The outlook for the lithium battery industry's supply-demand balance is expected to improve in the second half of 2026, leading to a more favorable operating environment.
On the demand side, robust global demand for power batteries is anticipated to continue, supported by recovering domestic demand in China and rising global oil prices.
Furthermore, improving economic returns from diverse revenue models and new application areas are expected to boost the economics of energy storage installations.
Globally, the energy storage sector is entering a phase of synchronized growth in both domestic and international demand.
On the supply side, new capacity expansions in battery cells and midstream materials are primarily focused on high-end products and overseas production.
It is expected that the industry's supply-demand situation will further improve in the latter half of 2026.
Consequently, prices across the industry chain are likely to stabilize and recover, with high-end products potentially capturing higher technology premiums.
Additionally, the accelerated industrialization of solid-state batteries is expected to create investment opportunities in the battery, materials, and equipment sectors.
Investors should focus on leading, high-quality companies within the supply chain that possess greater technological differentiation and stronger cost control capabilities.
New Energy Vehicles: Electrification Penetration Rises, Battery Capacity Per Vehicle Grows
In the domestic Chinese market, wholesale sales of new energy vehicles reached 4.306 million units from January to April 2026, representing a year-on-year increase of 0.2%.
Excluding export sales, domestic sales saw a decline of approximately 20%, primarily due to increased vehicle purchase costs from factors like purchase tax and rising raw material prices.
From a penetration perspective, the domestic wholesale penetration rate of new energy vehicles has been steadily climbing.
It is projected that the wholesale penetration rate for new energy vehicles could exceed 60% in 2026.
As consumers prioritize driving range, the average battery capacity per new energy vehicle in China has increased significantly.
This trend is expected to further stimulate demand for power batteries.
In overseas markets, sales of new energy vehicles in nine major European countries reached 893,000 units from January to March 2026, a year-on-year increase of 30.2%.
Since March 2026, geopolitical conflicts have driven crude oil prices sharply higher and maintained them at elevated levels.
This is expected to directly stimulate sales of new energy vehicles overseas.
Coupled with a new vehicle model cycle that began overseas in 2025, European new energy vehicle sales are forecast to maintain a growth rate of over 30% in 2026.
Energy Storage: Energy Transition and Improving Economics Drive Global Installation Surge
Stimulated by the energy transition and improving project economics, global demand for energy storage installations is experiencing explosive growth.
In the domestic Chinese market, regulatory changes have shifted the business model from mandatory storage pairing with new energy projects to independent energy storage systems.
This market-oriented approach has raised the potential ceiling for energy storage deployment.
It is estimated that China will add approximately 298 GWh of new energy storage capacity in 2026, maintaining rapid growth.
In the U.S. market, new energy storage installations reached 51.0 GWh in 2025, a year-on-year increase of 40%.
The power demand patterns within AI Data Centers present greater challenges to the grid compared to traditional data centers.
Grid-forming energy storage systems paired with AI Data Centers can provide grid stabilization and backup power functions.
Initial orders have been secured, and demand for such paired storage is expected to gradually increase.
In the European market, new energy storage installations reached 29.7 GWh in 2025, a year-on-year increase of 36.2%.
Countries including Germany, Poland, Spain, the UK, and Hungary have successively introduced subsidy policies to promote energy storage across residential, commercial, and utility-scale segments.
Batteries: Volume and Price Rise, Industry Enters Upward Cycle
The industry has clearly entered an upward cycle.
Looking ahead to the second half of 2026, supply tightness for battery cells is expected to partially ease, though high-end products may remain relatively scarce.
On the demand side, the impact of tax rebate policies combined with the arrival of the peak season is expected to further stimulate demand for battery exports.
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, with volume adoption in the power sector expected in the second half of 2026.
Fully solid-state batteries are anticipated to begin road testing in vehicles.
Midstream Materials: Profitability Continues to Recover, Technological Innovation Drives Growth
Since the third quarter of 2025, the operational performance of midstream lithium battery materials has been steadily recovering.
In the first quarter of 2026, revenue for midstream materials achieved year-on-year growth of approximately 30% or more, with overall profitability significantly improving.
Segments involving lithium, such as cathodes and electrolytes, showed particularly notable recovery.
This improvement is attributed to sustained strong downstream demand and a significantly better overall industry supply-demand balance.
Market share among leading companies in most segments has remained relatively stable, with some leaders even gaining further share.
Price pressure has generally been lower compared to the previous two years.
From a capital expenditure perspective, the year-on-year growth rate for fixed assets and construction in progress in the materials segment has remained around 14% over the past three quarters.
Supply growth is mainly concentrated among leading companies.
Smaller players face constraints on capacity expansion due to financing limitations and their own profitability challenges.
This dynamic is expected to lead to further consolidation within the lithium battery industry supply.
Furthermore, the accelerated industrialization of solid-state batteries is expected to spur technological innovation in core incremental areas like solid electrolytes.
It also presents opportunities for iterative upgrades in other segments such as cathodes, anodes, separators, current collectors, and auxiliary materials.
Key Risk Factors
New energy vehicle demand falling short of expectations; energy storage installations falling short of expectations; intensifying industry competition leading to a deteriorating competitive landscape; escalating anti-globalization trends hindering overseas business expansion; significant volatility in upstream raw material prices; delays in customer validation or capacity ramp-up for new technologies; unexpected changes in Chinese policies related to the new energy vehicle industry.
Investment Strategy
The overall supply-demand structure of the lithium battery industry is expected to continue improving in the second half of 2026.
On the demand side, robust global power battery demand is likely to persist, supported by recovering domestic demand in China and high global oil prices.
Improving economics are also driving growth in the global energy storage sector, which is experiencing synchronized demand growth domestically and internationally.
On the supply side, capacity expansions are focused on high-end products and overseas markets.
Industry supply and demand are expected to improve further in the latter half of the year.
Benefiting from this improved structure, industry chain prices are likely to stabilize and rise, with high-end products commanding higher technology premiums.
The accelerated move towards commercial production of solid-state batteries is expected to create investment opportunities in batteries, materials, and equipment.
Focus should be on high-quality leading companies in the supply chain with strong technological differentiation and cost control capabilities.
Areas of focus include applications in new energy vehicles and energy storage, as well as key components and the midstream lithium battery segment.
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