CITIC SEC: The overall supply and demand structure of the lithium battery industry is expected to continue to improve. High-end products are expected to capture higher technology premiums.

CITIC SEC released a research report stating that the overall supply and demand structure of the lithium battery industry is expected to continue to improve in the second half of 2026. On the demand side, benefiting from the recovery of domestic demand in China and the increase in global oil prices, the high prosperity of global power battery demand is expected to continue; in addition, factors such as rich income models and new application areas will promote the continued improvement of the economic efficiency of energy storage installations, and the global energy storage industry is entering a stage of upward development driven by domestic and international demand resonance. On the supply side, production expansion in the battery and midstream material sectors is mainly focused on high-end products and overseas markets. The industry is expected to further improve in the second half of 2026, benefiting from the improvement in the supply and demand structure, stabilization and recovery of industry chain prices, and high-end products are expected to capture higher technology premiums. In addition, the industrialization of solid-state batteries is accelerating, bringing investment opportunities in the battery, material, and equipment sectors. Focus on high-quality leading companies in the supply chain with higher levels of technological differentiation and stronger cost control capabilities. 1) New energy vehicles and energy storage applications; 2) Three-electricity and lithium battery midstream segments. CITIC SEC's main points are as follows: New energy vehicles: The penetration rate of electrification continues to increase, and the energy density per vehicle continues to grow. In the domestic market, according to data from the China Association of Automobile Manufacturers, the wholesale sales volume of new energy vehicles reached 4.306 million vehicles in the first four months of 2026, a year-on-year increase of 0.2%, excluding export sales, which declined by about 20% year-on-year, mainly affected by the increase in purchase tax and raw material costs leading to increases in vehicle acquisition costs. From the perspective of penetration rate, the wholesale penetration rate of new energy vehicles in China is steadily increasing, with penetration rates of 40.3%/42.4%/43.2%/53.2% from January to April, and the CITIC predicts that the wholesale penetration rate of new energy vehicles in 2026 is expected to exceed 60%. With users' pursuit of longer range, the energy density per vehicle of new energy vehicles in China has significantly increased. As of April 2026, the energy density per vehicle for pure electric passenger vehicles and hybrid passenger vehicles were 39.9/63.6 kWh, a year-on-year increase of 36.2% and 20.5% respectively, which is expected to further stimulate demand for power batteries. In overseas markets, in the European market, according to data from Marklines, the sales volume of new energy vehicles in nine European countries reached 893,000 vehicles from January to March 2026, a year-on-year increase of 30.2%. Since March 2026, the oil price has surged due to the US-Iran conflict, and the market is expected to directly stimulate sales of overseas new energy vehicles. In addition, with the start of the new car cycle in 2025, the sales volume of new energy vehicles in Europe is expected to maintain a growth rate of over 30% in 2026. Energy storage: The combination of energy transformation and improved economic efficiency drives the explosive growth of global energy storage installations. Under the stimulation of energy transformation and improved economic efficiency, global demand for energy storage installations is experiencing explosive growth. 1) Domestic market: With the cancellation of mandatory storage requirements in Document 136, the commercial model of energy storage in China is shifting from renewable energy storage to independent energy storage, opening up market demand for energy storage. According to data from Carbon Index Energy Storage, and CNESA, in 2025, domestic energy storage filings, tenders, and grid-connected capacities were 1595/462/190GWh respectively, indicating a high level of prosperity. The CITIC predicts that the new domestic energy storage installations in 2026 will be approximately 298GWh, maintaining high-speed growth. 2) US market: According to Wood Mackenzie data, the new energy storage installations in the US reached 51.0GWh in 2025, a year-on-year increase of 40%. In contrast to traditional IDCs, AIDC internal power fluctuations are more convergent, presenting higher challenges to the power grid. Network-type energy storage participating in AIDC storage can realize functions like grid smoothing and backup power. Currently, Fluence and CSI Solar Co., Ltd. have landed some orders first, and it is expected that the demand for AIDC storage will gradually increase. 3) European market: According to SolarPower Europe data, new energy storage installations in Europe reached 29.7GWh in 2025, a year-on-year increase of 36.2%; in terms of regional distribution, Bulgaria in Eastern Europe has seen a rapid increase in market share. Currently, countries such as Germany, Poland, Spain, the UK, and Hungary have successively introduced energy storage subsidy policies to promote installations for household, industrial and commercial, and large-scale energy storage. Battery: The industry enters an upward cycle with both volume and price rising. In 2026 Q1, the overall "fixed assets + construction in progress" of the selected battery industry sample companies grew by approximately 24.2% year-on-year, an increase of 15.2 percentage points, and an increase of 1.7 percentage points compared to the previous quarter. As of April 20, 2026, the mainstream new contract prices in the market are generally above 0.35 yuan/Wh, an increase of over 20% from the 0.29 yuan/Wh at the end of June 2025. The CITIC believes that the industry has clearly entered an upward cycle and foresees that the supply shortage of battery cells may be partially relieved in the second half of 2026, although high-end products are still relatively scarce; on the demand side, the impact of tax rebates combined with the upcoming peak season is expected to further stimulate the demand for battery exports. In terms of new technologies, the industrialization of solid-state batteries is accelerating, with semi-solid-state batteries being applied in the consumer and energy storage industries. In the second half of 2026, there is a possibility that solid-state batteries will be put into mass production for power applications, and full solid-state batteries may undergo on-vehicle road tests. Middlestream materials: Profits continue to recover, driven by technological innovation. Since 2025 Q3, the operation of the middlestream lithium battery materials sector has continued to recover: in 2026 Q1, the income of middlestream lithium battery materials increased by about 30% or more year-on-year, and overall profitability has greatly improved, particularly in areas such as cathode materials and electrolytes. The improved operation in the middlestream sector is benefiting from the continuing improvement in downstream demand prosperity and the obvious improvement in the overall supply and demand structure of the industry. The market share of most leading companies in various sectors remains relatively stable, with some leading companies even increasing their share further, and price pressures compared to the previous two years are generally smaller. From a capital expenditure perspective, the growth rate of "fixed assets + construction in progress" in the materials sector has remained at around +14% in 2026 Q1 over the past three quarters, with supply growth mainly concentrated on leading companies. Under financing constraints and their own profit constraints, tail-end companies may have limited capacity expansion. The CITIC predicts that the supply of the lithium battery industry is expected to be further cleared. In addition, the accelerated industrialization of solid-state batteries is expected to give rise to core incremental segments such as technological innovation in solid-state electrolytes, and opportunities for iterative upgrades in other areas such as cathodes, anodes, separators, collector fluids, and auxiliary materials. Risk factors: New energy vehicle demand falls below expectations; Energy storage installations fall below expectations; Risk of increased industry competition and deteriorating market conditions; Risk of intensified globalization and overseas business expansion falling short of expectations; Risk of significant fluctuations in upstream raw material prices; Risk of new technology customer verification and capacity deployment falling short of expectations; Automobile industry policy changes at Shanxi Guoxin Energy Corporation exceed expectations.