CATL's European Market Share Surges 20% Amid Industry Challenges

In a recent report, Morgan Stanley highlighted the significant achievements of Contemporary Amperex Technology Co. Limited (CATL) in the European electric vehicle battery market. The report underscored that CATL's market share in Europe has seen substantial growth, further solidifying its leadership position in the industry. This success is attributed to CATL's technological advancements, production capacity, and strong customer relationships, which have translated into tangible market gains.

The report also noted that while the market is currently abuzz with excitement over solid-state batteries, this enthusiasm is largely driven by speculation rather than genuine opportunity. CATL, with its robust research and development capabilities, is expected to continue leading in this cutting-edge field. The report suggests that the likelihood of a disruptive newcomer emerging in this space is minimal.

In the competitive landscape, CATL's dominance is evident. The report analyzed data from the first half of 2025, revealing that CATL's market position has been further strengthened, particularly in the European electric vehicle battery market. Meanwhile, smaller battery manufacturers have seen their market shares remain stagnant. This trend indicates that CATL's strategies are yielding real results in one of the most competitive markets globally.

The report also highlighted a critical divide within the industry: despite the high demand for energy storage systems (ESS), smaller battery manufacturers are struggling to turn a profit. Many of these companies are operating at a loss or breaking even, with their already slim profit margins even lower than the previous year. This situation suggests that these companies may face ongoing challenges in achieving profitability, regardless of their production expansion efforts.

CATL's strategy involves leveraging its significant cost advantages and superior warranty terms to actively lower market prices, thereby squeezing competitors' profits to the breaking point. The report emphasized that CATL allocates 3-4% of its revenue for product warranties, while many smaller manufacturers allocate far less or nothing at all. This disparity poses a significant risk in the energy storage sector, where battery degradation and fire incidents can occur. The report cited the bankruptcy of a U.S. energy storage integrator as a cautionary tale, warning of potential future quality assurance claims for low-reliability products.

Regarding solid-state batteries, the report offered a sobering assessment, describing the current market excitement as more hype than opportunity. The recent surge in A-share battery supply chain stocks is primarily driven by improved liquidity and market chasing of hot topics, leading to an irrational valuation premium for some smaller battery manufacturers compared to CATL. The report asserted that the commercialization of solid-state batteries is a competition based on mature materials science and engineering capabilities. In this regard, CATL is expected to continue leading the market, with the likelihood of a disruptive newcomer being very small. The report pointed out that current prototype products in the market still require significant work to achieve commercialization within the next three years, effectively offering zero revenue opportunities at present.

In terms of capital expenditure, the report predicted that CATL will maintain a steady expansion pace, adding 150-200 GWh of new capacity annually from 2025 to 2027 to meet growing demand. In contrast, smaller battery manufacturers are advised to slow down their capacity building efforts due to current low utilization rates and profitability challenges. The report concluded by highlighting the attractive valuation of CATL's A-shares, which have become the cheapest in the industry following a recent sector rally. Based on the 2026 expected price-to-earnings ratio, CATL's valuation stands at 17.5 times, significantly lower than some of its peers.