The global lithium battery cathode material industry is experiencing rapid expansion, primarily driven by the new energy vehicle and energy storage markets, with Chinese companies holding a dominant position. However, intense homogenized competition and significant price fluctuations in upstream raw materials are collectively squeezing industry profit margins. Against this backdrop, "anti-involution" policies, including industry self-regulation initiatives, export controls, and adjustments to tax rebates, are being implemented, compelling manufacturers to accelerate technological innovation and global strategic layouts. The competitive landscape is showing clear divergence, with leading companies operating at or above full capacity, while outdated and inefficient capacities face elimination. Looking ahead, technological advancements and strategic upstream resource integration are expected to further increase market concentration, ushering in a new phase of high-quality competition where stronger players grow stronger. The lithium battery recycling industry is set to peak with the coming wave of retired power batteries, while the mass production of sodium-ion batteries and breakthroughs in solid-state battery technology could potentially reshape the existing industry structure.
Industry Overview: Dual Demand Drivers Cathode materials are a core component of lithium batteries, responsible for the intercalation and deintercalation of lithium ions and determining key performance metrics such as energy density, cycle life, and safety. Among the four main battery materials (cathode, anode, electrolyte, separator), cathode materials account for the highest cost share. Global lithium battery shipments reached 2,280.5 GWh in 2025, a year-on-year increase of 47.6%. Power batteries remained the primary demand driver, with shipments of 1,495.1 GWh, accounting for approximately 65.6% of the total. Energy storage batteries were the main source of growth, with shipments reaching 651.5 GWh, a significant 76.2% year-on-year increase. Small batteries, including those for 3C products, accounted for 133.9 GWh, or about 5.9%, with emerging technologies like AI and robotics creating new growth opportunities. Growth in power battery demand has moderated alongside a slowdown in new energy vehicle sales growth to the 20%-30% range, compared to the doubling seen in 2021. In contrast, energy storage battery demand, driven particularly by the Chinese market, is in a period of high-speed growth. Chinese companies accounted for 94.4% of global energy storage battery shipments in 2025, with the top ten global suppliers all being Chinese firms. China's leadership in the energy storage sector, achieved since 2022, supports the continued momentum of the lithium battery industry.
Structural Shift: LFP Becomes Mainstream, NCM Share Contracts Boosted by robust downstream demand from power and energy storage batteries, the cathode material industry has expanded rapidly. Total cathode material shipments climbed from 1.315 million tons in 2021 to 4.798 million tons in 2025. However, the growth rate has moderated from a high of 101.6% in 2021 to 26.1% in 2024, before rebounding to 48.5% in 2025 due to the energy storage market boom. A significant structural shift has occurred: the market share of nickel-cobalt-manganese (NCM) ternary materials contracted sharply from 50.4% in 2021 to 18.3% in 2025. Conversely, lithium iron phosphate (LFP) saw its share surge from around 30% to over 70% during the same period, establishing itself as the mainstream cathode material. Shipments of lithium cobalt oxide (LCO) and lithium manganese oxide (LMO) remained relatively stable, but their market shares diminished amid the overall market expansion. This shift is attributed to LFP's technological improvements, including energy density breakthroughs exceeding 200 Wh/kg, bringing it closer to medium/low-nickel NCM levels, coupled with advantages in cycle life, cost control, and safety, making it the preferred choice for many mainstream automakers and the dominant material for energy storage batteries.
However, rapid market expansion has led to fierce competition. Product homogenization and volatile raw material prices have severely compressed profit margins. The market price for LFP materials plummeted from approximately 170,000 yuan/ton at the end of 2022 to around 40,000 yuan/ton by the end of 2025, a drop exceeding 75%. Industry data from late 2025 indicated that the average production cost for mainstream LFP materials was between 15,700 and 16,400 yuan/ton (excluding tax), while the average selling price was only about 14,200 yuan/ton (excluding tax), resulting in price-to-cost inversion. Severe overcapacity of homogeneous LFP capacity is the core reason for persistent price declines and widespread losses among producers. NCM material prices also followed a pattern of sharp increases followed by declines. The price for high-nickel NCM811 materials fell from over 400,000 yuan/ton in 2022 to around 165,000 yuan/ton by the end of 2025. By mid-2025, the selling price for NCM811 was close to its estimated production cost, putting significant pressure on profitability.
Global Competition and Policy: China Dominates, Concentration Rises The global cathode material industry is highly concentrated and dominated by Chinese companies, with the influence of South Korean and Japanese firms waning. By the first half of 2025, China accounted for over 95% of global LFP production capacity. The combined market share of the top five LFP producers globally was 56% in 2025, with the top ten all being Chinese companies. For NCM materials, the top ten companies held a combined market share of 84.9%, including seven Chinese and three South Korean firms. High concentration intensifies the Matthew Effect, characterized by structural overcapacity. Leading LFP producers reported capacity utilization rates exceeding 80% in H1 2025, with some like Hunan Yuneng operating above 100% for the full year. In contrast, smaller producers with outdated technology faced low capacity utilization due to insufficient orders. The overall capacity utilization rate for the NCM sector was weaker, estimated around 50% globally, but leading companies with upstream resource integration and technological advantages maintained utilization rates above 90%, highlighting the growing divergence within the industry.
"Anti-involution" policies are guiding the industry towards healthier development. In July 2024, Chinese authorities emphasized industry self-regulation to prevent vicious "involutionary" competition. In August 2025, an industry initiative was launched by major LFP producers, advocating against恶性 price competition and rational pricing. The倡议 proposed that companies with capacity utilization below 70% should pause new capacity expansions and淘汰 outdated capacity. If the industry-wide utilization rate falls below 60%, all sector-wide expansion should be halted in favor of technological upgrades, aiming to accelerate the exit of inefficient capacity. Further measures included export controls on high-performance lithium batteries and materials implemented in November 2025, and adjustments to export tax rebates effective from April 2026 and January 2027, gradually reducing and then eliminating VAT rebates for battery products. These policies are shifting the industry from policy-supported growth to market-driven competition, forcing companies to enhance technology and product value. While beneficial for long-term sustainability, short-term volatility remains a concern. Internationally, resource-rich nations and major consumer markets are implementing local protectionist policies, such as export bans or quotas on key metals like nickel (Indonesia) and cobalt (Democratic Republic of Congo), and local content requirements (e.g., US tax credits, EU strategic raw materials targets). This makes overseas resource integration and localized production crucial for Chinese cathode material companies to ensure supply chain security and market access.
Raw Material Strategy: Upstream Integration is Critical Key raw materials for cathode production include phosphorus, iron, manganese, nickel, cobalt, and lithium. Phosphorus, iron, and manganese resources are relatively abundant. Many LFP producers have integrated磷矿 resources, while those focusing on LMFP are securing manganese sources. In contrast, nickel, cobalt, and lithium have limited global reserves, concentrated geographic distribution, and experience significant price volatility, making them strategic priorities for integration, especially for NCM producers. Companies are actively securing resources globally, for example, in the DRC for cobalt, Indonesia for nickel, and South America for lithium. Price volatility for these key metals poses major cost risks. In LFP, lithium carbonate accounts for over 40% of material cost. In high-nickel NCM811, lithium hydroxide, nickel sulfate, and cobalt sulfate account for approximately 35%, 34%, and 17% of costs, respectively. Therefore, upstream integration is vital for cost control and competitiveness. However, the high capital intensity and barriers to entry for lithium, nickel, and cobalt projects favor large players, reinforcing the trend towards a "stronger get stronger" landscape and further concentration.
Outlook: Tech Evolution and Recycling Present Opportunities The global cathode material market is poised for substantial growth, supported by steady expansion in EVs, the booming Chinese energy storage market, and emerging applications in AI and robotics. However, fierce competition necessitates a focus on high-quality development under the "anti-involution" policy framework. Companies must invest in R&D and control raw material costs. Market divergence is expected to continue, with high utilization rates for leaders and the gradual exit of落后 capacity. Future success will depend on building cost advantages and supply chain resilience through technological barriers, upstream integration, and process optimization. China will aim to maintain its leadership in the global lithium battery chain by promoting sustainable competition.
Technologically, LFP dominance in power and storage is expected to continue, with a focus on increasing energy density. NCM technology is evolving towards higher voltage medium-nickel, higher nickel content, and lower/no cobalt formulations to address resource scarcity and price volatility. Battery recycling is set to grow significantly as the first wave of EV batteries reaches end-of-life around 2026-2027. Recycling offers more value for NCM batteries due to their higher content of precious metals compared to LFP.
Beyond current technologies, sodium-ion and solid-state batteries represent important future directions. Sodium-ion batteries offer cost and low-temperature performance advantages by avoiding nickel and cobalt dependence, though energy density limitations currently restrict them to applications like low-speed EVs. Commercialization is accelerating, as evidenced by certifications achieved in 2025. Solid-state batteries promise enhanced safety and energy density by replacing liquid electrolytes with solid alternatives. While full solid-state batteries face cost and manufacturing challenges, semi-solid batteries are already entering the market, as demonstrated by vehicle launches in late 2025. These emerging technologies present new opportunities but require careful evaluation regarding maturity and cost-effectiveness.
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