, up more than 40% from 9.6 GWh a year earlier and from 8.8 GWh in Q1, according to industry data.

The call comes as investors increasingly seek to diversify from the semiconductor and AI trade that has dominated markets this year. Over the past month, the iShares Semiconductor ETF has fallen about 20% from its high, while value stocks and lagging sectors have rallied. CATL, which trades at a discount to its five-year average P/E, stands to benefit from this rotation, Morgan Stanley said.

Many investors the bank has spoken with recently expressed a desire to rotate out of overcrowded AI positions into companies with solid fundamentals that have lagged the broader rally, the report said. CATL fits that profile: the world's largest battery maker has seen its stock underperform the AI-driven tech rally despite posting consistent delivery growth and commanding an estimated 37% share of the global EV battery market.

The energy storage super-cycle is a particular bright spot. CATL's 13.5 GWh of storage deployments in Q2 marked a 53% sequential increase from Q1's 8.8 GWh, a trajectory that supports Morgan Stanley's view that storage will become an increasingly large share of CATL's revenue mix. The business diversifies CATL's dependence on EV battery sales, which remain tied to the pace of China's passenger EV adoption.

On the EV side, CATL's sodium-ion battery product cycle is expected to open a new addressable market in entry-level EVs and two-wheelers, where LFP chemistry (lithium iron phosphate, cheaper but with lower energy density than NMC) has dominated. Sodium-ion cells promise even lower costs, potentially expanding battery adoption in price-sensitive segments across China and Southeast Asia. BYD, CATL's primary domestic rival, has also invested in sodium-ion technology, setting up a competitive race in the low-cost battery segment.

Diesel vehicle electrification — the replacement of diesel-powered trucks, buses, and construction equipment with battery-electric alternatives — represents another multi-year growth vector. China's push to electrify its heavy-duty fleet, combined with tightening emissions standards in Europe, creates a demand pipeline that extends well beyond the passenger EV market. CATL's commercial vehicle battery unit has been expanding its customer base among Chinese truck makers and European bus manufacturers.

The rotation narrative adds a near-term catalyst. The S&P 500 has been essentially flat over the past month, but beneath the surface, money has been moving: healthcare stocks gained 7.4%, energy companies rose 6.4%, and financials climbed 4.5%, while technology fell 5.4%, according to data from State Street. CATL, as a high-quality name in a sector that has lagged the AI rally, is positioned to capture some of those flows if the rotation continues.

This article is for informational purposes only and does not constitute investment advice.