From Battery King to One of Many: How China’s EV Makers Are Reducing Their Dependence on CATL

The Battery King and Its Changing Court

For most of the past decade, building a competitive electric vehicle in China almost certainly meant sourcing a battery from Contemporary Amperex Technology — better known as CATL, or Ningwang ("Battery King") in Chinese financial media.

That arrangement is now changing in a structural, not cyclical, way.

"De-CATL-ification" is the term Chinese industry observers use to describe a broad shift in which EV manufacturers — from new-energy startups to legacy automakers — are actively reducing their dependence on CATL by diversifying suppliers, forming battery joint ventures, or developing in-house battery technology altogether.

This is not a single company's decision or a short-term procurement adjustment. It reflects a fundamental rebalancing of leverage between the world's dominant battery supplier and the automakers it serves.

How CATL Built Its Dominant Position

CATL's rise followed a straightforward logic: EV adoption scaled faster than most automakers could independently develop battery technology, and CATL — with its manufacturing scale, chemistry expertise, and supply chain integration — filled that gap at industrial speed.

By the first half of 2026, CATL held approximately 39.9% of global EV battery deployment (measured by GWh installed), according to SNE Research, marking its ninth consecutive year at the top of global rankings. In China's domestic passenger vehicle market, its share reached 46.7% for the first half of the year, with its ternary (NMC) battery segment commanding a 75.2% share — up 4.3 percentage points year-on-year.

That dominance translated directly into pricing power. Because the battery system represents roughly 40% of a battery electric vehicle's total cost, CATL's market position gave it substantial leverage over automakers' margins. Chinese industry commentary long referred to this dynamic as the "CATL tax."

The Moves Being Made: A Sector-Wide Shift

The acceleration away from exclusive CATL dependency is visible across multiple tiers of the Chinese auto industry simultaneously.

Among EV-native brands:

Li Auto had been a core CATL customer since its first vehicle and signed a five-year strategic cooperation agreement with CATL as recently as September 2025. Within months, it established a battery joint venture with Sunwoda, invested RMB 2.65 billion to become its second-largest shareholder, and in June 2026 launched the new-generation L8 with Sunwoda batteries exclusively — CATL was entirely absent from that vehicle line. By September 2026, Li Auto announced its self-developed batteries would be deployed across its full lineup, including the MEGA and i9 models. Ministry of Industry filings also show Li Auto testing batteries from CALB for additional models.

Xiaomi Automotive announced its proprietary "Dragon Armor Battery" in September 2026, with CALB and Sunwoda named as manufacturing partners for its Pengcheng series — CATL was not part of the announcement.

Aito, within the Huawei HarmonyOS smart car ecosystem, had historically been supplied exclusively by CATL. It has since introduced CALB and Gotion High-Tech as additional suppliers, with CALB providing an 81 kWh battery pack for the Aito M6.

Leapmotor formed a 49:51 joint venture with CALB in 2025, with a dedicated battery manufacturing base in Jinhua scheduled to begin production in June 2026.

Among traditional automakers:

• Chery launched its proprietary "Rhinoceros Battery" product family in March 2026, with vehicle integration testing underway.
• Geely consolidated its battery operations into a new entity, Jiyao Tongxing, targeting a 30% self-supply ratio for battery cells within two years.
• GAC, SAIC, and Changan are each advancing in-house or solid-state battery programs; Changan's proprietary "Golden Bell Cover" solid-state battery has entered vehicle validation.

The trajectory is clear: from "CATL only" to "multiple suppliers in parallel" to "build it ourselves."

Two Motivations, One Direction

Two drivers are operating simultaneously — one tactical, one strategic.

The tactical driver is cost. With batteries representing approximately 40% of BEV manufacturing cost, and CATL's dominance enabling premium pricing, automakers have a direct financial incentive to introduce competitive tension into their supply chains. Adding a second or third supplier is a standard procurement lever; in-house development is the more aggressive version of the same logic.

The strategic driver is control over the value chain. In the internal combustion era, the powertrain was the core of automotive value — OEMs that owned their engine technology owned their margins and their product differentiation. In the electric era, the battery performs an equivalent structural role. Automakers that fully outsource their battery are, in effect, ceding the most valuable component of their product to a supplier.

Li Auto's stated rationale — wanting to "hold core technological barriers in our own hands, like Apple, Huawei, and Tesla" — captures the logic precisely. This is less about any specific dissatisfaction with CATL and more about the long-term architecture of competitive advantage in the EV industry.

CATL's Financials: Strong Headlines, Visible Pressure Beneath

CATL's headline financials for the first half of 2026 remain strong by almost any conventional measure:

• Revenue: RMB 276.9 billion, up 54.8% year-on-year
• Net profit attributable to shareholders: RMB 43.3 billion, up 42.0% year-on-year — equivalent to roughly RMB 240 million per day
• Battery system capacity utilization: 94.86%, near full production

For context, that net profit figure is more than double the combined net profit of 15 major listed Chinese automakers for the same period (approximately RMB 21 billion in aggregate). CATL's profit concentration relative to its customers is, itself, a structural explanation for why those customers are motivated to reduce their dependence.

However, looking beneath the headline numbers reveals consistent pressure:

• Overall gross margin: 23.93%, down approximately 1.1 percentage points year-on-year; Q2 alone came in at 23.15%, down 1.66 percentage points quarter-on-quarter
• Power battery gross margin declined 1.78 percentage points year-on-year despite 46% revenue growth
• Energy storage battery gross margin declined 1.56 percentage points despite 87.5% revenue growth

The pattern is consistent: volume is growing, but profitability per unit is compressing. Second-tier battery manufacturers — CALB, Gotion High-Tech, Sunwoda, EVE Energy — are competing aggressively on price and responsiveness, gradually capturing orders at the margin.

CATL's Strategic Response: Technology and Diversification

CATL is not standing still. Its response operates on two levels.

Technologically, the company has pushed charging performance to the frontier: its third-generation Shenxing and Kirin batteries achieve peak charging rates of 15C, enabling a full charge in approximately six minutes under normal temperature conditions.

Strategically, CATL is attempting to redefine what kind of company it is. Recent moves include:

• A partnership with 21Vianet to develop next-generation digital energy infrastructure for the AI era
• Plans to co-build 400,000 tonnes of copper foil capacity with Taijin New Energy and Huike New Materials over three years
• Expansion into low-altitude aviation through its subsidiary Autoflight, which has completed transition flights for the 5-tonne Prosperity I eVTOL and received Indonesia's first type validation certificate for a 2-tonne cargo eVTOL model

The narrative shift — from battery manufacturer to "energy solutions company" — is deliberate. But against a revenue base of RMB 276.9 billion, these initiatives remain early-stage. They shape the long-term investment thesis; they do not yet materially support current earnings.

One additional factor has weighed on market sentiment: in July 2026, CATL announced a share buyback program of RMB 20–40 billion at a maximum price of RMB 573 per share — the largest single buyback in A-share history. As of end-August, not a single share had been repurchased. Investors interpreted the delay as a signal of internal hesitation, amplifying a sell-off that had already erased approximately RMB 600 billion in market capitalization from the May peak.

The Second-Tier Beneficiaries

The primary beneficiaries of CATL's eroding exclusive relationships are China's second-tier battery manufacturers:

These companies compete primarily on price and flexibility. Their entry into premium vehicle programs — which historically would have been CATL exclusives — marks a qualitative change in the competitive landscape.

The Variables That Will Determine the Outcome

Several structural questions will shape how this shift plays out over the medium term.

Automaker in-house programs face real execution barriers. Self-developed batteries require not just chemistry knowledge but manufacturing process expertise, supply chain depth, and quality control at volume. Li Auto's partnership model — design in-house, manufacture via Sunwoda — reflects a pragmatic acknowledgment of these constraints. Full vertical integration, as practiced by BYD, remains the exception rather than the rule.

The durability of CATL's technology lead is uncertain. CATL's advanced chemistries and manufacturing processes represent genuine barriers to replication. The question is whether the pace of industry-wide technology diffusion is narrowing that gap faster than CATL can extend it.

Margin compression may intensify before it stabilizes. The sequential gross margin deterioration visible in CATL's 2026 data suggests the pricing environment is worsening. If second-tier manufacturers continue to undercut on price, CATL faces a choice between defending margin and defending market share — a tension that has no clean resolution.

New business segments need time to scale. Energy storage revenue grew 87.5% in H1 2026, but gross margins are also compressing in that segment. The eVTOL, AI infrastructure, and materials businesses represent genuine long-term optionality — but on a multi-year horizon.

Overseas growth remains a variable, not a guarantee. CATL's international power battery share reached 33.7% in January–May 2026, up 3.7 percentage points year-on-year, driven partly by European automakers shifting toward LFP chemistry. But trade policy uncertainty and a still-modest absolute base mean overseas expansion cannot be assumed as a reliable offset to domestic pressure.

The Structural Takeaway

The "de-CATL-ification" trend is best understood not as a crisis for one company, but as a maturation signal for an entire industry.

In the early phase of China's EV transition, the battery supply chain was a bottleneck, and CATL's ability to deliver at scale made it an indispensable partner. As the industry matures — as more manufacturers develop battery competency, as second-tier suppliers scale up, and as automakers recognize that battery technology is strategically equivalent to what the engine was in the combustion era — the structural conditions that sustained CATL's exclusive relationships are eroding.

CATL remains the world's largest EV battery manufacturer by a considerable margin, with a profit pool that dwarfs its customers. But the trajectory of its competitive position — from "the only option" to "one of several options" — is now clearly established.

The central question for the next three to five years is not whether CATL will remain large, but whether it can maintain the pricing power and technological differentiation that have made it uniquely profitable. That question does not yet have an answer. The market, as of mid-2026, is pricing in uncertainty.

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Li Auto Adds CALB as Its Third Battery Supplier to Strengthen Supply Chain Control