In recent years, with the explosive growth of China’s new-energy vehicle industry, investment in the power battery sector has remained robust. However, recently, as the industry undergoes adjustments, many battery companies have reported a decline in order volumes. Some power battery manufacturers have begun to reduce inventories and cut production capacity, leading to lower capacity utilization rates, plant shutdowns, and increased employee turnover. Some industry insiders believe that the current structural risks—namely, overcapacity at the low end and insufficient capacity at the high end—are worth paying close attention to. Several experts recommend that we should take a holistic approach to industrial planning from the perspective of the industry’s healthy development.

Corporate order volumes have declined, putting significant pressure on inventory.

An insider at CATL said that, since the beginning of this year, some frontline employees have seen a noticeable reduction in overtime hours due to declining orders. Other battery companies are also facing a shortage of orders. The head of production at CN Innovation said that last year, even on weekends, overtime work was commonplace for frontline workers, but now overtime has started to become less frequent. According to reports, CN Innovation has experienced some employee departures due to insufficient orders.

The upstream sector of the lithium-battery industry is also being affected. Recently, Shangtai Technology, a Chinese publicly listed company that produces lithium-ion battery anode materials, announced that its production base in Shijiazhuang will gradually cease operations. The company stated: “The supply-demand balance in the entire anode-material industry has reversed, and the industry is now facing a situation of overcapacity.” It is reported that Shangtai Technology’s downstream customers include leading power-battery manufacturers such as CATL, Guoxuan High-Tech, Xinwangda, and Svolt Energy.

Shangtai Technology stated that, from the demand side, since 2023, the growth rate of electric vehicles has slowed down. Affected by inventory reduction in the power battery market, lithium-battery customers have become less active in scheduling production, leading to a slowdown—or even weakening—of overall demand for negative electrode materials. From the supply side, after several years of substantial capacity expansion across the industry, negative electrode material manufacturers—including leading companies—have entered a phase of capacity release. As a result, the supply-demand balance in the negative electrode materials industry has reversed, and the industry now faces an oversupply situation. Proactively halting production is also a positive step taken by Shangtai Technology itself to adjust and eliminate outdated capacity.

Ding Xiaoyang, head of Fujian Shanshan Technology Co., Ltd., said that the lithium-battery market has been on a downward trend since the end of last year. As battery demand has declined, the company’s orders have also fallen, and its capacity utilization rate has dropped significantly.

Several industry insiders believe that, due to adjustments in the industrial chain, the power battery industry is currently facing significant inventory pressure and is undergoing a structural adjustment.

Cui Dongshu, Secretary-General of the National Passenger Vehicle Market Information Joint Conference, stated that currently, the proportion of power batteries actually installed in vehicles is steadily declining, leading to significant overcapacity and mounting inventory pressures.

According to the “White Paper on the Development of China’s New Energy Vehicle Power Battery Industry (2023),” jointly released by industry research institute EVTank and the Evi Economic Research Institute, the inventory of power batteries across the entire industrial chain reached a record high of 164.8 GWh in 2022, and this year the industry is facing significantly increased pressure to destock. The latest data released by the China Automotive Power Battery Industry Innovation Alliance show that from January to March, China’s cumulative production of power batteries totaled 130.0 GWh, while the cumulative installed capacity of power batteries reached 65.9 GWh. Currently, power battery production far exceeds demand, continuing the supply-demand imbalance that has persisted since last year. As industry demand declines, many battery companies have begun lowering prices to compete for customers.

Overly rapid capacity expansion has brought structural issues to the fore.

Industry insiders believe that in recent years, China’s new-energy vehicle market has experienced consecutive periods of explosive growth, leading to overheated investment in the lithium-battery sector. Currently, battery production capacity is being deployed at a pace that outstrips actual demand, and we need to be vigilant about the risk of overcapacity.

Multiple market institutions predict that by 2025, the production capacity of power batteries required for new-energy vehicles will reach 1,200 GWh. However, the current planned production capacity for power batteries has already exceeded 4,000 GWh, meaning that planned capacity far surpasses actual demand.

“Although there’s more or less ‘water’ in these capacity plans, from the perspective of projected demand and capacity planning, the issue of overcapacity in power battery production does indeed exist,” said Zhang Jiujun, Dean of the School of Materials Science and Engineering at Fuzhou University. He predicted that power battery capacity is likely to experience a large-scale surplus this year or next year.

According to incomplete industry statistics, in 2022 alone, at least 75 investment plans were announced in the power battery sector, with total investment exceeding one trillion yuan. Nearly half of these projects involve investments of over 10 billion yuan each. Most Tier-1 and Tier-2 lithium-ion battery companies, including CATL, BYD, CALB, and EVE Energy, have all announced expansions of their production capacities.

However, several industry insiders believe that although overall production capacity is in surplus, high-quality capacity still falls short of demand. The structural issue of oversupply at the low end and insufficient capacity at the high end is particularly pronounced in the lithium-ion battery industry.

Xiao Chengwei, a researcher at the 18th Research Institute of China Electronics Technology Group, believes that this issue cannot be viewed solely from the perspective of planned production capacity. To determine whether power battery capacity is excessive, one should primarily consider actual commissioned capacity and capacity under construction, while planned capacity more accurately reflects investors’ expectations for the industry’s future development. He argues that the so-called overcapacity in China’s power battery sector today is, in fact, largely structural—meaning there is a shortage of high-end, high-quality capacity, while low-end and low-quality capacity is in surplus. Battery companies that have performed well in globalization and decarbonization will likely capture a larger share of the market.

Third-party research institutions predict that, as major countries in Europe and North America continue to strengthen their efforts to build domestic supply chains for critical industries, the gap in localized battery production in North America and Europe will exceed 600 GWh by 2028. At the same time, emerging markets such as Southeast Asia, India, South America, and Africa hold enormous potential. Experts point out that, in the short to medium term—at least over the next five years—the market will not be short of total battery supply volume; rather, what will be lacking is locally-based, high-quality, and environmentally friendly power battery production capacity.

Wu Wei, an assistant professor at the China Energy Policy Research Institute of the School of Management at Xiamen University, believes that the lithium-battery industry is experiencing rapid advancements in both equipment and product technologies. However, in the past two years, many newly entered companies have typically started from the lower end of the market, leading to intense homogeneous competition and overcapacity at the low end. This, in turn, suggests that the market is about to face a new round of restructuring.

Regarding the future development trends of the industry, industry insiders predict that the most direct impact of overcapacity in power battery production will be market consolidation. Many second- and third-tier battery manufacturers may face a supply-demand imbalance, and some companies with low capacity utilization rates could even be merged or reorganized.

Zhang Jianhong, executive director of the Environmental Technology and Economics Branch of the China Society for Technological and Economic Studies, said that the current predicament of overcapacity in the power battery industry is only the beginning; in the future, this situation will spread from the low-end market to the high-end market, and some small- and medium-sized battery manufacturers will face significant operational risks. It is expected that the industry as a whole will exhibit a “winner-takes-all” dynamic, with leading battery companies capturing the vast majority of the market share, while power battery enterprises ranked below the second tier will accelerate their exit from the market.

Coordinate industrial layout and enhance market competitiveness.

Industry experts recommend that, from the perspective of the industry’s healthy development, we should closely monitor current investment and technology trends. Striking a relative balance between maintaining industrial scale advantages and avoiding overcapacity is crucial. It is also advised to adopt a multi-pronged approach, coordinate industrial layout, and promote synergistic development across the industry.

Wang Xi, deputy director of the Battery Energy Storage Industry Research Office at the China Academy of Information and Communications Technology, suggests that the production capacity of power batteries should be included in the guidance provided by relevant national authorities. This guidance would help lithium-ion battery companies formulate development goals that are both realistic and aligned with industry trends. On the premise of stable supply of key materials, sufficient investment in R&D and innovation, and adequate availability of supporting funds, companies should appropriately expand their production scale according to actual needs and market conditions. At the same time, it is important to strengthen intellectual property protection, curb low-level redundant construction, and promote the exit of outdated enterprises and inefficient production capacities.

While gradually phasing out outdated production capacity, it is also essential to encourage cluster-based collaborative development and enhance the competitiveness of leading enterprises. Some industry insiders suggest leveraging the existing industrial foundation to build an advanced power battery industry cluster that features battery companies as the leading players, supported by upstream material suppliers and related service providers, thereby fostering international competitiveness. We should actively guide both the anchor enterprises and their supporting businesses to grow stronger and bigger, continuously reinforcing their competitive advantages and strengths.

Meanwhile, to enhance their ability to withstand risks, power battery companies should accelerate technological innovation and promptly explore application scenarios beyond electric vehicles, developing a diversified business portfolio that includes energy storage and electric vessels, thereby boosting demand for power batteries. For example, as early as 2021, CATL successively signed strategic cooperation agreements with the State Energy Group, State Power Investment Corporation, China Huadian Corporation, and China Three Gorges Corporation to strengthen collaboration in the energy storage sector. A relevant official from Guoxuan High-Tech also stated that this year, the company will focus on deploying its three major product platforms—household energy storage, commercial energy storage, and grid-scale energy storage—to strategically target four key areas of energy storage: the generation side, the grid side, the user side, and the backup power side, and continue to aggressively expand both domestic and international energy storage markets.

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