The risk of lithium-ion battery overcapacity in the coming years is real, but it will exhibit structural characteristics, with high-end capacity and integrated companies being more competitive. The following is a detailed analysis:

I. Structural Characteristics of Overcapacity

Replacement of High-End Capacity with Low-End Capacity

Newly built production lines are almost entirely focused on large-capacity battery cells of 314Ah and above, demanding significantly higher energy density, cycle life, and safety standards than before. Older production facilities with outdated processes and inferior performance are rapidly exiting the market under the dual pressure of price wars and technological gaps.

Replacement of Single Links in the Industrial Chain with Integrated Supply Chains

Companies with closed-loop capabilities from lithium mining and materials to recycling have a significant advantage in cost control and supply chain security. Their capacity utilization and risk resistance are far superior to simple processing and assembly plants. The depth of vertical integration is becoming a new competitive moat.

Replacement of Single Domestic Markets with Globalized Capacity

Facing a complex and volatile international trade environment, Chinese energy storage companies are accelerating their localized capacity layout in Southeast Asia, Europe, and North Africa. This is not only a strategy to circumvent trade barriers but also the beginning of exporting technology, capital, and management standards, and deeply participating in global energy governance.

II. Overcapacity Warnings and Data

Overcapacity Warning

Ouyang Minggao, an academician of the Chinese Academy of Sciences, issued a warning about battery overcapacity, stating that China's battery production capacity may reach 3000 gigawatt-hours by 2025, while battery shipments may reach 1200 gigawatt-hours, resulting in significant overcapacity.

Capacity Utilization Data

According to SMM statistics, the total global lithium-ion battery capacity in 2024 reached 4315 GWH, while EVTank statistics show that global lithium battery shipments in 2024 reached 1545 GWH, resulting in a lithium battery capacity utilization rate of only 36%. Entering 2025, global lithium-ion battery production capacity further increased to 5732 GWh, with a growth rate of 33%. EVTank predicts that global lithium-ion battery shipments will reach 1899.3 GWh and 5127.3 GWh in 2025 and 2030, respectively.  This shows that the production growth rate in 2025 is lower than the capacity growth rate, and the current capacity is sufficient to meet the production demand until 2030, indicating a serious overcapacity in the lithium battery industry.

III. Impacts of Overcapacity and Countermeasures

Price Wars and Profit Squeeze

The price war in the lithium battery industry continues. The prices of power-type lithium iron phosphate batteries, energy storage-type lithium iron phosphate batteries, and 523 ternary battery cells have fallen by 67%, 68%, and 64% respectively compared to the beginning of 2023. The decrease in lithium battery costs has not kept pace with the price decrease. The lithium battery industry's disorderly price competition through expanding production capacity has already driven current lithium battery prices below cost.

Technological Iteration and Cost Optimization

New technologies such as solid-state batteries are gradually being applied, which may change the market landscape. The Central China region is building a cost advantage through vertical integration.

Reshaping of Regional Landscape

The East China, Central China, and Southwest China regions have become core areas for battery manufacturing, leveraging their respective advantages. Shandong, Jiangsu, and Zhejiang have become core areas for battery manufacturing due to their chemical industry and port advantages; Hubei has formed a 60 billion RMB energy storage industry cluster, with power battery capacity accounting for over 20%; Sichuan is attracting energy storage battery projects with its low-cost hydropower.

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