Can rising lithium costs save China’s energy storage firms from a brutal price war?

China’s energy storage firms, battered by a three-year price war, have been jolted by lithium battery maker Deegares, which has announced plans to raise prices by 15 per cent, a move that is sparking debate over whether the sector could be the first to break free from the “involution” cycle.\nRising lithium costs were the immediate trigger, with at least three other battery makers reported in recent weeks to be planning similar increases. Prices of the metal, crucial to rechargeable batteries, have rebounded about 70 per cent from this year’s trough, boosted by a global investment boom in artificial intelligence and a rush of electric vehicle purchases in mainland China.\nThe price rise comes as Beijing’s “anti-involution campaign” spread to battery manufacturing. In late November, the Ministry of Industry and Information Technology met 12 industry leaders, including BYD chairman Wang Chuanfu, and pledged to roll out measures faster to curb “irrational” competition.\n“It is not easy to see significant improvement, as the domestic supply remains at a high level,” said Pierre Lau Hin-tat, China equity strategist at Citigroup Global Markets.\n\nEnvision Group, a leader in the energy storage sector, complained in August that around one-third of system integrators were selling products below cost, contributing to an 80 per cent slump in selling prices over three years.\nInvestment bank Bocom International forecast that the anti-involution campaign would continue despite the recent rally.\nLau said some mainland giants like Sungrow were operating with gross profit margins of 15 per cent to 20 per cent on domestic sales, well below the 40 per cent to 50 per cent margins seen in the United States. Exports provided the real earnings for energy storage firms, Lau added.\nAmid the global investment craze in AI data centres, the US and Europe – with ageing power grids – are particularly desperate for energy storage systems, which store electricity generated during off-peak hours and release it during peak demand.\nFor the first 11 months of the year, China exported 4.25 billion units of lithium batteries worth more than US$69 billion, up 19.3 per cent and 25.6 per cent respectively from a year earlier. Germany and the US were the top destinations, accounting for over 18 per cent and around 16 per cent of total shipments, respectively.\nThe US cap of 25 per cent on the share of Chinese components in battery imports may dampen demand, but Lau said mainland energy storage system firms were responding by sourcing replacements from South Korea.\n\nLau expected overseas sales to remain a major strategy for mainland companies in 2026 to secure higher margins, which would align with Beijing’s repeated calls for firms to “go-global”.\nThe phasing out of electric vehicle (EV) purchase subsidies is also driving demand. Hong Kong-listed industry giant Contemporary Amperex Technology (CATL) said in mid-November that its energy storage cell production was running at full capacity.\nCompanies are optimistic about next year, with Shenzhen-listed Sungrow forecasting global energy storage demand to grow 40 per cent to 50 per cent next year. Trina Solar, traded in Shanghai, expected shipment volumes could double to 16 gigawatt hours.\nCapacity expansion is also under way. For instance, CATL still had 235 GWh under construction as of June, while Hunan Zhongke Electric announced in December a plan to produce 300,000 tonnes of lithium battery anode material.\nOn the sustainability of the current recovery, Nomura analyst Ethan Zhang said more time was needed to assess whether domestic EV sales would plunge as subsidies faded. He noted that the current lithium prices remained 83 per cent below the 2022 peak of more than 600,000 yuan (US$85,211) per tonne.\n“As demand from energy storage increases, we expect the supply surplus will keep declining next year,” Zhang said.\n