Automakers diversify beyond CATL: who captures the battery profits?

Changes in automakers’ dependence on CATL are becoming concrete. On September 4, Sunwoda’s board approved a proposed RMB2.65 billion investment by Li Auto in Sunwoda EVB, corresponding to an 8.79% stake after completion.^[1]Li Auto intends to lead product definition, performance targets, quality standards and key technology, while Sunwoda contributes engineering and manufacturing.^[2]The investment extends a supply relationship into development and the sharing of long-term economic interests.

Xiaomi illustrates a related route. Sunwoda EVB says the Xiaomi Longjia battery solution announced on September 4 puts Xiaomi in charge of product definition, pack design, participation in cell development and quality control throughout the process. Sunwoda becomes a strategic partner.^[3]The automaker is moving from selecting a supplier’s product towards specifying the solution and organising its delivery.

Both moves bring purchasing prices, technology schedules and quality responsibilities closer to the vehicle plan. Batteries affect range, charging, packaging and aftersales costs. These outcomes are difficult to settle through a late-stage price negotiation; control needs to enter earlier in vehicle definition.

For supply-chain executives, the supplier list for the next platform, development responsibilities and capital arrangements will matter more than routine annual price reductions. Changing suppliers after design and validation is expensive. Effective bargaining power has to be established before programme nomination.

These levels can overlap, but they require different capabilities and payback periods. Developing a pack does not require manufacturing every cell. A proprietary brand can use a specialist producer’s factories. The divisions of work disclosed by Li Auto and Xiaomi show why joint development is becoming an important choice.

BMW provides an established organisational example. In February 2026, it confirmed work with both CATL and EVE Energy to advance large cylindrical cell production.^[4]The automaker controls product requirements, suppliers manufacture to them and competition takes place within the same purchasing system.

Market data also show that substitution occurs programme by programme. Published reporting of the battery alliance’s figures puts CATL’s share of domestic battery installations at 41.45% in August 2026, still first. LFP accounted for 85.6% of installations that month.^[5]Challengers initially gain through new nominations and selected trim changes. Existing models retain delivery, validation and warranty cycles. New-platform allocation is more informative than the number of partnership announcements.

The recent G9L and Li i9 launches intensify competition over the price and overall experience of family flagships. Automakers need more equipment while protecting transaction earnings. Savings from small components and selling expenses become harder to find. A large purchasing category such as batteries therefore becomes a priority for deeper cost restructuring.

The widespread use of LFP helps make multiple sourcing practical. A relatively mature chemistry provides a basis for specification comparisons and joint development. Competition centres on charging, life, cold-weather performance, manufacturing consistency and delivery. More credible producers give automakers greater scope to negotiate the elements of a solution.

Charging performance has also become a central vehicle promise. Cells, thermal management, control strategies and charging infrastructure must work together. A supplier’s standard product may not fully match a vehicle’s launch schedule or cost target. Earlier automaker involvement allows those trade-offs to be coordinated and reduces dependence on one supplier’s technical path.

Stronger purchasing power comes from an executable alternative.A second supplier needs completed validation and delivery capability before transferring orders becomes commercially credible. Agreements and samples alone rarely change the incumbent’s price. A supplier that can deliver on schedule can affect negotiations across a programme even with a relatively small allocation.

Purchasing analysis should cover the vehicle’s full-life cost. Consider an illustrative programme delivering 200,000 vehicles annually with an average 80kWh battery. A RMB20/kWh reduction saves RMB1,600 per vehicle, or RMB320 million annually, before additional validation, design changes, production switching and warranty costs. This is a calculation example, not a disclosed contract.

Volume is a condition of that result. When sales disappoint, development and validation costs are spread over fewer vehicles. High purchase commitments made to secure a lower price can create inventory and contractual liabilities. Meeting a purchasing savings target does not necessarily improve group returns on capital.

Equity participation needs a separate investment case. A stake can improve coordination but exposes the automaker to the supplier’s operating risks. Contract savings and equity returns should be evaluated separately so that expected procurement benefits do not conceal long-term capital tied up in the supplier.

CATL’s first-half 2026 report puts its power-battery-system gross margin at 20.63%, down 1.78 percentage points year on year.^[6]That gross profit must still cover development and other operating expenses. Automakers capturing some of the economics through development or manufacturing also assume corresponding costs and risks. A supplier’s gross margin is not fully available as a realisable purchasing saving.

Quality responsibilities need particular attention. Cells, thermal management and control strategies jointly determine performance. A version change should specify life, safety, charging and cold-weather requirements, together with accountability when problems arise. A major aftersales campaign can offset years of procurement savings. Once a vehicle company presents a unified proprietary battery brand, customers will hold it directly responsible. Data access and traceability must match that promise.

For CATL, near-term pressure will appear in new-programme allocations, development terms and pricing. Customers with more choice can request greater cost transparency, solutions better matched to the vehicle and more flexible supply arrangements. Large automakers will pursue those gains more actively.

CATL can still defend important programmes through leading products, manufacturing scale and a long supply record. It signed a five-year comprehensive cooperation agreement with Li Auto in 2025.^[7]Li Auto’s additional investment in other suppliers illustrates the relationship likely to become more common: important customers maintain cooperation while strengthening their alternatives. CATL needs to accommodate development structures in which customers exert more control.

Challengers gain access to valuable programmes; earnings depend on successful production.Development cooperation and clearer demand help new projects ramp. Excessive customisation, aggressive pricing and customer concentration increase service costs and weaken bargaining power. After winning a major customer, a supplier should turn programme knowledge into a reusable platform, reducing the need to start again for each order.

Weaker suppliers will not automatically benefit. Automakers need credible replacements for the incumbent. Insufficient funding, inconsistent yields and weak aftersales support cannot easily be overcome with a low bid. Orders are more likely to favour a small number of challengers with scale and engineering capabilities, intensifying competition between them and CATL.

Over the next one to two years, large automakers are most likely to expand multiple sourcing, retain pack integration, control software and quality standards, and select cells and manufacturing partners by programme. Equity participation will support selected strategic relationships. Owning cell factories requires dependable scale and a durable view of technology.

Mainstream volume models are better placed to use competition between mature solutions to lower costs. Flagships introducing new technology will continue to prioritise performance delivery and launch certainty. The pace of reduced dependence will therefore vary by platform and price band. Management needs programme-specific objectives rather than one replacement ratio across the range.

Three priorities follow: have purchasing, engineering and quality teams jointly approve substitution; allocate volume according to validated production and full-life returns; assess equity investment separately from purchasing savings. Quarterly reviews should track the second supplier’s actual production share, quality after switching and savings net of additional investment.

This adjustment will give automakers more influence over products and subject specialist battery firms to stronger programme-level competition. For automakers, success means dependable supply and sustained savings for a controlled investment. For CATL, it means keeping technology and delivery advantages worth the premium customers pay. The division of earnings will be renegotiated; manufacturing capabilities and quality obligations remain essential regardless of the battery brand.