Lithium batteries rise again: clearing and internal competition, supply and demand finally reversed
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After three years of capacity clearing and demand structure adjustment, the lithium battery industry is standing at the starting point of a new boom cycle. On the side of power batteries, the electrification of commercial vehicles and the increase in battery capacity per vehicle have opened up structural incremental space; on the energy storage side, the continuation of domestic capacity electricity price policy and the explosive demand from AIDC data centers have led to growth beyond expectations. On the supply side, capital expenditure in various segments has entered a downward trajectory, with the operating rate of key materials such as separators and lithium hexafluorophosphate now above 80%, and the supply-demand relationship has undergone a substantive reversal.
1. What happened?Industry supply-demand reversal
After three years of capacity clearing and demand structure adjustment, the lithium battery industry is standing at the starting point of a new boom cycle. On the power battery side, the electrification of commercial vehicles and the increase in battery capacity per vehicle have opened up structural incremental space; on the energy storage side, the continuation of domestic capacity electricity price policy and the explosive demand from AIDC data centers have led to growth beyond expectations. On the supply side, capital expenditure in various segments has entered a downward trajectory, with operating rates of key materials such as separators and lithium hexafluorophosphate now above 80%, and the supply-demand relationship has substantively reversed.
Under the global energy crisis, battery capacity per vehicle has increased + exports have exceeded expectations, and the demand for power batteries is better than expected. In January-February, domestic average battery capacity per vehicle reached 63.7kWh, up 31% year-on-year, with passenger vehicles rising 24% per vehicle, offsetting the decline in car sales. Secondly, in January-February, electric vehicle exports reached 580,000 units, up 108% year-on-year, far exceeding the previous expectation of 50%. Against the backdrop of rising oil prices, export demand is expected to continue to surpass expectations. It is estimated that global power battery demand in 2026 will grow over 20%.
Energy storage continues to operate at full capacity while lithium carbonate price increases have been absorbed. Considering that large battery cell systems reduce costs by 10% and project financial loan terms have been extended, acceptance of lithium carbonate prices in domestic projects with moderate returns on energy storage has risen to 180,000 yuan/ton. In January-February, domestic energy storage bidding increased 50-60% year-on-year, and capacity electricity prices have been announced across regions, likely accelerating growth, maintaining expectations for global energy storage demand in 2026 at 1000GWh, an increase of 60%.
Lithium battery Q1 profitability continues to improve, with the peak season ushering in a new round of price negotiations. March production hits a new high, and April is up a further 0–5% month-on-month. At the battery end, leading companies have strong pricing power + rapid price adjustment, Q1 profitability remains stable, and growth certainty is high; for separators, Q1 profitability has further improved, capacity utilization is steadily increasing in 2026–2027, and with PE price increases, a new round of price talks has started. Price increases for Q2 are expected, and leading companies are likely to see profit per square meter rise to 0.2 yuan/sqm+. Lithium carbonate prices fluctuate around 150,000, possibly rising further in May with an upper limit of 200,000 yuan/ton.
Looking back at the 2020–2022 lithium battery industry upswing, the main driver was the rapid increase in penetration due to new energy vehicle subsidy policies, with the core contradiction being explosive downstream demand versus misaligned upstream supply, resulting in a general upward trend of both volume and price for the industrial chain.2023-2025 saw the industry suffer severe destocking and capacity clearing, continual margin compression in materials, and a significant contraction in capital expenditure.
2026 shows profound changes in industry structure. Power batteries are moving from "single wheel drive by passenger vehicles" to "dual wheel drive by passenger and commercial vehicles"; energy storage batteries are moving from "policy-driven storage" to "independent storage + data center" diversified demand. On the supply side, after three years of low prosperity, mid- to upstream expansion is extremely cautious, with some segments such as lithium hexafluorophosphate and separators now fully utilized. The substantive reversal of supply and demand is driving the industry from bottom recovery towards a new boom cycle.
The fundamental difference between this cycle and the previous one is the diversification of demand structure and rationalization of supply-side behavior.
Demand-side differences:
1) Energy storage replacing power as the main growth driver: In 2025, China's energy storage battery shipments are expected to reach 630GWh, up 85% year-on-year, already surpassing power batteries in growth rate. The continuation of domestic capacity electricity price/subsidy policies, combined with AIDC data center demand for energy storage, has established the growth trend for storage.
2) Commercial vehicle electrification begins a second growth curve: In 2025, sales of new energy commercial vehicles are expected to reach 950,000 units, more than doubling year-on-year, and the electrification rate rises from 2% in 2020 to 22%. Of particular significance, pure electric trucks and specialty vehicles reached 205 and 217kWh per vehicle, up 76% and 81% year-on-year respectively, highlighting the stimulative effect of increasing battery capacity on battery demand.
Supply-side differences:
1) Capacity expansion pace slows significantly: From 2020–2022, rapid expansion across all segments. By 2025, overall capacity growth has slowed. For separators, the industry average capacity utilization in 2025 has reached 75%, with wet-process separators over 80%.
2.) Capital expenditure enters a downward channel: From 2023–2025H1, capital expenditure/depreciation and amortization ratios for lithium mines, separators, and lithium hexafluorophosphate have fallen the most, indicating weakened will for expansion among enterprises.
3) After capacity clearing, concentration has increased: By 2025, CR4 for separators, lithium batteries, and lithium hexafluorophosphate are all above 60%, with leading companies gaining more bargaining power.
2. Why is it important? Dual-wheel drive becoming increasingly mature
Global perspective: In 2025, global new energy vehicle sales will reach 22.89 million units, with the electrification rate increasing to 23%. From 2026–2028, global new energy vehicle sales are expected to maintain a compound growth rate of about 15%.
China perspective: In 2025, the penetration rate of new energy passenger cars in China will reach 52%, while commercial vehicles are only at 22%, leaving considerable room for growth. The core driving force for commercial vehicles comes from two aspects:
1) Quantity growth: Electrification of logistics vehicles, battery swap for heavy trucks, and other scenarios accelerate penetration;
2) Battery capacity increase: Pure electric trucks and specialty vehicles will see battery capacity grow over 75% year-on-year in 2025, reflecting their adaptation to long-range and high-power scenarios.
Structural differences between passenger and commercial vehicles: In 2025, passenger vehicles have about 60kWh per car, while pure electric specialty vehicles reach 217kWh. Rising commercial vehicle share will directly drive battery demand growth.
The commercialization pathway for new energy storage has been established. The economic viability of energy storage projects depends fundamentally on peak-valley price differences and capacity subsidies. According to Zheshang Securities estimates, when the peak-valley price difference exceeds 0.55 yuan/kWh, projects can achieve IRR >6% without capacity subsidies; when the peak-valley price difference is about 0.4 yuan/kWh, capacity subsidies above 165 yuan/kWh/year can achieve IRR >6%.
2026 policy environment: Multiple provinces including Inner Mongolia, Xinjiang, Hebei, Shandong, Gansu, Ningxia, Zhejiang have specified 2026 capacity compensation or electricity price policies. Zhejiang's capacity subsidy reaches 165 yuan/kWh/year in 2026, while Ningxia's capacity price is 330 yuan/kWh/year in 2026–2027. Policies show strong continuity.
AIDC energy storage is a highlight for incremental growth: AI data centers' high power consumption (single cabinet power moving into MW class) raises demand for backup power, and lithium battery energy storage is rapidly replacing traditional lead-acid batteries. According to Zhongyou Securities Report, the optic fiber demand of AI data centers is more than 10 times that of traditional data centers, and energy storage supporting demand is increasing accordingly.
As of January 2026, operating rates of the top three production segments are: separators (>80%), lithium hexafluorophosphate (about 80%), and lithium iron phosphate (about 75%). Compared to 2023, most segment operating rates have recovered by 10–20 percentage points. Noteworthy is that by 2025H2, leading lithium hexafluorophosphate companies are essentially at full capacity—companies like Tianci Materials, DoFluor, and Tianji Co. operating near 100% utilization.
2023-2025H1 capital expenditure/depreciation amortization ratios fall widely across segments, with lithium mines, separators, lithium hexafluorophosphate seeing the largest drops. Taking Enjie Co. as an example, this ratio exceeded 5 in 2020–2022, but fell to around 2 in 2024. Weakened expansion intent means limited new supply in the next two years.
Comparing capacity growth in 2020–2022 and 2025:
1) 2020–2022: Annual growth rate across segments was generally 30–50%
2) 2025: Lithium battery capacity growth about 15%, separators about 10%, lithium hexafluorophosphate about 8%
Considering new project construction periods are generally 1–2 years (lithium carbonate salt lake projects even up to 5 years), current low capital expenditure will directly constrain effective supply in 2026–2027, creating strong supply-demand improvement trend.
Industry competition is optimized, with market share further rising. By 2025, industry concentration (CR4) for the top three segments:
1. Separators: CR4 over 72%, Enjie, Xingyuan Material, Sinoma, Foshan Plastics (merged Jinli) form an oligopolistic landscape
2. Negative electrodes: CR4 about 65%, BETTER, PUTE Technology, Sunwoda, Kaijin Energy
3. Lithium hexafluorophosphate: CR4 about 62%, Tianci Materials (>30%), DoFluor (18.3%), Xintai New Materials (13%), Tianji Co.
High concentration means enhanced price-setting power for leading companies, and stronger capability to pass on price increases.
2021-2022 saw lithium resource segment accounting for over 40% of industry chain gross margin. After 2023, lithium resource profit fell to about 10%, while battery segment gross margin rose to over 50%. In the next two years, with supply-demand improvement, the materials segment is expected to recover profits:
1) Separators: Industry-wide losses in 2024, turning profitable by 2025H2, and profitability expected to improve further in 2026
2) Lithium hexafluorophosphate: Leading firms running at full capacity in 2025H2, price rises in 2026 will directly translate to profits
3) Lithium carbonate: Under tight supply-demand balance, price will remain in the 100,000–120,000 yuan/ton range, lithium salt enterprises expected to maintain reasonable profits
2022 During the upstream lithium mine price surge, gross margin figures for batteries, negative electrodes, and separators did not fluctuate markedly, showing the industry chain's ability to pass on price pressure downstream. CATL's geometric average ROE from 2020–2025 reached 15%, with operating net cash flow/parent net profit consistently above 1, showing strong cost control and bargaining power.
3. What to watch next? Who in the industry has greater elasticity?
① Batteries: Growth for both power & storage continues the boom
The battery sector is the main beneficiary of profit distribution in the industry chain; in 2024 CATL's ROE is about 20%, significantly higher than other segments.
② Separators: Supply-demand reversal, price recovery
The separator segment is one of the tightest supply-demand segments in 2026, with wet-process separator utilization expected to remain above 90%.
③ Lithium carbonate: Tight supply-demand balance, price support
In 2026, lithium carbonate price is expected to stay in the 100,000–120,000 yuan/ton range, with lithium salt companies seeing profit recovery.
④ Lithium hexafluorophosphate: Leading firms at full capacity, price rises
Lithium hexafluorophosphate is already at full capacity in 2025H2, and the price uptrend in 2026 is confirmed.
In conclusion,the lithium battery industry is standing at the starting point of a new boom cycle. On the demand side, commercial vehicle electrification and increases in per vehicle battery capacity provide structural increments for power batteries, while the continuation of domestic capacity electricity price policy and AIDC data center ramp-up opens up unprecedented space for energy storage batteries. On the supply side, after three years of capacity clearing, expansion intent across segments is greatly weakened, capital expenditure is trending down, and capacity utilization has meaningfully recovered.
There are clear price increase signals in key material segments: lithium hexafluorophosphate leading firms were running at full capacity in 2025H2, reaching 125,000 yuan/ton in February 2026. Separator prices rose quarter-on-quarter in Q1 2026, with wet-process utilization expected to stay above 90%. Lithium carbonate prices have recovered past 100,000 yuan. Profit distribution in the industrial chain is shifting from "resource end monopoly" to a more balanced pattern of "battery end dominance and material end recovery".
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