Falling inventory-to-sales ratios show the battery sector is still destocking

In November 2023, China's battery cell output was 78.16 GWh, down 6% MoM and 7% YoY. Ternary batteries made up 23.16 GWh, down 2% MoM and 22% YoY, while LFP battery cells reached 49.67 GWh, down 8% MoM but up 8% YoY. December's output is projected to fall to 70.67 GWh, down 10% MoM and 5% YoY. In 2024, sales-driven production will likely continue with cyclical fluctuations due to ongoing inventory cuts.

Demand-wise, especially in the EV market, year-end deals boosted new energy vehicle sales less than in past years. Given the substantial inventory held by dealers previously, the focus in the EV sector is on inventory reduction, which provides very limited stimulus to actual new demand. With the expected Q1 2024 vehicle sales slump and high battery cell inventories, firms are cutting stock at year's end. Thus, battery production is set to keep dropping due to the off-season and de-stocking cycle.

The energy storage sector is cutting production and inventory with current low order demand, expecting Q4 shipments to drop from Q3. Domestic project delays limit new demand, and no Q4 uptick in international orders is seen.