CATL reported RMB 20.74 billion in Q1 2026 net profit. BYD reported RMB 4.09 billion. A year ago, that ratio was approximately 1.5 to 1. It is now 5 to 1.
Both companies' dominant chemistry exposure is LFP, with cell spot prices recovering from 2025 lows but still compressed. 314Ah ESS cells were quoted at approximately ¥0.36–0.40/Wh by March 2026, per InfoLink, up from a floor near ¥0.26/Wh but still at levels that stress Tier-2 cost structures. Both companies faced the same MIIT overcapacity warnings in January and April. Both pursued overseas volume as domestic passenger EV sales softened seasonally. Identical inputs. A profit spread that quintupled in twelve months.
The spread itself is the most actionable data point in the Chinese battery market right now. It tells you who sets the cell price floor, how durable that floor is, and what kind of risk you are actually underwriting when you qualify a supplier in 2026.
CATL's Q1 results were reported in English-language media on April 15; BYD's on April 28. Both carry the standard 48–72 hour lag from Chinese-language filings. Segment-level gross margins are available only from FY2025 annual reports, not Q1 2026 quarterlies. I flag where I am using FY2025 margins as proxies and where Q1 figures are directly reported.
The data
| Metric | CATL Q1 2026 | BYD Q1 2026 |
|---|---|---|
| Revenue | RMB 129.13B (+52.45% YoY) | RMB 150.23B (−11.82% YoY) |
| Net profit | RMB 20.74B (+48.52% YoY) | RMB 4.09B (−55.38% YoY) |
| Blended gross margin | Not separately disclosed Q1 | 18.81% (+1.4pp QoQ; −190bps YoY) |
| Battery sales volume | >200 GWh (first quarter ever) | Not separately disclosed |
| Production utilization | 96.9% | Not disclosed |
| China domestic battery market share | ~48–50% (CPCA: >50%) | 17.1% (April 2026); ~17.5% Q1 per PrimaryIgnition |
| Energy storage share of volume | ~25% (up from ~18% FY2025) | N/A — integrated model |
| Overseas volume share | Not disclosed as % of units | 46% of Q1 vehicle volume |
FY2025 segment gross margins (most recent available at segment level):
| CATL segment | Gross margin |
|---|---|
| Power battery systems | 23.84% |
| Energy storage | 26.71% |
| Battery materials & recycling | 27.27% |
| Overseas business | 31.44% |
BYD's "automobiles and related products" segment carried a 20.49% gross margin in FY2025, blending cell manufacturing with vehicle assembly, powertrain integration, and component sourcing. There is no clean BYD cell margin to set against CATL's 23.84% power battery gross margin. This opacity is inherent to BYD's integrated model, a structural feature that matters for everything that follows.
Two necessary adjustments before the analysis.
The forex swing on BYD's financials is approximately RMB 4 billion, from gains to losses. Financial expenses surged 210%, driven by approximately RMB 1.2 billion in forex losses versus RMB 2.8 billion in forex gains in the year-ago quarter. Strip it out and BYD's underlying Q1 profit was closer to RMB 5.3 billion, down perhaps 17% from an adjusted Q1 2025 base of roughly RMB 6.4 billion. That is my triangulation, not a reported figure. The operational deterioration is real but far less dramatic than −55%. Anyone citing the headline decline without the forex adjustment is describing a currency event layered on top of the operational trend, obscuring it.
The second derivative
The spread's level matters. The rate of change tells you more.
| Quarter | CATL net profit YoY growth | BYD net profit YoY growth |
|---|---|---|
| Q1 2025 | +32.85% | ~+100% |
| Q3 2025 | +41.21% | −33% |
| Q1 2026 | +48.52% | −55.38% |
CATL's growth rate is accelerating. Quarter-on-quarter, Q1 2026 net profit dipped roughly 10% from Q4 2025's RMB 23.17 billion, which is seasonal and unremarkable. The year-on-year acceleration is the trajectory that matters.
BYD runs in the opposite direction. Even after adjusting for forex, the underlying profit trend is negative and steepening. The FY2025 annual result confirmed the pattern: net profit fell 19% year-on-year to RMB 32.62 billion despite record revenue exceeding RMB 800 billion, per BYD's annual filing as reported by CnEVPost (March 27, 2026).
CATL's profit growth is accelerating. BYD's profit decline is accelerating. The spread between them is widening at an increasing rate. In a market where both companies face the same cell price compression, the same overcapacity backdrop, and the same seasonal demand patterns, this divergence is the market revealing its cost structure.
Three mechanisms
Utilization is margin. CATL's 96.9% utilization rate is the single most important number in its earnings release. In a fixed-cost-heavy cell manufacturing business, the gap between 97% utilization and 50% utilization is the gap between absorbing depreciation across maximum output and spreading it across half. The sector-wide average sits at approximately 50%, per Mordor Intelligence estimates (January 2026), broadly consistent with CRU Group's August 2025 assessment that capacity additions already exceeded short-term demand. CATL's cost per watt-hour at near-full utilization is structurally lower than any competitor running at half capacity, regardless of chemistry, equipment vintage, or labor cost. This is arithmetic. At current ESS cell pricing of approximately ¥0.36–0.40/Wh (per InfoLink, March 2026), CATL is comfortably profitable. At those same prices and 50% utilization, most Tier-2 producers are not. The 2025 trough near ¥0.26/Wh showed how thin the margin of survival was at the floor.
Mix shift and upstream integration compound the advantage. Energy storage reaching 25% of CATL's Q1 volume, up from 18% in FY2025, is a margin tailwind layered on top of the utilization advantage. In FY2025, energy storage carried a 26.71% gross margin versus 23.84% for power batteries. Overseas business added a further layer at 31.44%. I cannot confirm from English-language sources whether these segment-level premia held in Q1 2026, and I flag that explicitly. But the volume mix shift is confirmed by CATL's own investor relations disclosure, and the directional margin implication is clear: CATL is rotating toward its highest-margin segments while growing total volume.
Less visible but structurally important: CATL's battery materials and recycling segment carried a 27.27% gross margin in FY2025, the highest of any reported segment, and the company launched a $4.4 billion mining subsidiary alongside its Q1 results. This upstream integration feeds directly into the price-floor mechanism. A cell manufacturer that also controls precursor material supply at 27% gross margins has a fundamentally different cost basis than a pure-play cell producer buying cathode material on the open market from suppliers who are themselves accepting new customers at minimal margins or losses to maintain volume, per SMM's 2026 analysis of the NCM cathode landscape.
BYD's integration model behaves differently under pressure. BYD's vertical integration is a genuine competitive advantage in vehicle-level cost optimization. Under margin stress, it becomes analytically opaque and operationally constrained. When Citigroup analysts estimated that BYD's domestic operations likely generated a loss in late 2025, the implication was that overseas vehicle sales, with an estimated net profit above RMB 20,000 per unit per Dolphin Research, were cross-subsidizing the entire domestic operation. This is an analyst estimate, not a reported figure. But it is consistent with the Q1 2026 data: 46% overseas volume share, gross margin recovery driven by export mix, domestic battery market share declining.
BYD is investing through this trough. Second-generation Blade Battery launch costs, overseas manufacturing expansion, and the domestic price war it helped initiate all compress near-term margins. The company is not in distress. But its battery business is losing share to CATL while its vehicle business increasingly depends on exports for profitability. These are different competitive dynamics operating under different financial constraints.
The price floor and what sustains it
CATL's financial position means it can hold current LFP cell pricing indefinitely. At 96.9% utilization, 23.84% power battery gross margin, and upstream material integration at 27% margins, CATL is profitable at price levels that sit below breakeven for producers running at half capacity. It does not need to cut prices further to gain share. It can afford to if challenged. No Tier-2 producer can match its cost structure at current volumes.
The expected consequence would be rapid consolidation. Marginal producers should exit. They are not exiting.
Provincial governments in China treat gigafactory employment as economic development infrastructure. CRU Group noted in August 2025 that provinces like Guangxi continue to support cellmakers in their jurisdictions regardless of national overcapacity concerns, with lower-tier producers including REPT, Great Power, and DFD New Energy all operating provincial gigafactories alongside CATL and BYD. The MIIT's January and April 2026 symposiums with battery producers signal that Beijing recognizes the problem but has not overridden provincial incentives. Regulatory tightening, including the updated thermal runaway standard that raises compliance costs for smaller producers with less engineering margin, adds pressure from a different direction. But the provincial support structure absorbs that pressure too, at least for now.
No major cell-level bankruptcy has been reported in 2026. At CIBF 2026 in Shenzhen (May 13–15), Tier-2 producers including REPT Battero and Sunwoda were still displaying new product platforms and announcing deployment plans. Industry-wide debt has reached approximately RMB 3 trillion, per UPI reporting. The debt is growing. The exits are not happening. Consolidation is proceeding through margin attrition and capital starvation, slowly, with the producer count held artificially stable by local government support.
Anyone applying a standard shakeout timeline, where overcapacity leads to exits within two to three years, is underweighting the role of provincial subsidies as a structural support mechanism. The marginal producer stays because a local government needs the employment. The commercial logic for remaining disappeared quarters ago.
Supplier qualification implications
Three observations for anyone making a sourcing decision against this backdrop.
CATL's financial durability is confirmed by every metric in the Q1 release. Margin trajectory, utilization rate, upstream integration, and mix shift toward higher-margin segments mean it can hold current pricing through at least 2027 without financial strain. The risk with CATL is concentration. Qualifying CATL as a primary supplier means accepting dependence on an entity that controls half the Chinese market and is extending that share quarter by quarter.
BYD's cell supply is increasingly inseparable from its vehicle strategy. For third-party cell buyers, BYD's willingness to supply externally will be governed by its own vehicle production needs and a margin calculus that is currently under pressure. The Q1 data does not indicate a retreat from external cell sales. But the financial incentive to prioritize internal consumption over external supply grows as domestic margins compress and overseas vehicle operations absorb more of the company's profit generation.
Tier-2 suppliers offer diversification but carry execution risk that is accumulating quietly. Zero bankruptcies and accumulating financial stress coexist. A supplier running at 50% utilization with thinning margins and provincial government support is a supplier whose long-term qualification depends on a political decision at the provincial level. That requires different monitoring: the provincial budget cycle matters as much as the supplier's order book. The January 2027 full elimination of the export VAT rebate is the next structural shock that will test which of these producers can survive without their current support structures.
The 5:1 profit ratio is the Chinese battery market's consolidation expressed as a single number. CATL sets the price floor. BYD invests through it. Everyone else absorbs it, sustained by local government support that delays but cannot indefinitely prevent the structural outcome. The rate at which that ratio is widening tells you the consolidation is accelerating even as the headline producer count remains stable. The producer count will catch up eventually. The financial data is already there.
Things to follow up on...
- GB38031-2025 enforcement begins: China's "no fire, no explosion" thermal runaway standard takes effect July 1, 2026 for new model type approvals, with industry estimates suggesting compliant systems cost 15–20% more than legacy designs, a compliance burden that falls disproportionately on Tier-2 producers with less engineering margin.
- Export control suspensions expire: Both the lithium-ion battery and graphite anode material export license suspension (November 10) and the US-specific dual-use graphite verification suspension (November 27) lapse in November 2026, and Crux Investor's analysis treats the expiration as a material risk factor rather than a formality given precedent from gallium and germanium reinstatements.
- Lithium carbonate acceleration: Battery-grade lithium carbonate in China hit CNY 192,000/MT by mid-May, with Benchmark Mineral Intelligence reporting a 23.3% month-on-month increase in its May 13 assessment, a rate of change that, if sustained, would compress cell margins across the board and widen the cost advantage of CATL's upstream integration.
- VAT rebate elimination timeline: China's battery export VAT rebate drops from 6% to zero on January 1, 2027, a structural shock that InfoLink assessed will weaken the buffer for low-margin export businesses and force a shift away from price-led volume competition among producers currently dependent on export margins for survival.