Review of lithium battery industry chain price increases: The current point is similar to Q4 2020, and both volume and profit growth can be expected

After enduring three years of price declines and squeezed profits, the lithium battery industry chain is once again standing at a crucial time window.

In its latest industry report, Dongwu Securities systematically reviewed the full price increase cycle of the lithium battery industry chain from 2020–2022, and pointed out: The current stage of the industry closely resembles the fourth quarter of 2020—demand has started unexpectedly strong, prices are in the bottom-testing phase, company profits are at historical lows, but expansion willingness is significantly suppressed.

Under this combination of conditions, the industry chain is expected to re-enter a “dual recovery of volume and profit,” rather than merely an emotional rebound.

Looking back at 2020–2022: A round of systemic price increases triggered by unexpected demand

Reviewing the previous cycle of lithium battery price increases, the core was not a supply shock to a single material, but demand exceeding market expectations for two consecutive years.

Starting from the second half of 2020, domestic new energy vehicle sales rapidly recovered and accelerated, with penetration rates quickly rising from 4%–5% to nearly 10%. Leading battery manufacturers such as CATL repeatedly upgraded their production guidance, and industry shipments in 2021–2022 significantly exceeded forecasts at the start of those years. Against the backdrop of continually unexpected demand, the pricing system of the industry chain started to loosen from the bottom up.

In terms of the pace of price increases, the previous cycle showed a clear transmission path:

Electrolyte (lithium hexafluorophosphate) takes the lead → lithium carbonate rebounds slightly → positive/negative electrode processing fees rise → lithium carbonate enters the main surge → comprehensive price increases in batteries and vehicles.

Among them, the price of lithium hexafluorophosphate started from the bottom Q3 2020 at ¥70,000/ton, reaching a peak of ¥580,000/ton by early 2022; lithium carbonate, under supply-demand mismatch and restocking in the second half of 2021, rose far more than market expectations, and once soared to ¥600,000/ton.

More importantly, during the strong demand phase, the midstream had strong ability to pass price increases upstream:

Electrolyte and battery profitability expanded significantly;Positive electrode material enterprises, under the “m-1 pricing” mechanism, amplified profit flexibility through inventory gains;Vehicle manufacturers during rapid volume expansion could smoothly pass cost pressures onto end consumers.

Why is “now more like Q4 2020”?

Dongwu Securities believes that the industry's current position is highly similar to Q4 2020 across several key metrics.

First, prices and profits are at lower levels. Whether lithium hexafluorophosphate, positive electrode processing fees, or lithium carbonate prices, all are significantly lower than before the previous cycle started, and industry profitability has stayed at a low point for nearly three years, with companies' demands for price recovery much stronger than in 2020.

Second, expansion willingness is significantly weaker than in 2021. Unlike the previous cycle’s simultaneous price increases and large-scale expansions, this cycle—after excess capacity and capital expenditure contraction—shows a significant slowdown in new supply releases. Dongwu Securities estimates that the supply-demand tension in key segments in 2026 will be about 80%–90%; although not as extreme as 2021, it’s sufficient to support price flexibility.

Third, “unexpected demand” is replaying, but with structural changes. This cycle’s demand increment is not driven solely by new energy vehicles, but more by continued expansion in energy storage. Energy storage is more sensitive to price, but under current cost structures, even if battery prices rise 0.04–0.05 yuan/Wh, the impact on project IRR is relatively limited, giving real room for midstream materials and battery end price recovery.

It’s important to emphasize that, this round of increases is more likely a “moderate recovery” rather than the surge seen in 2021–2022. The narrowing supply-demand gap and greater end-client price sensitivity will constrain the slope of price increases, but do not change the direction of profit recovery from the bottom.

Not a repeat of history, but a rhyme

At the stock price level, the lithium battery sector experienced a full cycle from “dual rise in profits and valuation” to “dual kill” from 2020–2023. Currently, most leading companies, under the assumption that profits in 2026 only recover to reasonably normal levels, have valuations well below 20x; the industry still has about 20% growth potential in 2027.

Compared to mid-2021, when profits were at their peak and valuations switched to the future high-speed growth, pricing often exceeded 30x, the current lithium battery sector is closer to a combination of “profit bottom + valuation bottom”. This is also why Dongwu Securities judges it is more appropriate to re-examine lithium battery assets from an industry cycle perspective rather than a short-term trading perspective.

History will not simply repeat itself, but cycles often rhyme.

Considering the four dimensions of demand, supply, price, and valuation, the current lithium battery industry chain is more like Q4 2020:

Demand has started to exceed expectations;Prices are in a tentative recovery phase;Company profits have fully cleared at low levels;A new round of capital expenditure has not yet begun on a large scale.

Against this backdrop, the lithium battery industry chain is not headed for an emotional rebound, but entering a medium-term upward window focused on “volume and profit recovery”. For investors, what may be worth focusing on is not whether prices can reach previous cycle highs, but whether the profit curve has already confirmed its upward inflection point.

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