When Lithium Batteries Are No Longer Wild

China's lithium battery industry is undergoing a "coming-of-age" transition—from reckless expansion to rational competition. In the first half of the year, an unusual divergence between soaring earnings and falling stock prices brought this fundamental shift in competitive logic into sharp focus.

In mid-July, the A-share lithium battery sector showed signs of dissonance. With frequent earnings forecasts released, Tianqi Lithium (48.960, 0.23, 0.47%) projected net profit growth as high as 4,935% year-on-year, while EVE Energy (56.320, -0.12, -0.21%) (rights protection) forecasted growth of 95% to 110%, and both Penghui Energy (65.460, -0.32, -0.49%) and RuiPu LanJun turned profitable. From upstream lithium salts to downstream batteries, most companies across the supply chain achieved significant year-on-year growth.

Yet strong earnings performance failed to prevent share price declines. On July 8, Shengxin Lithium (34.160, 0.27, 0.80%) hit its daily limit down, Tianhua New Energy (67.010, -0.26, -0.39%) dropped over 15%, Tianci Materials (39.480, 0.01, 0.03%) lost more than 30 billion yuan in market value within a week, Ganfeng Lithium (54.150, 0.30, 0.56%) had declined about 38% from its peak, and Contemporary Amperex Technology (CATL) (393.930, 0.00, 0.00%) corrected by approximately 20%.

The immediate catalyst for the plunge was the resumption of production at CATL’s Jiaxiawo lithium mine. On June 29, the mine received approval for its safety production license, and on July 7, it was officially announced on China Credit’s official website. This single largest spodumene mine globally had been shut down for over ten months, with an annual lithium carbonate capacity of around 100,000 tons—accounting for 8% to 10% of China’s total output. Its restart meant that over 45,000 additional tons of supply would enter the market in the second half of the year, directly impacting lithium prices already at elevated levels. The futures market reacted first: the main lithium carbonate contract plunged 6.58% on June 18, when uncertainty surrounding the mine’s restart began to spread, and continued declining steadily from May’s peak of 205,000 yuan per ton.

Meanwhile, industrial production and sales remained robust. This rare contradiction appears to point to lithium carbonate prices dropping rapidly from their May peak of 200,000 yuan per ton to 151,000 yuan. But what deserves deeper attention is whether this marks the peak of the cycle or a profound re-evaluation of the industry’s underlying logic?

Answering this question requires stepping back and examining the paradigm shift occurring in the lithium battery industry between 2025 and 2026. At its core, this transformation isn’t merely about fluctuations in a single price signal—it’s about a fundamental shift in the industry’s competitive logic, transitioning from “who expands fastest” to “who possesses technology, profitability, and global compliance capabilities.”

From 60,000 to 200,000

By late June 2025, battery-grade lithium carbonate briefly fell below 60,000 yuan per ton, hitting a low of 59,900 yuan—the lowest level in nearly three years. The entire lithium salt industry entered real losses, forcing numerous small and medium-sized producers to halt operations. Australian mines, small-scale African lithium projects, and domestic spodumene sources—virtually all marginal capacity—paused production that summer. Two and a half years of low prices fulfilled their most valuable role: cleansing the market.

By the fourth quarter of 2025, the supply-demand balance began reversing at a pace far exceeding market expectations.

The driving force behind this turnaround was energy storage demand. According to data from InfoLink and other institutions, global energy storage cell shipments reached approximately 610 GWh in 2025, up over 90% year-on-year, with just the fourth quarter surpassing 200 GWh. Production scheduling data shows that energy storage cells are rapidly depleting lithium carbonate inventories at an accelerating quarterly rate. After the slowdown in power battery growth, energy storage has not only filled the gap in capacity absorption but also emerged as a new primary driver of demand.

While the surge in demand tells only half the story, the contraction on the supply side has been equally sharp. Small-scale lithium mines in Africa and high-cost spodumene production capacity domestically have exited the market. Meanwhile, Zimbabwe announced in February this year a suspension of lithium concentrate exports (accounting for 15.5% of China’s lithium concentrate imports in 2025). Although Australia remains the dominant supplier of lithium resources to China (over 50%), this policy has further tightened expectations regarding upstream raw materials in terms of sentiment and marginal supply. The Zimbabwean Ministry of Mines later confirmed that the export ban will officially take effect in January 2027.

What pushed demand-supply tension to its peak was the emergence of a global structural deficit. Morgan Stanley estimated at the beginning of 2026 that the global lithium market would face a supply-demand gap of approximately 100,000 tons of LCE annually. Dongwu Securities (7.940, -0.01, -0.13%) projected total lithium supply for the year at around 2.14 million tons, with an additional 440,000 tons coming online—though most of this new capacity would only be released after the third quarter. This timing mismatch between supply and demand provided momentum for price recovery in the first half of the year.

The convergence of these three forces, combined with inventory replenishment by midstream players driven by positive market expectations, drove lithium carbonate prices from 70,000 yuan per ton in October 2025 to 200,000 yuan per ton in May 2026. Unlike the speculative surge to "600,000" yuan in 2022, this rally occurred after full capacity utilization, with real demand serving as the fundamental driver.

According to research from GaoGong Industry Research Institute: “This is not a bubble, but a return to value based on supply-demand fundamentals. The structural surge in energy storage demand and the clearing of supply-side capacity have jointly redefined the reasonable price range for lithium.”

The short-term doubling of prices also benefited from amplified market sentiment and downstream stockpiling behavior. The price correction in July resulted from both the gradual release of incremental supply and growing downstream caution over high prices. Market consensus expects the annual average price of lithium carbonate to fall within the range of 120,000 to 160,000 yuan per ton—a level sufficient to ensure profitability for most companies without reigniting uncontrolled expansion.

Energy Storage Becomes the New Growth Engine

In the first half of 2026, China's energy storage battery shipments reached approximately 48.5 GWh, up more than 80% year-on-year. During the same period, power battery shipments amounted to about 63 GWh, increasing by over 30%. The gap between the two is narrowing significantly.

More noteworthy are the structural data: in Q1 2026, China’s energy storage battery shipments reached around 20.9 GWh, a year-on-year increase of about 115%, accounting for roughly 40% of total lithium battery shipments. In June’s production schedule, the share of energy storage cells rose further to about 41%. A year earlier, this figure had hovered around 30%.

According to InfoLink statistics, in 2025, energy storage cell shipments totaled approximately 61 GWh, approaching 70% of power battery shipments during the same period. Energy storage is no longer a mere appendage to power batteries—it is now reshaping the demand landscape of the lithium battery industry as an independent sector.

Behind this transformation lies a fundamental shift in demand drivers. Prior to 2024, growth in domestic energy storage was primarily driven by mandatory storage policies. Wind and solar projects were required to include storage facilities, but this model generated substantial low-quality demand—low utilization rates, poor returns, and inconsistent cell quality.

Between 2025 and 2026, the driving logic shifted from “policy mandates” to “economic viability.”

This change began in the domestic market. At the start of 2026, the National Development and Reform Commission and the National Energy Administration jointly issued a new policy on capacity-based pricing (NDRC Price [2026] No. 114), formally establishing a national mechanism for independent energy storage capacity pricing. Local standards vary between 165 and 330 yuan per kilowatt per year, depending on provincial conditions. According to research by Dongwu Securities, the internal rate of return (IRR) for energy storage power stations in some provinces and cities has already surpassed 6%, the economic viability threshold. Projects can achieve profitability with peak-valley price differentials above 0.3 yuan per kWh, while high-quality projects have even reached IRRs of up to 10%. Energy storage has transitioned from being a "mandatory requirement" to being driven by economic feasibility, fundamentally improving the quality of demand.

The qualitative transformation in the domestic market resonates with the surge in overseas demand. Large-scale photovoltaic-storage projects are emerging rapidly in Saudi Arabia and the UAE in the Middle East, with individual project capacities often reaching several GWh. In emerging markets such as Australia, Southeast Asia, and Africa, weak grid infrastructure combined with rapid growth in renewable energy penetration is shifting energy storage demand from "optional" to "essential." Dongwu Securities estimates that large-scale energy storage installations in these emerging markets will grow by 233% year-on-year in 2025 and further increase by 69% in 2026. Meanwhile, in Europe, driven by concerns over energy security and mandates on green electricity ratios, both industrial/commercial and residential energy storage remain robust.

GGII forecasts that global energy storage battery shipments in 2026 could reach between 800 and 1,100 GWh, representing a year-on-year growth of 30% to 70%. Even at the mid-point estimate of 900 GWh, energy storage may approach or even match the scale of power batteries by 2026.

As growth drivers shift, the underlying logic of the industry is also evolving. Power battery demand is dominated by automakers, with cost-effectiveness as the core focus. However, energy storage customers are far more diverse: grid operators prioritize long cycle life and safety; data center owners require high-rate capability and reliability; overseas projects demand full lifecycle compliance and traceability. These demands are not just about cost but also about technological fit, project delivery capabilities, and global regulatory expertise.

Overcapacity or Industry Maturation?

Regarding vehicle installation rates, one set of data requires careful analysis.

In May 2026 alone, China's power battery installation rate dropped to approximately 38%. Looking at the cumulative figures for the first five months, power battery installations reached 259 GWh, compared to total production of 863 GWh, resulting in an average utilization rate of around 30%. Production growth significantly outpaced installation growth, meaning many production lines are running idle.

Five-year installation rate trends: 70% in 2021, 54% in 2022, ~52% in 2023, 50% in 2024, 44% in 2025, and 38% in May 2026.

The continuous decline in installation rates is the clearest data signal indicating the industry’s transition from adolescence to maturity.

However, labeling this situation as “overcapacity” is imprecise. The industry is not uniformly oversupplied. Instead, it reflects structural divergence.

High-end shortages coexist with low-end overcapacity. Demand for high-end batteries with energy density above 160 Wh/kg has rebounded strongly, increasing their market share from 6% in 2025 to 11%, primarily driven by ternary batteries. Meanwhile, low-end products below 125 Wh/kg have completely exited the market.

Demand differentiation between commercial and passenger vehicles is significant. Driven by subsidy policies, battery demand for pure electric heavy-duty trucks and vans has surged against the trend, with pure electric van battery usage growing 169% year-on-year. Meanwhile, once-dominant pure electric buses have fallen to fifth place.

The market leadership structure remains unconsolidated, but the nature of competitive advantages is changing. CATL and BYD together still hold 68% of the market share, while second-tier players such as Gotion High-tech, EVE Energy, Gotion Energy, and CNE are accelerating their catch-up. Competition is shifting from “who expands faster” to “whose technology is superior and whose margins are thicker.”

From another perspective, the declining installation rate is precisely a sign of industry maturation. When an industry moves past explosive growth, a drop in capacity utilization from 70% to 40% is entirely expected. Overcapacity continues to systematically suppress industry profitability. Although leading companies still have some capacity, the pressure from industry-wide price wars and profit erosion remains unresolved. After the shift in growth momentum, enterprises lacking technological barriers, profit accumulation, and global compliance capabilities face the risk of being phased out.

This is precisely why capital narratives are shifting. Zhongke Electric (13.630, 0.04, 0.29%) terminated its 10.3-billion-yuan anode material project; DeFang Nano (47.610, -0.02, -0.04%) canceled its 10-billion-yuan cathode material project; and Enge Co. (56.560, 0.01, 0.02%) halted its approximately 2-billion-yuan separator project in Malaysia. The rational decision by industry leaders to cut losses before large-scale investments reflects a typical signal that the sector is transitioning from adolescence to maturity.

However, this does not mean production expansion has stopped. In the first half of 2026, over 65 new projects were announced across the industry, with planned capacity exceeding 1,500 GWh and total investment surpassing 220 billion yuan. Hunan Yueneng (70.340, 1.56, 2.27%) has announced a 24-billion-yuan expansion, while Yahu Group (19.300, 0.12, 0.63%) has unveiled plans for expansion in Zimbabwe. Expansion continues, but the criteria for eligibility are being redefined: only companies with technological advantages, accumulated profits, and global compliance capabilities will have the confidence to keep accelerating when others hit the brakes.

Technology Race 2.0: Three Key Fronts

If the main theme from 2022 to 2024 was a race to expand production capacity, then from 2025 to 2026 the focus has shifted to a technological competition. Three fronts are now fighting simultaneously.

In 2026, what most concerns the energy storage industry is not the short-term fluctuations in lithium carbonate prices, but rather the structural shortage of 314Ah battery cells. By March, the average price for 314Ah cells from leading manufacturers had approached 0.4 yuan per Wh, with spot market prices even reaching 0.45 yuan per Wh—up over 25% compared to the range of 0.30–0.34 yuan per Wh in August 2025.

The immediate driver behind this price surge is rising lithium carbonate costs (based on industry estimates, lithium carbonate priced at 180,000 yuan per ton corresponds to a theoretical cell cost of 0.35–0.38 yuan per Wh for 314Ah cells). However, the deeper root cause lies in the supply gap during the transition to larger cells. The industry is shifting from 280Ah/314Ah to 500Ah and above, with almost no companies continuing to invest in new 314Ah production lines. Meanwhile, large-scale output of 500Ah+ cells will not be fully realized until the second half of 2026, and ramp-up times and customer certifications will take additional time.

During this window of supply disruption, shortages have intensified dramatically, with some orders already backlogged into 2027.

The shift in competitive logic is profound: the industry is no longer about “making money as long as you have capacity,” but rather “whoever completes the technology upgrade first will capture excess profits.” CATL has already deployed its 587Ah cells in a 2.4GWh independent energy storage project in Inner Mongolia, while Eve Energy is accelerating mass production of its 628Ah large-format energy storage batteries. The direction toward larger cells is clear—the only remaining contest is who can achieve mass production fastest.

If the shortage of 314Ah cells represents today’s most pressing production-line anxiety, solid-state batteries represent an inevitable question about the future.

2026 is dubbed the "first year of mass production" for solid-state batteries—but with an important caveat: the term here primarily refers to hybrid solid-liquid (semi-solid) technologies. Vehicles such as NIO's ET9, SAIC's MG4, GAC's Aion, and Chery have already launched with hybrid solid-liquid batteries, achieving energy densities between 350 and 400 Wh/kg. These batteries are compatible with over 90% of existing liquid lithium-ion production equipment, making retrofitting costs manageable, and their mass production pace is indeed accelerating.

However, the reality of full solid-state batteries is far more complex than the data presented on automakers’ showrooms.

In March 2026, Academician Ouyang Minggao gave a blunt recommendation: “For caution’s sake, don’t sell full solid-state battery vehicles for the next two years.”

He pointed out three major bottlenecks: instability at the solid-solid interface, where microscopic gaps between solid electrolytes and electrodes lead to sharply increased resistance; safety issues related to lithium dendrites, highlighted by Samsung SDI’s 2024 fire incident involving full solid-state batteries, which has cast a shadow over the industry; and the air stability of sulfide-based electrolytes, which decompose upon contact with moisture, requiring extremely strict production environments.

Here’s the latest progress from leading players: CATL has achieved an energy density breakthrough of over 500 Wh/kg with its sulfide-based full solid-state batteries, expecting small-scale production by 2027. BYD’s 20GWh production line in Bishan, Chongqing, is scheduled to begin operations in Q3 2026 (using the hybrid solid-liquid route), while small-batch production of full solid-state products is expected around 2027. Gotion High-Tech plans to launch its 2GWh full solid-state production line by the end of 2026. Eve Energy has already rolled out its 60Ah full solid-state cell at its Longquan No. 4 facility.

Industry consensus is now clear: 2026 is about building production lines and validating performance; 2027 will focus on vehicle integration and demonstration projects; and large-scale commercialization is likely only feasible around 2030. The national standard GB/T 43568-2026 “Solid-State Batteries for Electric Vehicles” came into effect on July 1, 2026 (a recommended national standard focused on guidance and regulation, not mandatory certification), setting the rules and boundaries for this long-haul race. The narrative around solid-state batteries is less about the "first year of mass production" and more about the "year of rational return."  

Beyond the buzz surrounding solid-state batteries, another variable—underestimated by most—is quietly taking shape.  

In the first five months of 2026, global shipments of energy storage systems for AIDC (AI data centers) reached 10 GWh, surpassing the full-year volume of 2025 (note: this figure comes from third-party sources such as EVTank, including backup power and UPS replacement scenarios). Multiple institutions now forecast that global AIDC energy storage demand will reach 300 to 400 GWh by 2030 (GGII expects over 300 GWh, while optimistic industry estimates point toward 400 GWh)—more than 20 times the 2025 scale.  

This is not a speculative number; substantial capital has already entered the space. CATL strategically invested approximately 4.1 billion yuan in Zhongheng Electric (47.000, +2.00, +4.44%), securing its position in high-voltage DC power distribution for data centers, and won a 2 GW/4 GWh energy storage project at Guizhou's intelligent computing center. Fluence signed agreements with two major U.S. cloud providers for a potential 12 GW energy storage pipeline. LG secured eight energy storage projects—including one involving Oracle’s AI data center—with a total capacity of 6 GWh. Panasonic announced plans to invest 350 billion yen to expand battery production capacity, aiming to triple revenue from data center energy storage compared to current levels.

The core driver behind AIDC energy storage demand (6.710, -0.02, -0.30%) is the emerging "structural disconnect" between AI computing power and electricity supply. In a typical AI data center, power consumption per rack has surged from 5–8 kW in traditional data centers to 40–100 kW. Yet grid connection approvals and expansion cycles often take three to five years. Energy storage serves both as the final safeguard for power continuity and as an accelerator to shorten deployment timelines.

Energy storage is transitioning from being an optional add-on to becoming a built-in component within data centers. In October 2025, NVIDIA announced its 800V DC power architecture, gradually phasing out diesel generators and UPS systems, integrating energy storage directly into the power distribution chain. This architectural shift means energy storage is no longer a peripheral attachment but a standard component of data centers.

AIDC energy storage is opening up not just a new market, but an entirely new demand paradigm. Buyers of energy storage are no longer limited to utility companies or renewable power plants—they now include cloud service providers and computing infrastructure firms. A new category of demand is being created.

Globalization 2.0

If the domestic market is the main arena where the lithium battery industry completes its coming-of-age, globalization represents a mandatory supplementary challenge. Tariffs, resources, and standards—three pressures—are tightening simultaneously from different directions.

Tariffs represent the visible lock. The EU’s anti-subsidy tariffs on Chinese pure electric vehicles have been in place for five years and are now expanding to plug-in hybrid models. The U.S. Inflation Reduction Act (IRA) continues to strengthen localization requirements for battery cells and energy storage systems. China’s own export tax rebates are also tightening: reduced from 9% to 6% starting April 2026, and fully eliminated by January 2027. Each tariff barrier raises the cost of overseas expansion, forcing companies to shift from “product exports” to “capacity exports.”

Meanwhile, competition over raw materials is intensifying. The U.S.-led “Mineral Security Partnership” (MSP) aims to build a supply chain for critical minerals excluding China. While Zimbabwe’s temporary halt on lithium concentrate exports has relatively limited impact (accounting for only about 15.5% of China’s imports), the resource race along the “Asian Lithium Belt” and new African sources has only just begun. Global sourcing of raw materials increasingly resembles a silent land grab.

And the most concealed yet deadliest constraint is the hidden lock of standards. The EU's Battery Passport will become fully mandatory on February 18, 2027, requiring disclosure of a battery’s full lifecycle carbon footprint, raw material sources, and recycling data. The real impact of this regulation lies not in data reporting itself, but in who sets the calculation standards. If the underlying carbon emissions database systematically misrepresents China’s industrial energy structure and manufacturing processes, Chinese companies may face not just a few percentage points increase in tariffs, but outright exclusion from market access.

Faced with these three constraints, leading enterprises have shifted from "passive compliance" to "proactively shaping rules." CATL has deeply integrated with BMW and Germany’s Catena-X network, driving the development of over 90 joint standards for foundational carbon emissions accounting. BYD has invested hundreds of millions to build its “iDi Carbon Chain” platform, enabling digital transparency across the entire supply chain. RuiPu LanJun, together with TÜV Rheinland and Circulor, launched a Battery Passport project whose 98 independent datasets have already been third-party verified by EU Notified Bodies.

Meanwhile, overseas production capacity expansion is accelerating: CATL’s plant in Hungary, BYD’s facility in Brazil, Gotion High-tech’s U.S. joint venture, and Farasis Energy’s factory in Spain. Chinese lithium battery companies are transitioning from “Made in China, Shipped to the World” to “Made Everywhere, with China’s Standards.”

In the new era of globalization 2.0, the competition is about whose rules are more credible, whose supply chains are more controllable, and whose localization strategy is deeper.

After Coming of Age

In July 2026, as lithium battery stock prices diverged sharply from earnings performance, markets were essentially asking one question: where exactly is this industry positioned along its historical trajectory?

The most obvious shift is the transition in growth drivers. Energy storage batteries shipped 485 GWh in six months, capturing over 40% of total shipments—narrowing rapidly the gap with power batteries. This demand-side shift mirrors changes on the supply side: the penetration rate of power batteries in vehicles dropped from 70% to around 30–40%, signaling the end of the wild growth phase. Yet excess capacity continues to suppress profitability.

Structural shifts in demand are now redefining competitive barriers. Prices for 314Ah cells surged over 25% in half a year; AIDC-driven energy storage demand exploded exponentially; technological moats are increasingly determining industry rankings. With national standards for solid-state batteries finalized and the EU Battery Passport countdown underway, compliance capability is becoming the new entry ticket.

The lithium carbonate price trajectory—from 60,000 to 200,000 yuan per ton, then back to 150,000—is not merely another cyclical fluctuation, but reflects the market’s search for rational equilibrium in mature supply-demand dynamics, amid waves of market sentiment.

Policy guidance for these five trends came on July 18, when three ministries jointly announced a new battery consumption tax policy. Starting September 1, lithium batteries will be taxed at 2%, rising to 4% by September 2027. Sodium-ion and solid-state batteries, however, remain tax-exempt until the end of 2028. This ends the over-a-decade-long tax-free period for lithium batteries. The phased reintroduction of taxes aims to accelerate the elimination of low-end capacity through fiscal leverage and guide technological upgrades: mature technologies are taxed, while frontier technologies remain exempt—a signal that is crystal clear. For second-tier cell manufacturers already operating on thin margins, a 2% tax burden (approximately 0.007 to 0.008 yuan per watt-hour) will directly compress their survival space, further consolidating the industry’s pattern of “winners benefitting, losers exiting.”

2026 is no ordinary year for the lithium battery industry. It marks a watershed moment—and a test of true capabilities. Companies that have completed technological reserves, achieved global compliance, and built brand moats will find themselves ready to sail into a broader, more promising horizon after their coming-of-age ceremony. For companies that still rely on a single customer, lack technological barriers, and cannot meet compliance requirements, adulthood may mean a quiet yet brutal elimination.  

The "childhood" of the lithium battery industry has ended. But its "adulthood" has only just begun.