China battery and materials supply chain: Copper-foil constraints ease, supporting an October rebound in China battery production

Overview

This industry update assesses China’s battery and materials production outlook after copper-foil shortages disrupted CATL in September. J.P. Morgan argues that the bottleneck has largely been resolved, enabling an October recovery, while resilient ESS demand and exports support sector production despite softer domestic passenger-EV sales and weakening lithium fundamentals.

Core views

The report’s immediate focus is CATL’s September production disruption. CATL A/H shares had fallen 18% month to date, versus a 6% decline for the CSI 300, amid concerns about demand, competition and production cuts. ZE Consulting reduced CATL’s September production forecast by 12% in its mid-month update and by a further 3% in its latest update, taking the expected sequential change from +9% to -5%. J.P. Morgan attributes the revisions to tight copper-foil availability while CATL was still negotiating pricing with suppliers, whereas other battery makers had accepted higher processing fees in August. Its channel checks indicate that CATL completed negotiations in late September, with fees rising Rmb1–2k/t—only about 0.1–0.2% of battery costs—so the supply bottleneck has largely eased. ZE Consulting expects CATL’s October output to rise 6% month on month, returning to August levels, while raw-material procurement is expected to accelerate from mid-October. J.P. Morgan estimates CATL will exit FY26 with over 1.1TWh of production and roughly 1.0TWh of sales, implying about 50% year-on-year growth, and retains CATL as its top pick in the value chain. At the sector level, production by major battery makers is expected to rise about 55% year on year in 10M26. Growth accelerated from 40% in 1Q26 to 60% in 2Q26 and 62% in 3Q26. The report identifies three offsets to soft China passenger-EV retail demand: Chinese players’ ESS battery shipments rose 95% year on year in 8M26; EV exports rose nearly 130% year on year over the same period, while European EV sales grew more than 40%; and China commercial-EV volumes grew 45% year on year, with associated battery volumes up around 70%. By contrast, China passenger-EV retail sales are expected to decline 12% year on year in 9M26. The report argues that higher battery content partly offsets this weakness: average content rose 9 kWh per car, or about 21% year on year, in 8M26. Tier-2 makers are gaining output momentum as capacity ramps, but J.P. Morgan does not regard this as evidence of a structural deterioration in CATL’s competitiveness. CATL production grew 66% year on year in 3Q26, versus 59% for the other top-six producers excluding CATL, narrowing the growth gap from 38 percentage points in 2Q26 to 7 points in 3Q26. In October, EVE and CALB are expected to post the strongest sequential production gains, at 11% and 19%, respectively, compared with CATL’s expected 6% recovery. The report attributes the narrowing gap to tier-2 capacity additions and CATL’s temporary September foil disruption, although it notes that market-share-normalization concerns may have weighed on sentiment toward CATL. Lithium conditions are less constructive. ZE Consulting expects China lithium-carbonate output to edge down about 1% month on month in October, as additions and Zimbabwean ore arrivals are offset by maintenance-related cuts. Spot lithium carbonate and futures prices softened to Rmb132k/t and Rmb119k/t, respectively, and the forward curve moved into backwardation. The report cites potential supply additions from Zimbabwean arrivals and Zijin Manono’s ramp-up, which produced 40kt in 1H26 and targets 120kt for FY26; the restart timing of CATL’s Jianxiawo operation remains a key uncertainty. On demand, the battery consumption tax implemented on 1 September weighs on expectations, while downstream restocking is the main swing factor. Conflicting late-September inventory readings also leave uncertainty over whether destocking has ended. J.P. Morgan expects near-term lithium prices to remain under pressure as the market questions the durability and pace of ESS-demand growth into 2027. Pricing across the value chain is diverging. In 3Q26 to date, lithium carbonate and lithium hydroxide fell 10% and 14%, while cathode prices declined 8–11%. In contrast, strong downstream demand and tight supply lifted copper-foil processing fees by roughly Rmb1–2k/t, or 4–10%, with larger increases for 6μm than 5μm foil; electrolyte prices rose 12–18%. EV battery prices were stable, while ESS battery prices rose 2.7% month on month in August, which the report attributes mainly to pass-through of the 2% consumption tax effective 1 September.

Analysis framework

J.P. Morgan combines channel checks on copper-foil negotiations with ZE Consulting production estimates and industry shipment, EV-sales, inventory and price data. It links battery output to end-market demand, capacity ramp-ups, supply constraints and cost pass-through across the battery value chain.

Methodology notes

• Industry AnalysisSupply-demand framework

  Battery and lithium supply-demand analysis

  The report compares production capacity, raw-material availability, ESS and EV demand, inventory movements and pricing to explain expected output and commodity-price direction.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Battery value-chain cost pass-through

  The report traces higher copper-foil and electrolyte costs through battery pricing, including the reported consumption-tax pass-through in ESS batteries.

• Industry AnalysisVolume-price decomposition

  Production-volume and price trend comparison

  The report separately evaluates battery production growth and price movements for materials, processing fees and batteries to identify differing drivers across the chain.

Asset mapping & comparison

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

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

  Covered battery-cell maker and J.P. Morgan’s top pick in China’s battery value chain.

  Strengths

  Expected October production recovery; estimated FY26 exit production above 1.1TWh and sales around 1.0TWh.

  Weaknesses

  September production was disrupted by copper-foil supply negotiations.

  Comparison

  CATL’s 3Q26 production grew 66% y/y versus 59% for the other top-six producers excluding CATL.

  Risks

  Potential market-share normalization concerns, softer demand and renewed supply disruptions.

• EVE Energy (300014.SZ)

  Comparable tier-2 battery maker.

  Strengths

  Expected October production growth of 11% month on month.

  Comparison

  Expected to grow faster sequentially than CATL in October.

• CALB (3931.HK)

  Comparable tier-2 battery maker.

  Strengths

  Expected October production growth of 19% month on month.

  Comparison

  Expected to post the strongest sequential production growth among the makers discussed.

Key data

• CATL September production forecast revision-14% cumulativeZE Consulting revisions moved the expected monthly change from +9% to -5%.
• CATL October production outlook+6% m/mExpected recovery to August levels after the copper-foil bottleneck eased.
• Top-six battery-maker production growth~55% y/y in 10M26Following 40% growth in 1Q26, 60% in 2Q26 and 62% in 3Q26.
• Chinese ESS battery shipments+95% y/y in 8M26A key source of sector demand support.
• China passenger-EV battery content+9 kWh per car, ~21% y/y in 8M26Partly offsets weaker passenger-EV retail sales.
• Lithium carbonate spot priceRmb132k/tPrices softened as expectations shifted toward a looser supply-demand balance.
• Lithium carbonate output outlook~1% m/m decline in OctoberAdditions and Zimbabwean ore arrivals are expected to be offset by maintenance cuts.
• Copper-foil processing-fee increase~Rmb1–2k/t, or 4–10%Equivalent to about 0.1–0.2% of battery costs for CATL.

Impact & implications

The report views the resolution of copper-foil negotiations as removing a near-term production constraint for CATL and supporting an October recovery. It sees ESS demand, exports and commercial EVs sustaining broad battery output, but expects lithium prices to remain pressured by prospective supply additions, softer sentiment and uncertainty over future ESS demand.

Risks

• China passenger-EV retail sales are expected to decline 12% year on year in 9M26.
• Lithium sentiment may weaken further if supply additions outpace demand or ESS growth proves less sustainable.
• The timing of CATL’s Jianxiawo restart remains uncertain.
• Conflicting inventory data leave uncertainty over whether lithium destocking has ended.

What to watch

• CATL’s October production recovery and the pace of raw-material procurement from mid-October.
• October lithium-carbonate output, Zimbabwean ore arrivals and Zijin Manono’s ramp-up.
• Downstream lithium restocking after the 1 September battery consumption-tax implementation.
• ESS demand growth and China passenger-EV retail trends.