CATL's Hong Kong Shares: Is the Bearish Bet a Misread of a Strategic Champion?

The short interest in Contemporary Amperex Technology Co. Ltd. (3750.HK) has surged to 28% of its free float, a level that would make even the most seasoned investor wince. This bearish sentiment, however, may be a case of mistaking a storm for a tempest. While the Hong Kong-listed shares trade at a 46% premium to their mainland A-shares and face headwinds from U.S. tariffs and a maturing EV market, CATL's fundamentals and strategic vision suggest the pessimism is overdone—and that the stock could offer compelling long-term value.

The Case for Pessimism: A Market in Transition

The bear case for CATL hinges on three pillars. First, the EV battery industry is evolving from a high-growth, technology-driven sector into a commoditized, cyclical market. Smaller rivals like CALB and Gotion High-tech are eroding CATL's dominance by offering cheaper alternatives, forcing automakers to adopt dual-sourcing strategies. Second, U.S. tariffs on Chinese-made batteries, potentially as high as 145%, loom over CATL's energy storage exports. Third, the company has missed quarterly sales estimates for seven consecutive quarters, raising questions about its ability to sustain growth in a slowing global EV market.

Short sellers have also capitalized on the A/H-share premium, betting on a correction as liquidity constraints and geopolitical risks amplify. JPMorgan's increased short position to 4.09% of free float in July 2025 underscores this view.

The Case for Optimism: A Strategic Pivot in a Changing World

CATL's recent performance, however, tells a different story. In Q1 2025, the company reported a 32.85% year-on-year jump in net profit to CNY 13.96 billion, driven by a 17.5% net margin and a 1.15-point rise in gross margin. Its operating cash flow hit CNY 32.87 billion, fueling overseas expansion in Europe and energy storage—a sector expected to grow at an 18% CAGR through 2033.

The European market, now CATL's growth engine, saw its market share surge from 17% in 2021 to 38% in 2024. The German plant became profitable, and new projects in Hungary and Spain are on track to bolster regional dominance. Meanwhile, the energy storage segment, a potential “second engine,” contributed 20% of total battery sales in Q1 2025.

Strategically, CATL is redefining its role from a battery supplier to an energy systems integrator. Innovations like standardized battery swapping, Vehicle-to-Grid (V2G) integration, and real-time battery health monitoring (BMS 4.0) position it to capture value across the entire energy ecosystem. The May 2025 Hong Kong IPO, which raised HK$35.7 billion, further accelerates this vision, with 80% of proceeds earmarked for overseas capacity.

Valuation: A Discount to Intrinsic Value?

Despite the bearish noise, CATL's valuation appears attractive. A discounted cash flow (DCF) model estimates its fair value at HK$592.67, while the current price of HK$462 implies a 22% discount. Analysts echo this, with a consensus fair value of HK$547.95—15.7% above the current price. Goldman Sachs and Citi have set price targets of HK$343 and HK$425, respectively, reflecting confidence in CATL's ability to navigate industry headwinds.

Valuation metrics also suggest undervaluation. While CATL's P/E ratio (25.3x) is higher than its peers (22.6x), it is 29.4x compared to the Asian Electrical Industry average. Its EV/Revenue (3.3x) and EV/EBITDA (14.1x) ratios are in line with its growth trajectory. The PEG ratio of 1.5x, though elevated, reflects the market's skepticism about growth, not its absence.

Risks and Realities

No investment is without risk. The U.S. tariffs, if implemented, could disrupt CATL's energy storage exports and force inventory write-downs. Regulatory shifts in China, where the company derives 60% of its sales, could also impact profitability. Additionally, the European energy storage market, while growing, is highly competitive, with players like LG Energy Solution and Tesla vying for market share.

However, CATL's R&D spending (CNY 4.81 billion in Q1 2025) and its “dual-base” strategy—leveraging both mainland and Hong Kong operations—provide a buffer against these risks. Its partnerships with Tesla, Toyota, and Volkswagen also ensure a steady pipeline of demand, even as the EV market matures.

Conclusion: A Long-Term Play on Energy's Future

The short sellers may be right to question CATL's near-term volatility. But the company's strategic pivot to energy systems integration, its dominance in Europe, and its undervalued stock price suggest the bearish bet is a misread of a maturing industry. For investors with a 3–5 year horizon, CATL offers a compelling opportunity to capitalize on the global energy transition.

As the world moves toward electrification and decentralized energy systems, CATL's role as a battery innovator and systems integrator will only grow. The current short interest may be a buying opportunity for those willing to look beyond the noise.