H1 2026 results are in for Chinese battery giant CATL: net profit surged 42% year-over-year to CN¥43.28bn (US$6.4bn), with revenue rising 55%, driven not by electric vehicles (EVs) but instead a substantial rise in demand for energy storage systems (ESS). The company followed the results with a buyback of CN¥20bn-40bn worth of shares, sending its Shenzhen stock up as much as 5.4%—its biggest intraday jump in more than a month.

As global demand for EVs remains volatile—albeit steadily on the rise—ESS is increasingly taking centre stage as a growth driver for battery makers. CATL’s revenue from the segment rose 88% YoY to CN¥53.3bn, lifting its share of first-half revenue to 19%. Meanwhile, domestic sales of electrified passenger vehicles came under pressure from regulatory changes, forcing CATL to double down on a segment which continues to grow reliably.  

CATL is now aiming to make ESS an equal and core pillar of its battery business. The company wants the segment to account for half of its total sales by 2030, a startling increase from the 2% it took just five years ago. Achieving that target would reframe the world’s largest EV battery maker as an energy infrastructure company every bit as much as an automotive supplier.

Despite multiple ESS applications in automotive plants and charging infrastructure, the demand behind the ESS shift is only loosely tied to cars. In reality, it is AI data centres creating storage demand largely independent of EV adoption cycles. Energy security concerns are also accelerating global renewable and battery investment. China’s ESS battery shipments as a whole more than doubled in the first four months of 2026, according to Bernstein, partly reflecting capital rotating out of a maturing EV market.

Of course, that growth has not come free of cost: it requires substantial investment to grow and maintain. Year-on-year, gross margins in both the EV and ESS battery segments fell 1.8% and 1.6% respectively, even as volumes rose, due largely to Chinese battery makers racing into the storage segment and intensifying competition there. CATL may dominate both domestic and global power battery demand, but this could easily change if it leaves the ESS market unaddressed.

As such, the company is countering local competitors like BYD and Gotion by leaning harder into overseas markets, where gross margins ran appreciably higher: around 31.4% against roughly 24% at home. In Europe, CATL is busy ramping production at its Hungary plant—its first on the continent, with a second site in Spain also underway—while also expanding battery-swap infrastructure across Europe. The company is also pursuing light-asset licensing deals in North America, such as with Ford, to sidestep tariffs despite continued local scrutiny over alleged military ties.

Technology diversification is following the same logic as the geographic push. CATL is hard at work commercialising lithium-free sodium-ion battery technology, aiming for at least 10,000 Changan EVs to use these cells in 2026. In June, the company also unveiled a sodium-ion ESS, reflecting its active interest in both segments. It claims the ability to switch flexibly between the two chemistries on its production lines. Annual R&D spend of CN¥22bn also funds a longer-term bet on solid-state batteries, aimed at commercial scale sometime after 2030.

CATL framed the buyback explicitly as correcting a valuation gap rather than responding to weak fundamentals, joining a wave of Chinese companies repurchasing shares after an AI and chip-stock sell-off spilled into the broader market. Cancelling the repurchased shares rather than holding them removes the dilution permanently.