Contemporary Amperex Technology Co., the world's largest maker of electric-vehicle batteries, said third-quarter net profit rose 14.54% to 21.25 billion yuan, far behind its sales growth, as new Chinese taxes on batteries ate into margins even while revenue climbed 58.58% to a record 165.22 billion yuan.

For investors in Asia, the gap between sales and profit is the story. CATL is one of the most heavily owned stocks in both Shenzhen and Hong Kong, and it sits at the center of supply chains that run from Indonesian nickel to Korean and Japanese cell makers. A margin squeeze at the industry leader suggests Beijing's tax changes will be felt across the battery chain, not only at one company.

The results, filed with the Hong Kong stock exchange on Oct. 20, showed profit falling 5.77% from the second quarter, according to a CnEVPost calculation, even as revenue kept climbing. Earnings per share were 4.62 yuan, up 12.68% from a year earlier. Profit excluding one-off items rose 14.86% to 18.86 billion yuan.

Why CATL's Margins Fell

Gross margin dropped to 20.69% in the quarter, the second straight quarterly decline, Global Times reported. For the first nine months, gross margin was 22.72%, about 2.6 percentage points lower than a year earlier, as operating costs rose 61.61%, faster than revenue's 56.19% gain, according to the company's report.

CATL blamed three things: a shift in product mix, the return of a consumption tax on lithium-ion batteries and smaller export tax rebates. China reinstated the consumption tax at a transitional rate of 2% on Sept. 1, and it is due to rise to 4% in September 2027. The value-added tax rebate on battery exports was cut from 9% to 6% in April and is scheduled to disappear on Jan. 1, 2027.

The timing makes the fourth quarter harder. The consumption tax applied only to September in the third quarter but will cover all three months of the current quarter, CnEVPost noted. The export rebate is due to vanish entirely in January.

Management said it is in talks with customers on how to share the cost of the tax, according to Global Times, and that future profit per unit will depend on that progress and on sales of higher-margin new products, CnEVPost reported.

That is a tough negotiation. Chinese carmakers are under their own profit pressure, and the broader economy has been uneven: industrial profits rose sharply in September, but much of the gain came from AI-related electronics rather than autos.

Shares Slide

Investors reacted sharply. CATL's Shenzhen-listed shares closed down 12.03% on Oct. 21, the day after the results, and its Hong Kong shares fell 11.41%, Global Times reported. At about 2:30 p.m. Hong Kong time, the stock was down 10.64% at HK$368, its lowest since July 2025, according to CnEVPost.

The balance sheet also grew heavier. Inventories reached 144.77 billion yuan at the end of September, up 53.15% from the start of the year, and accounts receivable rose 47.78% to 112.91 billion yuan. The company attributed both increases to business expansion. Operating cash flow for the nine months fell 23.60% to 61.63 billion yuan, though CATL still held 333.4 billion yuan in cash and cash equivalents at the end of the quarter, its report showed.

Demand Still Growing

The volume picture remains strong. China's combined sales of power and energy storage batteries rose 57.6% to 1,681.7 gigawatt-hours in the first nine months, with exports up 51.6% to 302.9 GWh, according to China Automotive Battery Innovation Alliance data cited by Global Times.

CATL held a 39.4% share of global EV battery installations in the first eight months, up from 37.7% a year earlier, according to SNE Research figures cited by CnEVPost. BYD was second with 15.1%. In China, energy storage battery sales more than doubled in September from a year earlier.

Management struck a hopeful tone. Executives said global demand "may not be as pessimistic as the market expects," according to Global Times, and they see 20% to 30% growth in global demand for power and storage batteries as achievable in 2027.

The next test comes with the removal of the export rebate on Jan. 1. CATL's fourth-quarter results, which will show a full quarter of the consumption tax, will reveal how much of the cost it has managed to pass on to carmakers.