CATL's 20% Upside Potential Highlighted by Morgan Stanley's Inspection

After conducting an on-site inspection of CATL, Morgan Stanley concluded that the company's core competitiveness is exceptionally strong, with a target production capacity of 1TWh for the following year and significant potential in the energy storage sector. The inspection revealed that CATL's self-developed manufacturing line comprises over 25,000 component units, producing 2.2 million battery cells daily. The line is equipped with over 6,800 quality control points, processing 340,000 data transactions per second, and leveraging advanced molecular-level material science to build a high barrier.

In terms of production capacity, the current utilization rate exceeds 90%, with a new capacity of 250GWh under construction, aiming to reach 1TWh by the end of next year. The energy storage business is expected to bring a 14 percentage point IRR premium in the global market, indicating substantial potential. Morgan Stanley maintains a "buy" rating for CATL, with a target price of 425 yuan, based on a 15x EV/EBITDA valuation for the expected EBITDA in 2026, suggesting a 20% upside from current levels.

Morgan Stanley's report highlights that CATL's manufacturing efficiency sets a high standard. With a daily production of 2.2 million battery cells and over 6,800 real-time quality control points, the company ensures high yield rates and quality premiums. The ability to process 340,000 data transactions per second creates a truly intelligent factory. This is a key differentiator for CATL compared to other manufacturers, as it combines cost advantages with advanced molecular-level material science.

When asked if competitors could replicate CATL's production line through equipment suppliers, Morgan Stanley deemed it highly challenging due to the line's complexity, which includes over 25,000 component units, most of which are self-designed. Currently, CATL's production capacity utilization exceeds 90%, with a new capacity of 250GWh under construction. The company aims to reach 800GWh by 2025 and 1TWh by 2026, positioning itself to meet future order demands.

Overseas capacity expansion is progressing as planned, with projects in Hungary and Indonesia scheduled to commence operations in 2026, and a project in Spain planned for 2027. The management team expects the overseas factories to be as profitable as, or even more profitable than, their domestic counterparts. Additionally, the company anticipates achieving small-scale production of solid-state batteries by 2027. The management team is optimistic about the deployment of electric vehicles and energy storage systems next year.

In the energy storage system market, CATL's products, known for their superior degradation control and energy efficiency, help clients enhance project economics. Globally, these products can generate approximately a 14 percentage point IRR premium compared to other battery manufacturers, and a 7-8 percentage point advantage in the domestic market. As the company's system product distribution capabilities improve, it plans to enhance the product structure of its energy storage business in the coming years, including higher-margin AC system products.