A new research note from China Securities Co., Ltd. suggests the lithium battery sector's significant outperformance since September 2025 is primarily fueled by a storage boom, leading to higher volumes and profits. This trend was reinforced by clear domestic storage capacity pricing and higher international oil prices benefiting renewables. However, since May, the reopening of the Strait of Hormuz has lowered oil prices, causing market expectations to narrow and raising doubts about demand for 2026-27. The core debate now centers on two questions: what will the demand growth and supply-demand balance look like in 2027, and when will a consensus on this expectation form?
The broker believes overly pessimistic views on 2027 will be corrected when lithium carbonate prices stabilize between July and November, and as storage tenders, 2027 orders, and delivery guidance are progressively confirmed. This correction is expected to present a recovery opportunity for the sector.
The New Cycle is Largely Driven by Storage
The fundamental logic for storage demand lies in the synergy between rising renewable energy penetration and falling system costs. Key catalysts include policy 136, which pushes renewables into the market fully, widening peak-valley price spreads, and policy 114, which clarifies storage capacity tariffs, providing stable revenue expectations. From a revenue model perspective, capacity tariffs offer a guaranteed baseline return, which, combined with peak-valley arbitrage, can deliver a 5%-20% total investment IRR for independent storage projects. The broker estimates new storage installations will reach 510 GWh in 2026, a 69% year-on-year increase.
Compared to the start of the year, 2026 demand has been revised up by roughly 100 GWh, driven by better-than-expected performance in commercial vehicles, European passenger cars, Chinese exports, and European storage. Global lithium battery demand is forecast at 3,153 GWh in 2026, up 37% year-on-year. The upward revision is attributed to: strong European electric vehicle (EV) growth supported by new models and policies; improved economics for electric commercial vehicles (5-year TCO savings of 335,000/109,000/118,000 yuan for pure electric heavy trucks, light trucks, and vans, respectively, under subsidies); booming EV exports (2.231 million units exported in the first half of the year, up 124.3% year-on-year); and unexpectedly strong European storage demand, particularly residential and commercial/industrial. This overall demand revision has led to a 100 GWh upward adjustment for battery demand.
Expectation Gap for 2027 Growth Rate
Looking ahead to 2027, industry growth is projected to land in the 24%-32% range (likely towards the upper end), but current market pricing reflects expectations below 20%, creating a significant expectation gap. Pessimism about 2027 domestic large-scale storage demand stems from concerns over grid connection schedules, narrowing peak-valley spreads, and the sustainability of demand from strong provinces in 2025. However, current bidding and award data still shows over 100% year-on-year growth. Driven by policy 114, provinces like Shanxi, the three northeastern provinces, Yunnan-Guizhou-Sichuan, and eastern coastal regions are providing wave-like growth momentum. Storage is becoming a new infrastructure trend in Germany, Poland, and Spain. The broker believes conservative and base-case storage battery demand for 2027 will be 1,365/1,490 GWh. Combined with power battery demand, total lithium battery demand for 2027 is estimated between 3,920-4,167 GWh, a 24%-32% year-on-year increase, with a likely outcome between 28%-32%.
Supply Chain Differentiation and Oversupply Pricing
Supply chains are diverging, with some segments maintaining tight balances. However, current market pricing for lithium battery storage implies potential widespread oversupply by 2027. From a supply-demand perspective, if battery demand grows over 20% next year, separators, copper foil, and aluminum foil will remain tight. If growth exceeds 28%, anodes and lithium carbonate could also move into a tight balance. Current unit profitability in the lithium battery materials sector is mostly below the 30th percentile historically. Using a 15-20x price-to-earnings ratio as a benchmark, the unit profit embedded in current share prices is generally lower than actual current levels. This indicates that stock prices for most lithium battery segments are pricing in oversupply by 2027. The broker expects this pricing to be corrected once future demand becomes clearer.
Investment Recommendations and Positioning
Once demand expectations are confirmed, the sector is poised for significant recovery. The broker suggests early positioning in low-valuation stocks with earnings visibility, such as CATL, Hailunzhe, and Dingsheng New Materials. As overall expectations are revised, a broader sector opportunity will emerge. Recommended names include: materials companies like Dingsheng New Materials, Hailunzhe, Enjie, Tinci Materials, Do-Fluoride, Capchem, Kedali, Shangtai Tech, Sinoelectric, BTR, Hunan Yuneng, Fuling Precision, and Zhenyu Tech; lithium carbonate producers such as Dazhong Mining, Tianqi Lithium, Yongxing Materials, Ganfeng Lithium, and Salt Lake Industry; and battery manufacturers including CATL, Pylon Technologies, EVE Energy, Haopeng Technology, Zhengli New Energy, Guoxuan High-tech, and Sunwoda.