China EV Battery Makers' Profit Surge Squeezes Automakers
China's electric vehicle battery industry is witnessing a profound power shift in 2026, with manufacturers collectively strengthening their grip on profit margins while downstream automakers face intensifying financial pressure.
Contemporary Amperex Technology Co. Limited (CATL) reported RMB 20.7 billion (US$2.88 billion) in net profit for Q1 2026—equivalent to US$32 million daily—while mainstream EV makers struggle with razor-thin margins that dipped to 1.8% in December 2025, according to data from China Passenger Car Association.
The profit disparity highlights an emerging structural imbalance across China's US$200 billion EV supply chain. While CATL and BYD still command 65% combined market share as of 2025, down from over 70% in 2023, second-tier battery suppliers including CALB, Gotion High-Tech, and EVE Energy have collectively captured approximately 17% market share, up from single digits three years ago. This diversification, initially driven by automakers seeking to reduce dependency on dominant suppliers, has paradoxically created a new challenge: carmakers now face margin pressure from multiple battery vendors rather than one monopolistic supplier.
Automakers' "De-CATL" Strategy Empowers Rival Suppliers
The industry's transformation traces back to 2022, when GAC Group Chairman Zeng Qinghong publicly questioned whether his company was "working for CATL." That remark, made with CATL's founder sitting in the audience, crystallized widespread frustration among Chinese automakers over battery supply constraints and pricing power. Batteries account for 30–40% of EV bill-of-materials costs, making supplier relationships critical to both production schedules and profit margins.
Between 2022 and 2025, major Chinese EV makers systematically expanded their battery supplier rosters. XPeng initially incorporated CALB and Sunwoda batteries before reverting to CATL for premium models. NIO attempted in-house development of lithium iron phosphate batteries. GAC established Innopower Battery, while Great Wall Motor incubated SVOLT Energy. According to industry sources, second-tier suppliers offered lower pricing and greater customization flexibility compared to CATL, making them attractive alternatives for cost-sensitive models.
The strategy worked—partially. CALB, Sunwoda, and Lishen gained contracts with GAC Aion, XPeng, and Li Auto respectively. Newly established Ling Voltage secured orders from SAIC-GM-Wuling and Leapmotor. CALB achieved RMB 2.53 billion (US$351 million) net profit in the first three quarters of 2025, up 514%. Ling Voltage's RMB 809 million (US$112 million) profit represented a 788% surge.
"Compared to CATL, second-tier suppliers offer more competitive pricing and willingness to accommodate customization requests from OEMs," noted a battery industry executive interviewed by Tech Planet. "They filled market gaps that CATL couldn't or wouldn't address."
Technical Barriers Complicate Supplier Switching
Despite diversification efforts, battery replacement remains technically and financially prohibitive for most production vehicles. Unlike conventional components, batteries integrate deeply with chassis architecture, battery management systems, thermal controls, and vehicle electronics. Switching suppliers mid-cycle requires 6–12 months minimum for adaptation and recertification, according to automotive supply chain specialists. New vehicle platforms require even longer lead times.
The switching process incurs substantial costs beyond direct battery procurement: engineering modifications, production line retrofits, and quality validation programs. Consumer perception adds another constraint—buyers react negatively when automakers substitute tier-one battery brands with lesser-known suppliers, viewing the change as cost-cutting that compromises quality. Social media complaints from Chinese EV owners reveal cases where dealers failed to disclose battery supplier changes before delivery, triggering warranty concerns and resale value anxiety.
Consequently, most automakers maintain CATL as primary supplier while adding second or third sources for specific models or regions. XPeng's approach exemplifies this strategy: after initially diversifying away from CATL, the company reverted to CATL batteries for flagship models while using alternative suppliers for volume segments. Even Tesla, which announced in-house 4680 cell production in 2020, continues relying on external suppliers. Recent reports confirm Sunwoda joined Tesla's global supply chain as its fifth battery partner.
CATL's concentration metrics reflect this dynamic. According to SNE Research, the company's top-five customer sales proportion increased from 29.7% in 2020 to 38.9% in 2025, indicating that leading automakers actually intensified procurement from CATL despite nominal supplier diversification.
Industry Profit Gap Widens as Vehicle Margins Collapse
The battery sector's collective profitability surge contrasts sharply with automaker financial performance. China's automotive industry posted a 4.1% average sales margin in 2025, below the 5.9% manufacturing sector average, according to Cui Dongshu, secretary-general of China Passenger Car Association. December 2025 marked the nadir at 1.8% monthly margin.
Li Auto exemplifies the pressure: 2025 revenue fell 22.3% to RMB 112.3 billion (US$15.6 billion), while net profit plummeted 85.8% to RMB 1.58 billion (US$220 million). NIO sustained RMB 14.94 billion (US$2.08 billion) net loss despite narrowing losses, reaching profitability only in the fourth quarter.
Second-tier battery makers shared in the windfall. Lishen's 788% profit jump, CALB's 148% gain, and Gotion's inaugural RMB 540 million (US$75 million) profit demonstrate how supplier diversification expanded the profit pool among battery manufacturers without alleviating automaker margin pressure.
Self-development offers no immediate relief. Battery manufacturing requires substantial capital for R&D, production facilities, and supply chain integration. Tesla's 4680 cell program, announced with fanfare in 2020 and backed by dedicated Texas factory capacity, remains behind schedule six years later. Chinese automakers including GAC Aion, Zeekr, NIO, Geely, Great Wall, Voyah, Wuling, and SAIC announced in-house battery initiatives, yet industry insiders note that per-unit costs for small-scale internal production exceed procurement costs from established suppliers.
"Battery manufacturing is capital-intensive," explained one industry participant. "Early-stage self-production costs actually exceed buying mature cells at scale. Most automakers lack the volume to justify full vertical integration."
Outlook: Structural Imbalance Persists
The profit distribution asymmetry appears structural rather than cyclical. As battery technology matures and production scales expand, suppliers maintain pricing power through technical expertise, quality certification requirements, and production scale advantages. Automakers face intensifying competition in vehicle sales while bearing higher R&D costs for autonomous driving, connectivity features, and model proliferation.
The "de-CATL" movement achieved supplier diversification but created a new reality: automakers now negotiate with multiple battery vendors, each exercising pricing leverage. Instead of reducing dependency on one dominant supplier, Chinese EV makers confront a collective battery sector that consistently captures disproportionate value.
This dynamic suggests persistent margin pressure for automakers through 2026 and beyond. While battery costs per kilowatt-hour continue declining due to technological improvements and scale effects, the pace of reduction lags behind vehicle price deflation in China's hyper-competitive EV market. Barring breakthrough developments in solid-state batteries or alternative chemistries that reset competitive dynamics, the current profit structure favoring battery manufacturers over automakers appears sustainable.
For global investors tracking China's EV ecosystem, this power balance shift warrants attention. Battery suppliers collectively represent a more stable profit pool than downstream vehicle manufacturers, despite the latter commanding higher market valuations. As the industry matures, value capture gravitates toward suppliers with technical moats and scale advantages—a pattern familiar from traditional automotive supply chains where tier-one suppliers often outperform OEMs on return metrics.
Related Coverage：