Lithium Prices Expected to Test RMB 250k/Ton, CATL H2 Output to Increase 32% QoQ

Overview

Citi releases its tracking report on China's battery materials industry, focusing on lithium-ion battery market dynamics in the first week of June. The core conclusion is that the lithium supply-demand landscape is tightening. Supply disruptions will gradually ease in the coming weeks, while demand-side catalysts, particularly in August-September, are approaching. Based on CATL's financial model projections, the 2026 battery output target of 1.2TWh is reasonable, and lithium prices are likely to test the critical level of RMB 250,000/ton. The report reiterates its bullish view on lithium and maintains a Buy rating on CATL.

Core views

Demand Side: As the industry leader, CATL's 2026 battery output forecast is 1.2TWh, implying H2 output should increase by 32% QoQ to 680GWh. Although CATL's ESS (Energy Storage System) market share has declined over the past two years (32%, 26%, 27% for 2023-25), ESS remains one of the main drivers of battery demand this year, making the 1.2TWh annual target reasonable, albeit slightly optimistic. Supply Side: Besides CATL, other major battery manufacturers also plan to bring new capacity online in H2 2026 to achieve their年初 targets. Supply disruptions will gradually ease in the coming weeks, but overall supply-demand dynamics are tightening. Price Outlook: Against this backdrop, Citi believes lithium prices are likely to test the critical level of RMB 250,000/ton, reiterating its bullish view on lithium. This judgment is supported by charts showing carbonate lithium inventory trends and production data.

Analysis framework

Citi employs a supply-demand framework to analyze lithium price trends, deriving price judgments from the pace of supply disruption easing and demand-side upward catalysts. For CATL valuation, the institution uses the EV/EBITDA method, as it eliminates the impact of capital structure changes. The A-share target price is based on a 17.5x 2026E EV/EBITDA multiple, which is 0.25 standard deviations above the historical average since IPO. The H-share target price applies a 28% premium to the A-share target price, reflecting historical H/A share premium levels.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply-Demand Framework

  Analyzing price trends by examining changes in supply (capacity deployment, supply disruptions) and demand (battery output, ESS drivers). This is a core method for analyzing resource and cyclical products.

• Valuation MethodEV/EBITDA valuation

  EV/EBITDA Valuation

  Enterprise Value multiple valuation method, calculated as Enterprise Value divided by EBITDA. The report selects this method because it eliminates the impact of capital structure changes, making it suitable for comparing companies with different debt levels.

Asset mapping & comparison

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

• CATL (300750.SZ)

  Beneficiary: Early bullish demand narrative for lithium, reasonable battery output target, demand-side catalysts present

  Strengths

  Industry leadership position, 2026 battery output target of 1.2TWh is reasonable

  Weaknesses

  ESS market share has declined over the past two years (32%→26%→27%)

  Comparison

  Other major battery manufacturers also plan to deploy new capacity in H2

  Risks

  Lower-than-expected EV demand, market share decline due to intensified competition, higher-than-expected raw material costs

• CATL (3750.HK)

  Beneficiary: Logic consistent with A-shares, H-share valued at a 28% premium to A-share target price

  Strengths

  Same business fundamentals as A-shares

  Weaknesses

  H-share has a shorter trading history, quant model rates it as high risk

  Comparison

  Historical H/A share premium is 28%

  Risks

  Lower-than-expected EV demand, market share decline due to intensified competition, higher-than-expected raw material costs

Key data

• CATL 2026 Battery Output Forecast1.2TWhAnnual Target
• CATL H2 Battery Output680GWh32% QoQ Growth
• CATL ESS Market Share32% in 2023, 26% in 2024, 27% in 2025Declined over the past two years
• Critical Lithium Price LevelRMB 250,000/tonExpected to likely test this level
• CATL-A Target PriceRMB 603/shareBased on 17.5x 2026E EV/EBITDA
• CATL-H Target PriceHKD 888/shareBased on A-share target price plus 28% premium

Impact & implications

The report suggests that the tightening lithium supply-demand landscape will support lithium prices, with RMB 250,000/ton being the key level to test. For CATL, achieving the 1.2TWh annual output target will consolidate its industry leadership, but attention should be paid to whether its ESS market share stabilizes or recovers. New capacity deployments by other battery manufacturers in H2 may intensify competition, but the early arrival of an overall demand-up narrative is generally positive for the industry.

Risks

• EV demand lower than expected
• Intensified EV battery market competition leading to CATL market share below expectations
• Raw material costs higher than expected

What to watch

• Pace of supply disruption easing (coming weeks)
• Demand-side upward catalysts in August-September
• Whether lithium prices test the critical level of RMB 250,000/ton
• Whether CATL's H2 battery output reaches 680GWh