According to a research report released by CITIC SEC (06030), the lithium battery industry's overall sentiment is expected to enter an upcycle looking toward 2027. On the demand side, driven by rising battery capacity per vehicle and higher pure electric vehicle proportions in China, elevated global oil prices, and new model cycles, global power battery demand is expected to remain robust. In addition, factors such as diversified revenue models and emerging application scenarios like AIDC are pushing energy storage installation economics higher, bringing global energy storage into a phase of coordinated upward demand both domestically and internationally. On the supply side, new capacity expansions in battery and mid-stream material segments are mainly focused on high-end products and overseas capacity. The firm expects further supply-demand improvement in 2027, with overall industry chain prices stabilizing and recovering, and high-end products capturing higher technology premiums. Moreover, accelerated industrialization of solid-state and sodium batteries is expected to create investment opportunities across battery, material, and equipment segments. Focus should be placed on high-quality leading supply chain companies with greater technological differentiation and stronger cost control capabilities.
Key Views from CITIC Securities
New Energy Vehicles: Electrification Penetration Continues to Rise, Battery Capacity per Vehicle Keeps Growing
Domestic market: According to data from the China Association of Automobile Manufacturers, China's new energy vehicle wholesale sales from January to September 2026 reached 12.47 million units, up 11.4% year-on-year, though excluding export sales, the figure declined approximately 10% year-on-year, mainly affected by higher purchase costs from purchase tax and rising raw material prices. In terms of penetration rate, domestic new energy wholesale penetration has steadily increased, with rates from May to September at 56.9%, 58.4%, 60.4%, 60.6%, and 61.7% respectively, and the firm expects it to reach 60% for the full year 2026. As users pursue longer driving ranges, battery capacity per vehicle for domestic new energy vehicles has significantly increased. As of September 2026, battery capacity per vehicle for China's new energy pure electric passenger vehicles and hybrid passenger vehicles stood at 43 KWh and 63.8 KWh respectively, up 46.3% and 13.5% year-on-year. The firm expects that rising battery capacity per vehicle combined with a higher proportion of pure electric models will further stimulate power battery demand.
Overseas market: According to Marklines data, new energy vehicle sales in nine European countries from January to August 2026 reached 2.57 million units, up 35.3% year-on-year. Since March 2026, affected by the US-Iran conflict, crude oil prices have surged and remained elevated, directly stimulating overseas new energy vehicle sales. Combined with the overseas new model cycle that began in 2025, the firm expects European new energy vehicle sales to maintain growth of over 35% in 2026.
Energy Storage: Global Demand Remains Robust, AIDC Expected to Open Incremental Space
Driven by energy transition and improving economics, global energy storage installation demand has seen rapid growth, mainly reflected in continuously improving domestic economics, resilient US demand with AIDC contributing new increments, and accelerated development of large-scale storage in Europe. 1) Domestic market: With Document No. 136 eliminating mandatory storage configuration, China's energy storage business model is shifting from policy-driven to market-driven, transitioning from new energy paired storage to independent energy storage, with market-driven demand opening up the ceiling. According to data from Tansuo Energy Storage WeChat public account, Xunhuan Research Institute WeChat public account, and CNESA (China Energy Storage Alliance), China's energy storage filing, bidding, and grid connection scales in 2025 were 1,595/462/190 GWh respectively, indicating high industry sentiment. The firm expects domestic energy storage installations to grow 30%-40% year-on-year in 2027, maintaining high-speed growth; 2) US market: According to Wood Mackenzie data, US energy storage new installations in 2025 were 51.0 GWh, up 40% year-on-year. Compared with traditional IDCs, computing power card power fluctuations in AIDC are more synchronized, posing greater challenges to the grid. Grid-forming energy storage participating in AIDC storage configuration can achieve grid smoothing and backup power functions. Currently, Fluence and Canadian Solar have taken the lead in landing some orders. The firm is bullish on the gradual release of AIDC storage configuration demand and expects US energy storage installations to grow 30% year-on-year in 2027; 3) European market: According to SolarPower Europe data, European energy storage new installations in 2025 were 29.7 GWh, up 36.2% year-on-year. By region, Bulgaria's share in Eastern Europe increased rapidly in 2025. Currently, Germany, Poland, Spain, the UK, Hungary and other countries have successively introduced energy storage subsidy policies to promote residential, commercial and industrial, and large-scale storage installations. The firm expects European energy storage installations to grow 50% year-on-year in 2027; 4) Emerging markets: Currently still at a relatively low installation base, but benefiting from large project deliveries and rising distributed storage penetration, the firm expects emerging markets to enter an acceleration phase in 2027, with installations growing 80% year-on-year.
Batteries: Demand Resilience Expected to Continue, Overseas Share Keeps Rising
On the demand side, the firm expects global lithium battery demand to reach 3,180 GWh and 3,960 GWh in 2026 and 2027 respectively, still maintaining approximately 25% growth in 2027. As of the end of Q2 2026, according to company announcements, inventory levels of sample battery companies have increased, mainly due to peak season stocking, while inventory turnover days remain at relatively low levels. Industry fixed assets and construction-in-progress scale grew 28.3% year-on-year, which is relatively moderate. Lithium battery export tax rebates will be fully cancelled starting from 2027, which is expected to further drive a rush of exports in the short term. Regarding profit impact, under an extremely pessimistic scenario, the cancellation of export tax rebates is expected to affect battery companies' export business net margin by approximately 5.1%, but the firm believes that upstream raw material price declines and a longer market response window mean the actual impact may be smaller. In terms of market share, Chinese companies have further increased their share in the global power battery market and also hold an absolutely leading advantage in the energy storage market.
Lithium Battery Materials: Profitability Further Improves, Technological Innovation Drives Growth
On the operational level, since Q3 2025, the mid-stream lithium battery materials segment has continued to recover: Q2 2026 lithium battery mid-stream material revenue achieved approximately 30% or more year-on-year growth, with overall profitability significantly improved, among which cathode, electrolyte and other lithium-related segments showed notable recovery. The operational improvement in mid-stream segments benefits from both continuously rising downstream demand sentiment and significantly improved industry supply-demand dynamics. Leading companies' shares in most segments remain relatively stable, with some segment leaders even further increasing their share, and price pressure is generally smaller compared to the previous two years. From a capital expenditure perspective, supply growth in the materials segment in 2026 is mainly concentrated among leading companies, while tail-end companies face capacity expansion constraints due to financing and profitability limitations. The firm judges that lithium battery industry supply is expected to undergo further consolidation.
New Scenarios: Solid-State and Sodium Batteries Accelerate Iteration, Battery Recycling Expected to Begin Volume Ramp-Up
The emergence of new scenarios is driving accelerated industrialization of solid-state batteries and sodium batteries: semi-solid-state batteries have already been applied at scale in consumer and energy storage markets, and on the power side, semi-solid-state/all-solid-state batteries are expected to make breakthroughs in 2027. In addition, accelerated solid-state battery industrialization is expected to generate core incremental segments such as solid-state electrolyte technological innovation, as well as iterative upgrade opportunities in other segments including cathode, anode, separator, current collector, and auxiliary materials. Finally, with the continuous volume ramp-up of retired batteries and tightening regulation, the firm believes that the inflection point for the battery recycling industry's sentiment will also accelerate.
Risk Factors
New energy vehicle demand falling short of expectations; energy storage installations falling short of expectations; intensifying industry competition and deteriorating landscape risk; intensifying anti-globalization and overseas business expansion falling short of expectations; significant fluctuation risk in upstream raw material prices; new technology customer validation and capacity deployment falling short of expectations; and unexpected changes in China's new energy vehicle industry policies.
Investment Strategy
Looking toward 2027, the lithium battery industry's overall supply-demand is expected to continue improving. On the demand side, benefiting from domestic large battery demand plus rising pure electric vehicle proportion, as well as high overseas oil prices and model cycles, global power battery demand is expected to remain robust. In addition, factors such as diversified revenue models and emerging application scenarios like AIDC will drive energy storage installation economics to continue improving, bringing global energy storage into a phase of coordinated upward demand both domestically and internationally. On the supply side, capacity expansion in battery and mid-stream material segments is mainly focused on high-end products and overseas markets. The firm expects further supply-demand improvement in 2027, with industry chain prices stabilizing and recovering, and high-end products expected to capture higher technology premiums. Moreover, accelerated solid-state battery industrialization is expected to bring investment opportunities across battery, material, and equipment segments. Focus should be placed on high-quality leading supply chain companies with greater technological differentiation and stronger cost control capabilities. 1) New energy vehicle and energy storage application end; 2) Three electric systems and lithium battery mid-stream segments.