Analysis of the Penalty Clause in Rongbai Technology and CATL's Agreement: The Business Logic of Framework Agreements

Based on the collected information, I will provide you with a professional analysis of the business logic and legal considerations behind the RMB 5 million penalty clause set in the agreement between Rongbai Technology and CATL.

On January 13, 2026, Rongbai Technology (688005.SH) and CATL (300750.SZ) signed the <Cooperation Agreement for Procurement of Lithium Iron Phosphate Cathode Materials>, stipulating that during the period from 2026 to 2031, CATL expects to purchase approximately 3.05 million tons of lithium iron phosphate cathode materials from Rongbai Technology. Rongbai Technology initially estimates that the total amount involved is approximately RMB 120 billion. The agreement also stipulates that the one-time penalty is RMB 5 million, and penalties will be accumulated in case of multiple or various breaches[1][2].

This agreement is a

, not a binding procurement contract. From the perspective of the agreement’s clause design, the two parties clearly stipulate that “the final procurement volume and CATL’s demand guarantee shall be subject to the annual or single procurement contracts signed by both parties in the future”, and the 3.05 million tons specified in the agreement is only a “long-term demand forecast” that does not constitute a rigid commitment[1][3]. This means that both parties retain considerable business flexibility at the agreement level, so the penalty clause is naturally set to match the binding strength of the agreement.

According to Jiemian News, the Securities Department of Rongbai Technology responded: “For such large orders spanning several years, it is impossible to fix the price at the time of signing - after all, the prices of raw materials such as lithium carbonate fluctuate frequently, making it impossible to lock in a fixed price in advance.”[3] Such long-term framework agreements in the lithium battery industry generally adopt the model of “intent first, specific order implementation”, where the penalty clause only serves as the most basic performance guarantee, rather than a core means of restricting both parties.

The agreement sets up a dual protection mechanism:

• First Layer
  : A one-time penalty of RMB 5 million is stipulated as the basic default cost
• Second Layer
  : It is clearly stipulated that “if the aforesaid penalty is insufficient to compensate the non-breaching party for the damages suffered, regardless of whether this agreement is terminated or not, the breaching party shall compensate the non-breaching party for the losses suffered”[1][2]

This design ensures basic binding force while leaving legal room for claims of actual losses, reflecting the rationality of contract design.

As the leader in the power battery industry, CATL has a strong position in the supply chain; while Rongbai Technology, as a leader in ternary materials, is entering the lithium iron phosphate track on a large scale for the first time. From a commercial negotiation perspective, CATL will not accept huge penalty constraints matching its procurement scale; at the same time, Rongbai Technology is still in the verification stage in terms of production capacity and technical route switching (from ternary materials to lithium iron phosphate), and cannot bear the risk of excessive penalties either[2].

Rongbai Technology’s current lithium iron phosphate production capacity is only 60,000 tons (from the acquisition of Guizhou Xinren in December 2025), which is far from the annual supply volume of approximately 510,000 tons agreed in the agreement[2][3]. Setting a high penalty in this context is neither realistic nor reasonable - an excessively high penalty may prevent the agreement from being reached, or cause Rongbai Technology to face a catastrophe in the event of a breach.

The letter of inquiry issued by the Shanghai Stock Exchange (SSE) regarding this agreement clearly requires Rongbai Technology to “supplement and disclose the mandatory obligations of both parties and specific breach of contract liabilities agreed in the agreement”, reflecting the regulator’s concern about the insufficient binding force of the agreement[1][3]. In its reply, Rongbai Technology admitted that the original announcement had two problems: first, the expression of “total contract amount of RMB 120 billion” was “inaccurate”; second, the risk warnings about the possible risks of the agreement were “insufficient”[1].

The mere RMB 5 million penalty clause in the agreement between Rongbai Technology and CATL is based on the following comprehensive considerations:

Consideration Factor	Analysis Logic
Nature of the Agreement	Framework/intentional agreement, not a binding procurement contract
Industry Practices	Long-term procurement agreements in the lithium battery industry generally adopt flexible pricing and constraint mechanisms
Risk Sharing	Dual protection mechanism of penalty clause + actual loss compensation
Market Position	Equilibrium result after the game between the two parties
Performance Capability	Rongbai Technology’s production capacity is still under construction, unable to bear excessive penalties

The legal binding force of this agreement is limited, and the market should rationally view its actual impact on Rongbai Technology’s future performance.

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[1] JW View - <V View Financials | Rongbai Technology’s Urgent Reply: “Total Contract Amount of RMB 120 Billion” is an Estimate> (https://www.jwview.com/jingwei/html/m/01-18/654823.shtml)

[2] OFweek - <What’s Rongbai Technology’s RMB 120 Billion Order? CATL Has Locked in Over RMB 500 Billion Worth of Lithium Iron Phosphate!> (https://mp.ofweek.com/chuneng/a356714850637)

[3] Sina Finance - <RMB 120 Billion Large Order Receives Lightning Inquiry from Exchange, Can Rongbai Technology Deliver?> (https://finance.sina.com.cn/jjxw/2026-01-14/doc-inhhhtei4873435.shtml)