China’s battery industry is entering another expansion phase, and once again its leading companies are moving faster than the rest of the world.
According to data from SNE Research, Chinese manufacturers continued to dominate global EV battery installations in 2025. Contemporary Amperex Technology Co. Limited (CATL) alone accounted for roughly 39% of global installations, while BYD held another 16%. Combined, the two companies controlled more than half of the world market.
The dominance becomes even clearer in energy storage. Several industry research groups estimate that Chinese firms shipped more than 90% of the world’s energy storage batteries in 2025.
Demand remains strong across both electric vehicles and grid storage. By the second half of 2025, industry capacity utilization began to recover sharply. By the fourth quarter, many top manufacturers were operating near full production, with some factories reportedly booked well into 2026.
Yet the new growth cycle unfolding in the battery industry is not simply a story of demand. It is also the beginning of a new strategic contest — between battery producers, upstream mineral suppliers, and increasingly, automakers themselves.
Expansion Returns — With Familiar Risks
The industry’s largest players are once again accelerating investment.
In February 2026, CATL signed a strategic agreement with the city of Ningde to invest roughly 600 billion yuan (about $83 billion) in upgrading research and manufacturing facilities. The project includes plans to build an additional 200 gigawatt-hours of production capacity.
Over just the past two months, CATL has announced several major manufacturing projects across China, including new sites in Jiangsu, Yunnan, Fujian and Guizhou.
These expansion plans are rippling through the supply chain. In January alone, CATL signed long-term procurement agreements with materials suppliers Ronbay Technology and Fulin Precision for lithium iron phosphate (LFP) cathode materials, each involving an estimated 3 million tons of supply.
The logic is straightforward: controlling supply chains helps stabilize costs and secure capacity in a market where demand is rising again.
But expansion cycles in the battery industry have historically carried risks.
The previous boom left deep scars across the materials sector. Lithium iron phosphate cathode material capacity surged dramatically between 2022 and 2024, only to run into severe oversupply. By late 2024, China’s LFP cathode capacity approached 4.7 million tons annually, while actual output barely exceeded half that level.
Prices collapsed accordingly. Between late 2022 and mid-2025, LFP cathode prices fell by more than 80%, pushing the sector into losses for nearly three years.
Many companies are only now recovering.
As a result, the industry faces a familiar question: can this new expansion cycle avoid repeating the mistakes of the last one?
The Lithium Roller Coaster
Few commodities illustrate the volatility of the battery supply chain better than lithium.
From 2020 to the end of 2022, battery-grade lithium carbonate prices surged from roughly 40,000 yuan per ton to nearly 600,000 yuan, creating enormous cost pressure for battery makers and materials companies.
Even the most profitable players felt the impact. CATL reported a sharp profit drop in early 2022 as raw-material costs surged.
In response, battery companies moved aggressively upstream. Several began investing directly in lithium mining and extraction projects around the world.
CATL won a bid to develop lithium resources in Bolivia and also launched lithium extraction projects in Jiangxi using lepidolite ore. But not all of these initiatives proceeded smoothly. The Bolivia project stalled amid political changes, while the Jiangxi project was suspended in 2025.
Despite those setbacks, the strategy of securing upstream resources remains central to the industry.
BYD has invested in lithium mining operations in Brazil and parts of Africa, while also participating in projects in China’s Jiangxi, Qinghai and Tibet regions. Meanwhile, most major battery producers have locked in large portions of their supply through long-term procurement contracts.
Some companies have taken an even more radical approach: developing alternatives to lithium itself.
In early 2026, CATL announced that sodium-ion batteries would begin appearing in passenger vehicles produced by Changan Automobile. Sodium is far more abundant globally than lithium, and the chemistry offers potential cost advantages, even if energy density remains lower.
Still, lithium remains the central resource of the EV economy. Many industry analysts increasingly compare it to oil: a strategic commodity whose price will fluctuate but whose importance will endure.
Automakers Are Entering the Battery Arena
While battery companies expand upstream, pressure is simultaneously rising from downstream customers.
Automakers are increasingly questioning whether they should depend entirely on external battery suppliers.
The issue is financial as much as strategic. China’s automotive sector has experienced declining profit margins amid intense price competition in the EV market. In 2025, the average profit margin for the industry fell to roughly 4.1%, and in December alone dropped to just 1.8%, a multi-year low.
Battery packs account for the single largest cost component in electric vehicles.
For companies like Tesla and BYD, vertical integration has proven highly profitable. Both manufacture significant portions of their own battery cells, giving them greater control over costs and supply.
Other automakers are now exploring similar strategies.
Geely has created a battery subsidiary and begun deploying its own LFP batteries across multiple vehicle brands. Guangzhou Automobile Group built a battery production facility in 2023, while companies including Chery and Li Auto are expected to complete battery factories by 2026.
Even partial in-house production can change negotiating dynamics.
Industry insiders say automakers often pursue a hybrid procurement model: roughly one-third in-house batteries, one-third joint ventures, and one-third external suppliers. This approach balances supply security with cost control.
For battery companies, however, this trend represents a growing competitive threat.
Technology Is Still Far From Settled
Despite rapid commercialization, battery technology itself remains in flux.
Lithium iron phosphate batteries have become the dominant chemistry in China, accounting for more than 80% of installations in 2025. Their lower cost and superior safety performance make them well suited for mass-market vehicles and energy storage systems.
But LFP chemistry has limitations, particularly in energy density. As regulatory efficiency standards tighten, these limitations may become more visible.
China’s updated electric-vehicle energy-consumption standards, which took effect in 2026, require stricter energy-efficiency targets across multiple vehicle weight categories. Meeting those standards may eventually require new battery solutions.
This is one reason why automakers and battery companies are investing heavily in solid-state batteries.
Solid-state designs replace the liquid electrolyte used in conventional lithium-ion batteries with solid materials. The technology promises higher energy density and dramatically improved safety, eliminating the flammable liquid components that can trigger thermal runaway.
Toyota has spent more than a decade researching the technology and plans to begin commercialization between 2027 and 2028. Chinese automakers and battery firms are pursuing similar timelines, targeting early production runs around 2026 or 2027.
But commercialization will likely occur gradually.
Early solid-state batteries may resemble transitional products rather than immediate breakthroughs — offering moderate improvements but at significantly higher costs.
Meanwhile, incremental innovations continue within existing lithium-ion designs. Tesla recently announced progress in dry-electrode manufacturing, a process that reduces energy consumption during battery production and lowers costs by eliminating several traditional processing steps.
Process improvements like this may ultimately prove as influential as new chemistries.
The Challenge of Avoiding “Internal Competition”
As the industry expands again, regulators are increasingly concerned about destructive price competition.
China’s Ministry of Industry and Information Technology has already held multiple industry meetings warning about “irrational competition.” Officials have cited cases where companies allegedly sell products below cost, reduce safety specifications, or exaggerate performance claims such as “never catching fire.”
Quality concerns have already surfaced.
In late 2025, a Geely-affiliated company sued battery supplier Sunwoda over quality issues related to battery packs, seeking more than 2 billion yuan in damages. The dispute was settled earlier this year after both sides agreed to share the cost of replacing affected battery packs.
Meanwhile, several high-profile EV recalls have highlighted the enormous financial risks associated with battery failures.
For policymakers, the message is clear: China’s battery industry may lead the world technologically, but its long-term health depends on maintaining discipline during expansion cycles.
The global EV transition has created an enormous market opportunity. But as the industry grows, the competition between automakers, battery manufacturers, and raw-material suppliers is becoming increasingly complex.
And the next phase of that competition may be decided not only by scale — but by technology.