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Demand for China’s lithium batteries slump early 2026: Overview
- Cui Dongshu, secretary-general of China’s Passenger Car Association, predicts a drastic slump in lithium battery demand from late 2025 into early 2026.
- Green passenger vehicle sales are expected to fall at least 30% in Q1 2026 vs Q4 2025 due to the phasing out of tax incentives.
- Commercial EV purchases rushed ahead of the year-end subsidy expiry, setting up a sharp post-2025 drop.
- Battery exports are unlikely to offset domestic weakness; EU exports are up only 4% in 2025, and US exports are down 9.5%.
- Major impact on giants like CATL and EVE Energy; advises production cuts to manage fluctuations.
China’s Battery Boom Faces Early 2026 Slump: Passenger Car Association Head Sounds Alarm
China’s dominance in lithium-ion battery production, long the envy of the global EV industry, is bracing for a significant downturn as 2026 begins. On December 28, 2025, Cui Dongshu, secretary-general of the China Passenger Car Association (CPCA), issued a stark warning in a personal social media post: demand for new energy batteries will “drop drastically” starting from the end of 2025. He urged manufacturers to cut production and “take some rest” to weather the coming fluctuations.
This sobering outlook comes despite China’s commanding position as the world’s leading battery maker and exporter. Cui attributes the impending slump primarily to a sharp decline in domestic electric vehicle sales. Green passenger vehicle volumes are projected to fall at least 30% in the first quarter of 2026 compared to the fourth quarter of 2025, driven by the gradual phase-out of consumer tax incentives and purchase subsidies. Many buyers rushed purchases before year-end deadlines, creating an artificial peak followed by a predictable trough.
Commercial EVs face an even steeper cliff: Cui described a “definite” slump early next year after fleet operators front-loaded orders to capture remaining benefits. With no strong export rebound expected, the domestic slowdown will hit battery makers hard—including giants like Contemporary Amperex Technology Ltd. (CATL) and EVE Energy.
Domestic Demand Drivers Turning Negative
China’s EV market has been propelled by generous incentives, but their withdrawal is exposing underlying softness:
- Consumer subsidies winding down reduce purchase appeal.
- The year-end rush for remaining tax breaks inflated Q4 2025 numbers.
- Post-subsidy reality: Buyers delay decisions, awaiting clearer long-term costs.
Cui’s forecast of a 30%+ drop in green passenger sales signals a painful adjustment period for an industry accustomed to double-digit growth.
Export Outlook Offers Little Relief
Overseas sales, once a bright spot, are unlikely to compensate:
- EU (largest market): Exports rose only 4% in 2025.
- US: Shipments fell 9.5%, despite AI-driven energy storage demand.
- Geopolitical hurdles: US restrictions on tax credits for projects involving “foreign entities of concern” limit Chinese penetration.
UBS analyst Yishu Yan highlighted these risks, noting policy barriers could further cap growth.
Impact on Battery Makers
With demand outpacing mine supply for five consecutive years, inventories were already tight. A sudden domestic slowdown risks overcapacity, price pressure, and margin erosion for producers like CATL (the world’s largest) and EVE Energy.
Cui’s call for production cuts aims to prevent a destructive inventory pile-up, allowing the supply chain to rebalance during the lull.
Broader Context: China’s EV Ecosystem at a Turning Point
China’s battery leadership—controlling vast shares of refining and production—has fueled global EV growth. Yet 2026’s projected slump reveals vulnerabilities:
- Heavy reliance on subsidies to drive consumer demand.
- Export sensitivity to trade barriers and tariffs.
- Need for sustainable growth beyond incentives.
As the world transitions to electrification, China’s manufacturers must navigate this “rest period” wisely—investing in efficiency, next-gen chemistries (LFP, sodium-ion), and diversified applications like grid storage.
The Bigger Picture: A Temporary Dip or Structural Shift?
Cui’s warning is pragmatic: markets fluctuate, and preparation prevents pain. A Q1 2026 slowdown could clear excess inventory, stabilize prices, and set the stage for renewed growth once policies stabilize and infrastructure matures.
For global competitors, it’s an opportunity to gain ground. For China, it’s a reminder that even dominant industries face cycles.
As 2025 closes with records, the battery sector braces for a colder start to 2026—but with resilience built from years of rapid expansion.
Source: businesstimes.com.sg
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