[SMM Analysis] Riding the Winds In and Outside China, Breaking the Iron Law of Old Cycles: 2026 Energy Storage Battery Cell Semi-Annual Review and Outlook

In H1 2026, the global ESS battery cell market maintained high growth and a state of tight balance. Driven by the spillover effect from a surge in utility-scale ESS orders both in and outside China since H2 last year, existing capacity has faced immense delivery pressure. From January to June, cell manufacturers accelerated their production schedules, pushing the industry’s cumulative ESS cell production to 437.8 GWh, with an average monthly compound growth rate of 6%. Although the production pace picked up significantly, the industry’s overall cell inventory remained at extremely low levels and continued in a destocking phase. The total industry inventory is currently only around 28 GWh, and the inventory coverage period has been drastically compressed to 0.36 months.

The tight supply-demand balance for capacity has directly limited the order-taking headroom of top-tier players. Order backlogs for most first- and second-tier enterprises have now extended beyond Q3 this year, and some leading players have even signed orders into 2027, making spot cargoes extremely hard to secure. From January to May, total ESS cell shipments reached 366 GWh and have been climbing month by month since the Chinese New Year. It is worth noting that the market had originally expected shipments to experience a phased pullback after the conventional grid connection deadline (March 30) and the export tax rebate reduction in April. However, against the backdrop of overflowing long-term contracts and capacity hitting its ceiling, the delivery bottleneck has completely shifted to the supply side, resulting in this year’s shipment pace not following the historical pattern of retreating after a rapid rise. Furthermore, boosted by increased demand for residential ESS outside China, the share of residential ESS cells rebounded to about 14%, and the technology roadmap is accelerating toward larger capacities, gradually evolving from the traditional 100Ah to 314Ah and even 392Ah.

At the intersection of capacity expansion and generational product transition, the market is exhibiting significant structural contradictions. At the beginning of the year, the industry widely expected that new capacity in the utility-scale ESS segment would rapidly switch to 500Ah and larger formats. However, actual follow-up surveys in H1 show that the production start-up and ramp-up progress for ultra-large cells at most manufacturers has generally fallen short of expectations, and large-scale volume release is now expected to be postponed until after Q3, driven mainly by mid-tier players in the industry. Meanwhile, the expansion for large cells often involves retrofitting existing 314Ah production lines, leading to a temporary loss of 314Ah capacity; yet in the end-use market, the mainstream delivery specification remains firmly anchored at 314Ah. This mismatch, amid surging orders, has directly triggered a structural shortage of 314Ah cells. To fill the gap, some manufacturers have begun urgently investing in new 314Ah capacity, and an additional 40 GWh of related capacity is expected to come on stream within the year.

The turnaround in the supply-demand relationship and fluctuations in upstream costs have directly driven a strong recovery in cell prices. Currently, 314Ah cell prices have climbed steadily from 0.32 Yuan/Wh at the start of the year to around 0.365 Yuan/Wh. The core drivers of this price hike are rising raw material costs and the supply-demand mismatch. According to the industry’s standard lithium carbonate price linkage mechanism, every 10,000 yuan/mt increase in lithium carbonate raises cell costs by roughly 0.006 Yuan/Wh. With lithium carbonate prices moving up from 120,000 yuan/mt early January to 180,000 yuan/mt in May, combined with the concurrent rise in other auxiliary material costs, the cumulative increase in overall cell manufacturing costs has exceeded 0.04 Yuan/Wh. In terms of profit distribution, the average industry gross margin for 314Ah spot orders has now recovered to around 10%; some manufacturers, in order to deeply tie in key major clients, have strategically compressed long-term contract gross margins to 6%-8%; while given the current extremely tight spot supply, smaller spot-order clients often need to concede a gross margin premium of over 15% to secure supply.

The current explosion in the energy storage market is attributable to the intensive release of policy dividends both in and outside China and the continuous improvement of market mechanisms. Domestically, although subsidies in some regions have been scaled back, the implementation of Document No. 114 has refined the capacity pricing mechanism, effectively solidifying the guaranteed minimum revenue for standalone ESS; coupled with ancillary service dividends and the further development of the spot electricity market, this has further lifted the profit ceiling for projects. Markets outside China are demonstrating growth momentum on multiple fronts. In the US, the ITC policy extension to 2033, grid renovation and upgrade, and the AI infrastructure wave have injected strong certainty into front-of-the-meter utility-scale ESS. In Europe, although residential ESS growth slowed due to a high base and falling electricity prices, utility-scale ESS is strongly taking up the baton driven by deepening electricity market mechanisms and high renewable energy penetration rates. In Australia, the dual drivers of guaranteed revenue introduced under the Capacity Investment Scheme and the expansion of the household battery scheme are fostering considerable growth. Meanwhile, the Middle East is strongly led by national strategies and sovereign capital, Latin America’s weak power grids have forced the emergence of capacity auction dividends, and rigid supply security demand amid severe power shortages is providing a boost to Africa—emerging markets are rapidly unleashing additional growth potential.

Based on the strong momentum in H1, global ESS cell production is expected to reach 1,033 GWh in full-year 2026, with total demand for the year expected to reach 946 GWh, and high delivery pressure will persist throughout the year. Entering Q3, as different manufacturers have varying time lags in their signed price linkage mechanisms, the cost pressure from high lithium carbonate prices in May will gradually pass downstream, driving a mild rise in cell prices. Looking ahead to Q4, given that the VAT export tax rebate policy will be completely canceled next year, Q4 will inevitably give rise to an extremely strong export rush, which will further strain the already tight cell supply chain; by then cell prices are very likely to hit their annual peak. Looking to next year, as new capacity from various players actually comes on stream and ramps up to full production, the tight supply-demand situation will ease, and coupled with expectations of a potential downward shift in the raw material price center, prices of mainstream cells such as 314Ah are expected to pull back rationally.

SMM New Energy Industry Research Department

Wang Cong 021-51666838

Ma Rui 021-51595780

Feng Disheng 021-51666714

Lyu Yanlin 021-20707875

Zhang Haohan 021-51666752

Wang Zihan 021-51666914

Wang Jie 021-51595902

Xu Yang 021-51666760

Chen Bolin 021-51666836

Yang Le 021-51595898

Li Yisha 021-51666730

Huang Chencong 021-51595860