GF Securities: Energy storage demand drives cycle reversal, batteries and materials usher in new opportunities.

GF Securities released a report stating that domestic passenger car sales are steadily increasing, while commercial vehicles are penetrating the market rapidly. The demand is exceeding expectations due to the cycle of new car models overseas. The core critical growth threshold for supply and demand balance in the lithium battery industry is 30%. It is estimated that total demand for lithium batteries in 2026 will reach 2495GWh, a year-on-year increase of 28% compared to 1944GWh in 2025. The company is optimistic that the demand for power and energy storage will drive a reversal in the lithium battery cycle, presenting new opportunities for battery and materials development. GF Securities' main points are as follows: Power: domestic passenger car sales are steadily increasing, commercial vehicles are penetrating the market rapidly, and overseas new car models are driving demand beyond expectations. Regionally: (1) China: the demand is driven by aggressive installations in 2025. It is expected that passenger car sales will steadily increase in 2026, commercial vehicles will rapidly penetrate the market, and the contribution of electrified vehicles per vehicle will lead to additional growth. (2) USA: Market demand will be suppressed by the Big BEV Act and FEOC adjustments in 2025, with growth expected to slow in 2026. (3) Europe: The rate of electrification increased in 2025, and growth will be driven by carbon emission regulations and new car model cycles in 2026. (4) Other regions: Policy incentives have been released, driving an increase in the rate of electrification. The company estimates that the global demand for power batteries in 2025-2027 will be 1253.4/1520.5/1834.2GWh with year-on-year growth rates of 26%/21%/21%. Energy storage: Improving the capacity and electricity price in China will drive the growth of large-scale storage domestically and economically drive the growth of overseas energy storage. Regionally: (1) China: The promotion of capacity and electricity price policies and the accelerated construction of spot markets have led to the high-speed growth of large-scale storage demand domestically. (2) USA: Details of the Big BEV Act have not yet been released, but data center storage availability is expected to contribute to incremental growth. (3) Europe: High fluctuations in negative electricity prices and the urgent demand for flexible resources make it likely that large-scale storage development will accelerate. (4) Other regions: Chinese companies have seen a rapid growth in overseas energy storage project orders. The economic efficiency of domestic energy storage projects has improved, and foreign energy storage has become more economically viable, opening up long-term growth prospects. It is estimated that the global energy storage installed capacity will reach 279/423/563GWh in 2025-2027, with year-on-year growth rates of 44/52/33%, and global energy storage battery shipments will reach 544/824/1098GWh, with year-on-year growth rates of +73/52/33%. Supply: It is expected that the industry will be in a tight balance in 2026, and the profitability of the industrial chain is expected to be restored. Leading companies have poor profitability and a lack of expansion intentions, leading to a general increase in the prices of main and auxiliary materials during the peak demand season. The company believes that 30% is the core critical growth threshold for supply and demand balance in the lithium battery industry. It is estimated that total demand for lithium batteries in 2026 will reach 2495GWh, a year-on-year increase of 28% compared to 1944GWh in 2025, still in a tight balance between supply and demand. Once the demand growth rate exceeds 30%, the supply side will quickly fall into a shortage. Solid-state batteries: Materials focus on electrolytes and negative electrodes. (1) Electrolytes: Currently, lithium sulfide accounts for about 77-80% of the cost of sulfur-based electrolytes. In the long run, the cost advantage of raw materials will gradually disappear with the expansion of production and self-sufficiency, and there is more room for cost reduction through complex decomposition methods. (2) Negative electrodes: Lithium metal negative electrodes can significantly increase the energy density of batteries. They are currently partially used in solid-state batteries domestically and internationally. Non-negative electrode technology is a special form of lithium metal negative electrodes, which can further reduce costs and increase efficiency. Risk warning: New energy vehicle sales are lower than expected; midstream prices fall more than expected; technological upgrade progress is slower than expected; production progress is slower than expected.