Trends, takeaways and views post 1H26/2Q26 results; CATL remains our top Buy

Drawing on 1H26/2Q26 results calls, recent corporate access, and our conversations across the supply chain, we address four questions that will shape the sector through 2H26 and into 2027: where demand growth is concentrated, how margins are evolving, how far order visibility extends, and how policy and capacity controls could reshape the supply outlook. Demand: overseas ESS exposure was the clearest driver of outperformance, while EV battery growth relied mainly on exports, pack upsizing, and customer-share gains. Margins: margins improved sequentially but remained lower yoy, with the pace of further recovery depending on raw-material, consumption-tax and export-rebate pass-through. Outlook: several players already have ESS orders through 1Q27, and management commentary points to 40-50% ESS demand growth next year. Policy and capacity: suspended capacity approvals and the shift to large-format ESS cells will shape supply and profitability into 2027-28, supportive of industry consolida