Can battery swapping and energy storage power CATL’s next phase of growth?

Contemporary Amperex Technology Ltd (CATL) has doubled down on new businesses including battery swapping and energy storage as the world’s largest battery maker seeks new growth drivers amid intensifying price wars and mounting pressure on profitability.

But the new path is far from straightforward. Established players like Nio have already built a strong presence in battery swapping, while BYD has reinforced its position in energy-storage systems.

Lucas Zhang Liutong, director of Hong Kong-based consultancy WaterRock Energy Economics, said competition in both sectors was “already quite intense”.

To maintain its leadership, CATL needed to evolve beyond being a battery cell manufacturer and become “a standard-setting platform” with a more integrated ecosystem, Zhang added.

The firm, based in southeastern China’s Fujian province, has announced four strategic battery-swapping partnerships with car manufacturers this month, including China’s central state-owned Dongfeng Motor Corporation and Huawei Technologies subsidiary Shenzhen Yinwang Intelligent Technology.

Battery swapping, which powers an electric vehicle (EV) by physically replacing a depleted battery with a fully charged one in three to five minutes, has emerged as a major alternative to BYD-led “flash charging” technology, which can replenish batteries to near-full levels in less than 10 minutes.

Chinese vehicle makers are racing to attract petrol-car owners amid a growth slowdown in the EV market.

Nio, known for its long-term commitment to battery swapping, has also formed partnerships with CGN New Energy Holdings and Geely Holding, the parent of Geely Auto, to expand the technology’s adoption.

Notably, Geely was CATL’s largest customer in August, accounting for 9.6 per cent of the month’s total battery supply, according to a report by the China Passenger Car Association released in September.

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Meanwhile, CATL recently established a new wholly owned energy-storage technology subsidiary with registered capital of 5 billion yuan (US$750 million), with business plans that include the development of artificial intelligence software.

Internationally, the firm announced on Tuesday a new 3 gigawatt-hour sodium-ion battery project with Intilion, a German provider of energy storage solutions.

BYD, China’s second-largest EV battery maker after CATL, has also accelerated the overseas expansion of its energy-storage business. Construction began on its Polish project in late September, just three months after the agreement was signed.

The shift towards energy storage reflects a broader industry trend towards a higher-growth and more visible market segment.

Demand from AI data centres for stable power supply remained a key driver of growth in global battery energy-storage system orders, despite the sector’s still modest share of overall electricity consumption, said Yang Jing, director of Asia-Pacific corporate ratings at Fitch Ratings.

The move into new businesses also came as analysts warned that persistent price wars in mainland China could erode CATL’s fundamentals if exports of EV batteries and its higher-margin energy-storage operations failed to make a larger contribution to fourth-quarter earnings, according to a note by Morgan Stanley published this week.

CATL’s sharp slowdown in third-quarter profit growth has already dragged its Hong Kong-listed shares to a record low since their debut, as investors worry that China’s resumed battery consumption tax, a reduction in export tax rebates and rising overseas trade barriers could weigh on the company’s performance.

Nomura analyst Ethan Zhang said the new tax burden could hurt CATL’s unit profitability in the near term, cutting his earnings forecasts for 2026 to 2028 by as much as 10.2 per cent, according to a note on October 20.

The battery giant also acknowledged that it was discussing ways to share the tax burden with carmakers, according to notes from its October 20 earnings call seen by the South China Morning Post.

Fitch’s Yang, however, projected that CATL’s profitability could be nearing a bottom, with deliveries shifting towards higher-margin products and the effects of renegotiated customer contracts beginning to take hold after the fourth quarter.