CITIC SEC has released a research report stating that, looking ahead to the second half of 2026, the overall supply-demand structure of the lithium battery industry is expected to continue improving. On the demand side, benefiting from domestic demand recovery in China and rising global oil prices, the high growth momentum for global power battery demand is projected to persist. Furthermore, factors such as enriched revenue models and new application fields are driving continued improvements in the economics of energy storage installations. The global energy storage sector is entering a development phase characterized by synchronized upward demand both domestically and internationally.
On the supply side, capacity expansion in the battery and midstream materials segments is primarily focused on premium products and overseas markets. The institution anticipates a further improvement in industry supply and demand in the second half of 2026. Benefiting from this improving supply-demand structure, industry chain prices are expected to stabilize and recover, with premium products likely to capture higher technology premiums. Additionally, the accelerated industrialization of solid-state batteries is expected to bring investment opportunities in the battery, materials, and equipment segments. The focus should be on high-quality leading companies in the supply chain with greater technological differentiation and stronger cost-control capabilities, specifically in: 1) new energy vehicle and energy storage application segments; and 2) the three-electric system and lithium battery midstream segments.
CITIC SEC's main views are as follows:
**New Energy Vehicles: Electrification Penetration Rate Continues to Rise, Battery Capacity Per Vehicle Keeps Growing**
In the domestic market, according to data from the China Association of Automobile Manufacturers, wholesale sales of new energy vehicles in China reached 4.306 million units from January to April 2026, a year-on-year increase of 0.2%. Excluding export sales, the figure actually declined by approximately 20% year-on-year, mainly affected by increased vehicle purchase costs due to factors such as purchase tax and rising raw material costs. From a penetration rate perspective, the domestic wholesale penetration rate of new energy vehicles has been steadily increasing, with rates of 40.3%, 42.4%, 43.2%, and 53.2% for January through April, respectively. The institution expects the wholesale penetration rate of new energy vehicles in China to potentially exceed 60% in 2026. As users pursue longer driving ranges, the average battery capacity per new energy vehicle in China has increased significantly. As of April 2026, the average battery capacity per pure electric passenger vehicle and plug-in hybrid passenger vehicle in China was 39.9 kWh and 63.6 kWh, representing year-on-year increases of 36.2% and 20.5%, respectively, which is expected to further stimulate power battery demand.
Overseas, in the European market, according to Marklines data, new energy vehicle sales in nine European countries reached 893,000 units from January to March 2026, a year-on-year increase of 30.2%. Since March 2026, affected by the US-Iran conflict, crude oil prices have surged and remained high. The institution expects this to directly stimulate sales of new energy vehicles overseas. Coupled with the new vehicle launch cycle that began overseas in 2025, it is anticipated that European new energy vehicle sales in 2026 could maintain a growth rate of over 30%.
**Energy Storage: Energy Transition Coupled with Improved Economics Drives Global Energy Storage Installation Boom**
Stimulated by the energy transition and improved economics, global demand for energy storage installations is experiencing explosive growth.
1) Domestic Market: With the cancellation of mandatory energy storage allocation under Document No. 136, the domestic energy storage business model has shifted from new energy-paired storage to independent energy storage, with market-driven demand raising the ceiling for energy storage. According to data from Carbon Quest Energy Storage, the Xunshang Research Institute WeChat public account, and CNESA (China Energy Storage Alliance), the domestic energy storage project filing, bidding, and grid-connection scales in 2025 were 1,595 GWh, 462 GWh, and 190 GWh, respectively, indicating a high level of activity. The institution expects domestic new energy storage installations in 2026 to be approximately 298 GWh, maintaining rapid growth.
2) US Market: According to Wood Mackenzie data, new energy storage installations in the US in 2025 were 51.0 GWh, a year-on-year increase of 40%. Compared to traditional IDCs, power fluctuations within AIDCs are more synchronized, posing greater challenges to the power grid. Grid-forming energy storage participating in AIDC allocation can achieve functions such as grid smoothing and backup power. Currently, companies like Fluence and Canadian Solar have secured initial orders. There is optimism regarding the gradual release of demand for AIDC-paired storage.
3) European Market: According to SolarPower Europe data, new energy storage installations in Europe in 2025 were 29.7 GWh, a year-on-year increase of 36.2%. Regionally, Bulgaria's share in Eastern Europe increased rapidly in 2025. Currently, countries including Germany, Poland, Spain, the UK, and Hungary have successively introduced energy storage subsidy policies, promoting installations in residential, commercial & industrial, and utility-scale storage.
**Batteries: Volume and Price Rise Together, Industry Enters Upward Cycle**
In Q1 2026, the combined "fixed assets + construction in progress" amount for selected sample companies in the battery industry grew at a year-on-year rate of approximately 24.2%, an increase of 15.2 percentage points year-on-year and 1.7 percentage points quarter-on-quarter. This marks the fifth consecutive quarter of sequential growth since the low point of 8.0% in Q4 2024. On the price front, as of April 20, 2026, mainstream newly contracted market prices were generally maintained above 0.35 yuan/Wh, representing an increase of over 20% compared to 0.29 yuan/Wh at the end of June 2025. The institution believes the industry has clearly entered an upward cycle. Looking ahead to the second half of 2026, it is expected that tight supply of battery cells may partially ease, but premium products will remain relatively scarce. On the demand side, influenced by tax rebate policies and the approaching peak season, a further surge in demand for battery exports is anticipated.
Regarding new technologies, the industrialization of solid-state batteries is accelerating. Semi-solid-state batteries are already being used in consumer electronics and energy storage industries, with volume deployment expected in the power sector in the second half of 2026. Full solid-state batteries are expected to undergo vehicle road testing.
**Midstream Materials: Profitability Continues to Recover, Technological Innovation Drives Growth**
Operationally, since Q3 2025, the lithium battery midstream materials segment has seen continuous operational recovery. In Q1 2026, revenue for lithium battery midstream materials achieved year-on-year growth of approximately 30% or more, with overall profitability significantly improving. Sectors involving lithium, such as cathodes and electrolytes, showed notable recovery. The operational improvement in the midstream segment benefits from both the sustained high demand downstream and a significant improvement in the overall industry supply-demand balance. Market shares of leading companies in most segments remain relatively stable, with some leaders even further increasing their share. Price pressures are generally lower compared to the previous two years.
From a capital expenditure perspective, the year-on-year growth rate of "fixed assets + construction in progress" for the materials segment in Q1 2026 has remained around +14% over the past three quarters. Supply growth is mainly concentrated among leading companies, while capacity expansion for smaller players is constrained by financing limitations and their own profitability. The institution judges that supply in the lithium battery industry is expected to undergo further consolidation.
Furthermore, the accelerated industrialization of solid-state batteries is expected to spur technological innovation in core incremental areas such as solid-state electrolytes, as well as create opportunities for iterative upgrades in other segments like cathodes, anodes, separators, current collectors, and auxiliary materials.
**Risk Factors:** New energy vehicle demand falling short of expectations; energy storage installation volumes falling short of expectations; intensifying industry competition and risk of deteriorating market structure; escalating anti-globalization and overseas business expansion falling short of expectations; significant price fluctuations in upstream raw materials; new technology customer validation and capacity ramp-up falling short of expectations; unexpected changes in China's new energy vehicle industry policies.
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