Goldman Sachs' Strategic Bet on CATL: Balancing Increased Ownership with a Downgrade to Neutral

In the high-stakes arena of electric vehicle (EV) battery manufacturing, Goldman Sachs has taken a calculated, contrarian approach to Contemporary Amperex Technology Co. Ltd. (CATL). Despite downgrading the firm’s H-shares to “Neutral” in July 2025, the bank simultaneously increased its ownership stake in CATL’s Hong Kong-listed shares to 5.02% from 2.93% by August 28, signaling a nuanced bet on long-term growth amid short-term headwinds [3]. This duality—reducing optimism while deepening commitment—reflects a strategic recalibration rooted in both caution and conviction.

The Rationale for the Downgrade

Goldman Sachs’ downgrade followed a reassessment of CATL’s financial performance in the first half of 2025. While the company reported robust revenue of RMB94 billion in Q2 2025 (up 8% year-over-year), its net profit of RMB16.5 billion exceeded expectations by 6%, the firm revised its 2025–2027 earnings forecasts downward by 1%, 5%, and 3%, respectively. These adjustments stemmed from declining battery unit gross profits, a trend Goldman attributes to intensifying competition and margin compression in the EV battery sector [1]. Analyst Eric Shen, who led the downgrade, emphasized that “lower-than-expected gross margins necessitate a more conservative valuation framework” [3].

The downgrade also accounts for structural factors in CATL’s dual-listed shares. The firm noted that CATL’s H-shares trade at a 15% premium to A-shares, a premium Goldman attributes to limited liquidity in the Hong Kong market. While this premium historically justified a “Buy” rating, the bank now views it as a valuation anchor, prompting the “Neutral” rating despite raising its H-share price target to HK$436 from HK$411 [2].

Contrarian Positioning in a Bullish Sector

Goldman’s move stands out against a backdrop of widespread optimism. As of August 2025, 30 out of 37 analysts surveyed rated CATL a “Strong Buy,” with an average 12-month price target of ¥344.13 CNY for A-shares (ranging from ¥279.33 to ¥421 CNY) [6]. Competitors like Citi, CLSA, and Macquarie have set even higher targets for H-shares, ranging from HK$360 to HK$425, underscoring confidence in CATL’s market leadership and technological edge [2].

Goldman’s “Neutral” rating thus diverges from the consensus, positioning the firm as a contrarian voice. This stance is not without precedent: the bank initially initiated coverage on CATL in June 2025 with a “Buy” rating and a HK$343 price target, citing the company’s 50% dominance in China’s EV battery market and its potential to achieve a 25% compound annual growth rate in earnings per share through 2030 [5]. The downgrade, however, reflects a recalibration of expectations rather than a rejection of CATL’s long-term potential.

The Strategic Logic Behind Increased Ownership

Goldman’s decision to boost its stake in CATL’s H-shares to 5.02%—despite the downgrade—highlights a key insight: the firm sees value in CATL’s structural advantages, even as it tempers near-term growth assumptions. These advantages include:
1. Global Expansion: CATL’s Hungarian factory, expected to supply European automakers, positions it to capitalize on the continent’s EV transition [6].
2. Technological Innovation: The commercialization of sodium-ion batteries and advancements in energy storage systems (e.g., TENER ESS) diversify CATL’s revenue streams [6].
3. Supply Chain Resilience: A temporary suspension of lithium production at CATL’s Yichun mine in August 2025 briefly tightened lithium supply, pushing prices to an eight-month high and underscoring the company’s influence over raw material markets [4].

Goldman’s increased ownership also aligns with broader industry tailwinds. The firm projects battery prices will fall below $60/kWh by 2030, accelerating EV adoption and creating tailwinds for suppliers like CATL [4]. While near-term margin pressures persist, Goldman’s long-term forecast—a 25% CAGR in EPS from 2024 to 2030—remains intact [5].

Risks and Rewards for Investors

For investors, Goldman’s dual approach underscores the tension between short-term valuation concerns and long-term growth potential. The downgrade to “Neutral” serves as a cautionary note: CATL’s current valuation may not fully justify its historical growth rates. Yet the firm’s increased ownership and elevated price target suggest confidence in CATL’s ability to navigate these challenges.

Key risks include:
- Margin Compression: Intensifying competition in the EV battery sector could further erode gross profits.
- Regulatory Scrutiny: U.S. sanctions citing alleged military ties to China could disrupt CATL’s global expansion [2].
- Lithium Market Volatility: While the Yichun mine suspension temporarily boosted prices, long-term oversupply risks remain [4].

However, CATL’s dominance in China’s EV battery market, its technological pipeline, and its global footprint provide a buffer against these risks. As Morgan Stanley analysts noted, the lithium market’s short-term volatility could even benefit CATL by reinforcing its pricing power [4].

Conclusion

Goldman Sachs’ strategic bet on CATL—downgrading its rating while increasing ownership—epitomizes the delicate balance required in high-growth sectors. By tempering near-term optimism with long-term confidence, the firm acknowledges both the challenges and opportunities facing CATL. For investors, this duality offers a roadmap: while valuations may currently reflect caution, the underlying fundamentals of the EV revolution remain intact. In a sector defined by rapid innovation and shifting dynamics, Goldman’s contrarian stance may prove prescient.

Source:
[1] Goldman Sachs downgrades CATL stock to Neutral despite price-target hike, [https://www.investing.com/news/analyst-ratings/goldman-sachs-downgrades-catl-stock-to-neutral-despite-price-target-hike-93CH-4162097]
[2] CATL stock forecast: Third-party price target, [https://capital.com/en-int/analysis/catl-stock-forecast]
[3] Goldman Sachs' long position in H shares of CATL increases to 5.02% on Aug 28 from 2.93%, [https://www.marketscreener.com/news/goldman-sachs-long-position-in-h-shares-of-catl-increases-to-5-02-on-aug-28-from-2-93-ce7d59dad188f220]
[4] Lithium stocks rally as CATL mine halt raises prospects of tighter supply, [https://www.reuters.com/world/china/lithium-stocks-rally-catl-mine-halt-raises-prospects-tighter-supply-2025-08-11/]
[5] Goldman Sachs initiates CATL stock with buy rating on EV growth, [https://www.investing.com/news/analyst-ratings/goldman-sachs-initiates-catl-stock-with-buy-rating-on-ev-growth-93CH-4109482]
[6] Battery Maker CATL's First-Half Profit Rose 33% on Robust Demand, [https://www.morningstar.com/news/dow-jones/2025073117011/battery-maker-catls-first-half-profit-rose-33-on-robust-demand]