Why Does Battery Giant CATL Make More Money Than China’s Automakers?

What Is This About?

Every time CATL — the world's largest EV battery maker — releases earnings, China's automakers wince. Headlines declare that CATL's profits exceed those of seven leading carmakers combined, or that automakers are essentially "working for their battery supplier."

The numbers are striking. In 2018, SAIC's net profit was ten times that of CATL. By the first half of this year, SAIC earned barely one-third of what CATL made in the same period. The entire Chinese auto industry generated roughly ¥195.4 billion in profit — equivalent to just 4.5 CATLs.

But framing CATL as the villain misreads the structural dynamics at play. The profit gap between China's EV battery leader and its automaker customers is a symptom of a deeper imbalance — one rooted in market concentration, supply chain timing, and the brutal economics of a prolonged price war.

Why Are Chinese Automakers Struggling to Make Money?

Revenue is rising; profits are falling

China's auto industry has been caught in a paradox: selling more cars while earning less. Compared to 2022, industry revenue grew by ¥1.8 trillion last year — but profits shrank by ¥71 billion. In the first half of this year alone, industry-wide profit fell by ¥49 billion, a year-on-year decline of roughly 20%.

The price war is the primary culprit

Since Tesla triggered a new round of price cuts in January 2023, China's EV price war has now lasted three and a half years. In the first half of this year, per-vehicle revenue rose 5% — but per-vehicle gross margin fell 17%. A car that once generated ¥20,000+ in gross profit now yields barely ¥10,000.

The underlying driver is a hyper-fragmented market. China currently has more than 130 active car brands. Annual sales of one million units — a threshold that would confer genuine pricing power — is achieved by only a handful of players. The top five domestic automakers are separated by fewer than 200,000 units in first-half sales. No one holds a decisive lead, so no one can afford to stop competing on price.

The internal split nobody talks about

Aggregate industry profit figures are also distorted by a structural shift: ICE vehicles are in accelerating decline while EVs are surging. ICE market share has fallen from 95% to below 60% in seven years; EV sales have grown more than twelvefold. Legacy automakers like SAIC, whose profit peaked at ¥36 billion in 2018, now struggle to clear ¥10 billion. Meanwhile, BYD — whose business is overwhelmingly electric — grew profit from ¥2.7 billion to ¥32.6 billion over the same period.

In other words, the industry's profit pool hasn't simply been captured by CATL. Much of it has been destroyed internally, as ICE profits collapsed faster than EV profits could replace them.

So What Role Does Battery Cost Actually Play?

Battery prices have already fallen dramatically

EV batteries are the single highest-value component in any electric vehicle, making battery suppliers structurally well-positioned to capture a large share of per-vehicle economics. But battery costs have actually declined sharply over the past decade — by more than 60%. Cell prices fell from over ¥1/Wh in 2016 to around ¥0.30/Wh today. A 60 kWh pack now costs tens of thousands of yuan less than it did eight years ago.

Automakers are partly responsible for their own battery costs

Two self-inflicted dynamics are keeping battery costs elevated. First, as battery technology matured and pack prices fell, automakers responded by installing larger batteries — raising total system costs even as per-unit costs declined. Second, most automakers maintain a one-model, one-cell-specification approach and commission custom battery pack tooling for each vehicle line, adding significant overhead. Industry analysts estimate that greater standardization could materially reduce costs.

Why Does CATL Have So Much Pricing Power?

Concentration asymmetry is the core structural issue

In most industrial supply chains, the more concentrated side holds the bargaining power. China's EV battery market has already reached oligopoly structure: CATL's domestic installed capacity share is roughly equal to that of the second through tenth players combined. Add BYD's captive battery production, and two companies effectively control the market.

China's auto market, by contrast, remains highly fragmented. Even in the EV segment, BYD holds less than 25% share. No automaker commands the scale to credibly threaten a major battery supplier's capacity utilization.

This asymmetry has direct commercial consequences. When lithium carbonate prices spiked toward ¥600,000 per tonne in 2022, CATL had the leverage to pass cost increases downstream and even require advance deposits to lock in capacity. Automakers absorbed those costs rather than risk losing battery supply — because switching was not a realistic option.

CATL's overseas advantage compounds the gap

International markets offer structurally higher margins than China's price-war-ravaged domestic market. CATL moved overseas earlier than most Chinese automakers, and has captured approximately 39.9% of the global ex-China battery market in the first half of this year, alongside a 46% domestic share. Chinese automakers, by comparison, are still in early-stage international penetration — far from the harvest phase.

Is This Structural Gap Permanent?

The smartphone industry offers a useful precedent

A decade ago, Qualcomm enforced a "No License, No Chips" policy that compelled every Android handset maker to pay patent royalties calculated as a percentage of device selling price. Samsung Display held roughly 99% of global AMOLED capacity and could — and did — cut off supply to competitors without warning.

Today, Qualcomm faces sustained competition from MediaTek; Samsung Display competes with Chinese panel makers for every major contract. Both companies now send senior management teams on proactive client visits. The shift happened because smartphone market share consolidated around a small number of dominant brands — Samsung, Apple, and China's top five — giving those buyers enough collective leverage to reshape supplier behavior.

The same dynamic is unfolding in autos — at higher intensity

China's auto market is undergoing a consolidation more severe than anything the smartphone industry experienced. The price war is simultaneously destroying weak players and concentrating volume among survivors. As marginal brands exit, the remaining automakers will accumulate the scale needed to influence supplier economics.

The arithmetic is straightforward: if a leading automaker reaches annual sales of one million EVs and redirects even 30% of its battery orders, that volume is sufficient to determine whether a battery supplier's production lines run at profitable utilization rates. At that point, the negotiating dynamic inverts.

What Are the Key Variables Going Forward?

Speed of auto market consolidation. The faster weak brands exit, the sooner surviving automakers accumulate pricing leverage. The current price war, painful as it is, accelerates this process.

Automaker vertical integration. Several OEMs are investing in in-house battery development. Whether this is commercially viable at scale — or primarily a negotiating tool — remains to be seen.

CATL's overseas trajectory. If international markets face new trade barriers or local competition intensifies, CATL's margin premium over domestic-focused peers would compress.

Battery technology transitions. Shifts to solid-state or other next-generation chemistries could disrupt existing supplier hierarchies, creating openings for new entrants and reducing incumbent leverage.

The Bigger Picture

The profit gap between CATL and China's automakers is real, but it reflects a supply chain at an inflection point rather than a permanent extraction dynamic. The underlying cause is not a single dominant supplier — it is the collision between a consolidated upstream and a fragmented, price-warring downstream.

History suggests the imbalance is self-correcting. Markets consolidate; leverage shifts; profit pools redistribute. The more consequential question, as that rebalancing unfolds, is whether the gains accrue broadly — or whether "industry competitiveness" remains an abstraction that leaves the workers who build these vehicles on the outside looking in.

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