Battery Capacity Expands Rapidly, Global Sector Faces Pricing Pressure

Overview

This report originates from UBS field research on the 2026 China International Battery Fair (CIBF). The exhibition gathered over 3100 exhibitors globally, covering the entire battery manufacturing supply chain from raw materials to equipment. The report records three key dynamics in the battery industry: market sentiment shifting from overcapacity to capacity tightness; Chinese enterprises accelerating domestic capacity expansion while overseas localization investments are sidelined; emerging battery technologies (sodium-ion, solid-state) remain under scrutiny but commercialization prospects remain uncertain. The global battery sector currently trades at historic lows in valuation but faces pricing pressure from new capacity releases.

Core views

Capacity & Competitive Landscape: Industry main theme shifted from last year's overcapacity panic to this year's capacity tightness argument. Chinese battery companies generally operate near full capacity, especially for Energy Storage Systems (ESS) batteries. CATL announced a plan to add 500GWh capacity by end of 2026 (a 65% increase compared to 772GWh at end of 2025), while EVE Energy plans to add 260GWh (from 170GWh, an increase of 150%). Separator leader Enjie expects to add 5 billion square meters of capacity by end of 2026. While Chinese local capacity expands rapidly, overseas localization investments have been noticeably sidelined, indicating Chinese enterprises prioritize deepening domestic layout. By industry consensus, new lines can be built within 6-8 months in China at unit cost of approx. 100 million RMB/GWh. Valuation & Market Expectations: Current trading valuation for global battery companies is 15x EV/EBITDA and 3.3x P/B (based on 12-month forward consensus estimates), both below historical average by 0.3-0.4 standard deviations. Low valuation may reflect investor concerns about industry profitability. The report expects that with significant new capacity release, the global battery sector—especially ESS area—will face significant pricing pressure, which becomes the key risk preventing valuation repair. Sodium-ion Batteries: Driven by policy, China's sodium-ion battery shipment was approx. 3GWh in 2025. With lithium carbonate price rising approx. 60% YTD to approx. 1900 RMB/ton at start of year, sodium-ion cost economics re-entered focus. According to industry insiders, under optimal yield, NFPP (Prussian Blue) sodium-ion battery costs have dropped to 0.45-0.50 RMB/Wh. If sodium-ion yield increases from current 50% to optimized level, and lithium carbonate price remains above 2000 RMB/ton, battery cell level can achieve cost parity with LFP. However, product suffers core shortcomings: lower energy density (NFPP approx. 100 Wh/kg, compared to layered oxide 165 Wh/kg, LFP 170-200 Wh/kg), current yield only 50%, insufficient large-scale hard carbon negative electrode. Most competitive application scenario for sodium-ion is fixed energy storage in cold climates and heavy truck start-stop systems (lead-acid replacement), NFPP favored more for ESS commercialization due to better safety, longer cycle life, lower system cost (no complex cooling needed), compared to layered oxides. Solid-state Batteries: Dry electrode technology breakthrough at 2025 CIBF became a highlight, but progress slowed significantly this year. Six leading companies under China All-Solid-State Battery Collaborative Innovation Platform plan to launch approx. 1000 electric vehicle pilot operations in 2027. Qingyan signed mass production line orders with dry electrode equipment manufacturer. US solid-state company Factorial emphasized that high working pressure (lowest approx. 1MPa) continues to limit energy density release at battery pack level, becoming key bottleneck for tech commercialization.

Analysis framework

The report employs a mixed methodology combining on-site supply chain investigation with quantitative data validation. Through interviews with exhibitors and industry experts at the CIBF exhibition (the world's largest battery fair), it captures real-time shifts in market psychology and investment trends. Specific analytical logic includes: (1) Tracking expansion plans of China's leading battery manufacturers such as CATL and EVE to infer future global capacity supply side morphology; (2) Benchmarking current battery sector valuations against historical averages to identify constraints on valuation repair space; (3) Using cost curve analysis to evaluate economic feasibility boundaries between sodium-ion and LFP; (4) Tracking technical and commercial progression stages of solid-state batteries from lab to pilot to mass production. This approach focuses both on supply-side expansion trends and demand-side application prospects, striving to comprehensively judge industry direction from three dimensions: corporate actions, technological breakthroughs, and cost curves.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Report determines battery industry turning point from overcapacity to capacity tightness through changes in capacity supply, downstream demand, and inventory cycles

  Supply-demand framework emphasizes that industrial returns depend critically on the relative relationship between supply-side capacity construction speed and demand-side market absorption capability. This report observes rapid Chinese capacity expansion but slowing overseas expansion, while global ESS demand growth hasn't accelerated, meaning new capacity will suppress industry prices instead. This is the core logic for understanding subsequent pricing pressure.

• Company Fundamentals and Financial FrameworkCost curve analysis

  Report tracks evolution of lithium carbonate price, sodium-ion and LFP battery costs to determine changing economic competitiveness among different battery technology routes

  Cost curve analysis helps identify profit margin changes across supply chain links. When lithium prices rise to 2000 RMB/ton, sodium-ion battery cost economics improve; however, even then, energy density gap still limits its application scope. Such analysis indicates which technologies will become mainstream and which will be restricted to niche scenarios.

• Competition and Strategy FrameworkProduct life cycle

  Report evaluates that sodium-ion and solid-state batteries are respectively in mid-early commercialization stage and early stage; product characteristics and application scenario match determines market space

  Product lifecycle perspective emphasizes that new technology market prospects depend not just on technology itself but also on compatibility with existing application scenarios. Sodium-ion energy density disadvantage determines it mainly serves cold climate fixed energy storage and heavy truck start-stop rather than mainstream passenger cars; solid-state battery still in pilot phase, far from large-scale mass production. This determines market ceiling for different technologies.

• Valuation MethodPE/PEG valuation

  Report compares relative valuation multiples like EV/EBITDA and P/B against historical averages to judge if sector valuation fully reflects risks

  When valuation multiples are below historical average by 0.3-0.4 standard deviations, it superficially appears undervalued; but if this undervaluation reflects market concern over earnings sustainability (such as pricing pressure), low valuation is often difficult to repair. This report uses this observation to support its judgment on pricing pressure.

Key data

• CATL New Capacity Plan500 GWh (Target completion by end of 2026)Growth of 65% compared to end-of-2025 base of 772GWh, reflecting accelerated domestic market investment
• EVE Energy New Capacity Plan260 GWh (Target completion by end of 2026)Growth of 150% compared to 170GWh base, speed significantly faster than CATL
• Enjie Separator New Capacity5 Billion Square Meters (Target completion by end of 2026)Separator as critical battery material, capacity expansion follows cell demand
• China New Line Construction Cycle and Cost6-8 Months Construction Cycle, Approx. 100 Million RMB/GWh CostIndustry consensus, reflects China supply chain construction efficiency and cost advantage
• China Sodium-ion Battery Shipments (2025)Approx. 3 GWhMainly driven by policy, shipments still in pilot phase
• Lithium Carbonate PriceApprox. 1900 RMB/Ton (+60% YTD)Significant rise since start of year, improving sodium-ion cost competitiveness
• Sodium-ion Battery Cost (NFPP Optimal Yield)0.45-0.50 RMB/WhClose to LFP battery cost, but premise is yield increasing from 50% to optimized level
• Sodium-ion Battery Energy Density (NFPP)Approx. 100 Wh/kgLower than layered oxide 165Wh/kg and LFP 170-200Wh/kg, limiting application scenarios
• Solid-state Battery Pilot Operation PlanApprox. 1000 Electric Vehicle Pilots (Expected Launch 2027)Jointly promoted by 6 companies under China All-Solid-State Battery Collaborative Innovation Platform
• Global Battery Sector Valuation (EV/EBITDA)15x (Based on 12-Month Forward Consensus Estimate)Below historical average by 0.4 standard deviation
• Global Battery Sector Valuation (P/B)3.3x (Based on 12-Month Forward Consensus Estimate)Below historical average by 0.3 standard deviation

Impact & implications

Rising structural overcapacity risk. Leading Chinese battery companies expand capacity significantly, new capacity release before year-end may exceed market absorption expectations. Especially in ESS field, although demand growth potential is large, overseas players also expanding, global capacity competition will intensify pricing pressure. For global battery sector, this means limited earnings improvement space, or even earnings growth may be offset by price decline. Current low valuation (EV/EBITDA 15x, P/B 3.3x) may already price in overcapacity risk, but if pricing pressure worsens beyond expectation, valuation may continue to bear pressure. For major battery manufacturers, must maintain competitiveness through cost leadership or product differentiation. Although sodium-ion and solid-state batteries are hoped for diversification, they cannot form mass production scale in short term, mainstream competition still between LFP and Ternary systems. Investors need to be wary of risks during industry cycle downturn period, especially for manufacturers lacking differentiated competitive advantages.

Risks

• New capacity release exceeds expectations, ESS pricing pressure intensifies, global battery company earnings承压
• Battery safety accidents and recall event risks, may hit industry demand and individual enterprise market share
• Government policy changes (tariffs, procurement rules, export controls) directly affect battery company earnings and market share

What to watch

• Progress and commissioning speed of new production lines by leading companies such as CATL, EVE, whether actual capacity release matches plans
• Relative relationship between global ESS market demand growth speed and new capacity release, judging durability of pricing pressure
• Lithium carbonate price trend, affecting economic competitiveness comparison between sodium-ion batteries and LFP
• Progress of China solid-state battery demonstration projects, assessing timeline and feasibility of solid-state tech commercialization