China battery and materials supply chain Report Interpretation

Overview

This industry update assesses September production, end-demand and input-cost conditions across China’s battery and materials supply chain. J.P. Morgan argues that production plans remain robust into the seasonal peak, with copper-foil shortages constraining output rather than indicating weaker orders; it continues to prefer CATL.

Core views

China battery supply-chain shares diverged in August: CATL A/H, battery makers and battery-material stocks fell roughly 0–10% against a 0.5% gain for the CSI 300, while upstream raw-material stocks rose 0–10% as supply concerns returned. J.P. Morgan nevertheless sees resilient operating momentum. ZE Consulting expects September production from the top six battery makers to increase 7% month on month and 69% year on year. The sequential increase exceeds the 4% recorded in September 2025 and would bring expected 3Q26 production growth to 67% year on year and 19% quarter on quarter. Channel checks indicate that the moderation from August reflects tight material supply, particularly copper foil, rather than softer orders; therefore, the report believes underlying demand is stronger than headline production growth suggests. CATL remains the standout. Its September production is expected to rise 79% year on year and 9% month on month, taking 3Q26 growth to 76% year on year, compared with 58% for the other top-six makers excluding CATL. Strong LFP and ESS demand supports the ramp, but copper-foil shortages are limiting production. CATL is reducing NCM output and allocating available materials to faster-growing LFP products, which J.P. Morgan interprets as strategic product allocation rather than weak demand. BYD also faces copper-foil constraints, while Gotion and CALB benefit from continued new-capacity ramp-ups. August top-six production estimates were revised up about 2%, including roughly 8% increases for Gotion and EVE, 4% for BYD and 1% for CATL; CATL’s revision reflected higher LFP output as some customers brought demand forward. The report expects major battery makers’ 9M26 production to grow about 57% year on year, after growth of 40% in 1Q26, 60% in 2Q26 and an expected 67% in 3Q26. It attributes the strength to ESS demand, with Chinese players’ 7M26 ESS battery production up 94% year on year and most ESS lines running at full utilization; EV exports, up more than 120% year on year in 7M26; European EV sales, up about 40%; and China commercial EV volumes, up about 46%, with related battery volumes up more than 70%. China passenger-EV retail sales were weaker, with an expected 12% year-on-year decline in 7M26, but battery content per vehicle rose 9 kWh, or about 21% year on year, offsetting part of that weakness. J.P. Morgan expects China passenger-vehicle demand to improve in 2H26, potentially narrowing the year-on-year decline from about 20% in 7M26 to a mid-single-digit decline in 4Q26; this would imply flat to positive NEV retail growth in 4Q26. Lithium conditions add an upstream supply-risk dimension. China lithium-carbonate output is expected to rise about 11% month on month in September after August was flat versus an expected 5% increase, supported by post-maintenance restarts and potentially greater Zimbabwe concentrate arrivals, although timing is uncertain. Spot lithium carbonate was about Rmb156k/t and futures about Rmb159k/t as of 31 August. The report highlights renewed uncertainty around CATL’s Jianxiawo restart and a potential strike-related risk at Albemarle’s La Negra operation, estimated at about 4% of supply based on 80kt LCE production. Weekly output edged down to about 23kt by end-August, while destocking of about 5kt per week lowered inventories to about 79kt under SMM’s new sample or 62kt under its old sample as of 27 August, near 4Q23 levels. With solid order books, leaner stocks and growing disruption risk, J.P. Morgan sees near-term lithium-price risk skewed upward. For battery makers, the cost environment remains relatively manageable despite selected upstream price increases. In 3Q26 to date, lithium carbonate, lithium hydroxide and LiPF6 rose 5%, 2% and 10%, respectively, reversing part of their 2Q26 declines. In contrast, LFP, NCM523 and NCM811 cathode prices fell 2–6%; cell, anode and separator prices were broadly stable; and electrolyte prices rose 10–15%. The report concludes that easing lithium-related input costs have broadly supported margins entering the stronger 3Q season, but further seasonal demand and material tightness could raise costs, making the speed of price pass-through important.

Analysis framework

J.P. Morgan combines ZE Consulting production estimates and channel checks with regional NEV sales, ESS shipment, battery-content and material-price data. It compares growth across manufacturers and chemistries, then links end-demand, material availability and inventory conditions to output, costs and relative company positioning.

Methodology notes

• Industry AnalysisSupply-demand framework

  Battery production and material supply-demand analysis

  The report assesses production plans against orders, capacity utilization, material shortages and inventories to determine whether slower output growth reflects demand or supply constraints.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Battery supply-chain transmission

  It connects upstream lithium and copper-foil availability and prices with cathode, cell and battery-maker production costs and output.

• Valuation methodsEV/EBITDA valuation

  Peer valuation comparison using P/E and EV/EBITDA

  The valuation table compares China battery supply-chain companies using forecast P/E, EV/EBITDA, dividend yield and ROE metrics.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CATL-A (300750.SZ) / CATL-H (3750.HK)

  J.P. Morgan’s top pick in China’s battery supply chain; expected to lead peers in production growth.

  Strengths

  Expected September production growth of 79% y/y and 9% m/m; supported by robust LFP and ESS demand and strategic allocation toward LFP.

  Weaknesses

  Copper-foil shortages are limiting a potentially stronger production ramp and prompting lower NCM output.

  Comparison

  Expected 3Q26 production growth of 76% y/y versus 58% for the other top-six makers excluding CATL.

  Risks

  Material shortages, especially copper foil, and a need to pass through any further cost increases.

• BYD

  Major battery-maker peer affected by the same copper-foil constraint.

  Strengths

  Production remains part of the resilient top-six industry trend; August estimates were revised up about 4%.

  Weaknesses

  Its production ramp is constrained by copper-foil availability.

  Comparison

  CATL is expected to outgrow peers in 3Q26 production.

  Risks

  Tighter materials could cap output and raise costs.

• Gotion and CALB

  Battery-maker peers benefiting from continued new-capacity ramp-ups.

  Strengths

  New capacity supports continued production expansion.

  Comparison

  CATL remains the report’s preferred supply-chain name and has higher expected production growth.

  Risks

  Industry material shortages could constrain realized output.

Key data

• Top-six battery makers’ September production+7% m/m; +69% y/yZE Consulting expectation; implies 3Q26 production growth of +67% y/y and +19% q/q.
• CATL September production+9% m/m; +79% y/yExpected 3Q26 growth is +76% y/y, versus +58% for other top-six players excluding CATL.
• Major battery makers’ 9M26 production~+57% y/yGrowth accelerated from +40% in 1Q26 and +60% in 2Q26 to an expected +67% in 3Q26.
• Chinese ESS battery production+94% y/y in 7M26ICCSino data; most ESS battery lines were running at full utilization.
• China passenger-EV retail sales-12% y/y in 7M26Expected decline was partly offset by battery content rising 9 kWh per vehicle, or ~21% y/y.
• Lithium carbonateSpot ~Rmb156k/t; futures ~Rmb159k/tAs of 31 August; September output is expected to rise ~11% m/m.
• Lithium inventories~79kt (new sample) / ~62kt (old sample)SMM inventories as of 27 August after August destocking of about 5kt per week.

Impact & implications

The report views the industry’s September slowdown as supply-constrained rather than demand-led, supporting a resilient near-term production outlook. CATL’s faster growth and LFP prioritization reinforce its relative positioning, while upstream lithium producers may benefit if supply disruptions and lower inventories sustain price strength. For battery makers, the central margin variable is whether higher material costs can be passed through.

Risks

• Copper-foil shortages could further limit battery production ramps.
• Stronger seasonal demand and tighter material supply could increase costs, making price pass-through important.
• The timing of Zimbabwe concentrate arrivals is uncertain.
• Potential disruption at Albemarle’s La Negra operation could tighten lithium supply further.

What to watch

• September top-six battery production and the availability of copper foil.
• Whether China passenger-vehicle demand improves in 2H26 and supports flat to positive NEV retail growth in 4Q26.
• CATL’s LFP-versus-NCM production allocation and the pace of peer capacity ramp-ups.
• Lithium restarts, Zimbabwe concentrate arrivals, inventory levels and any escalation of the Albemarle labor dispute.
• The pace at which battery makers pass through higher upstream material costs.