Ahead of Q2, the tensions across China’s NEV supply chain had already become increasingly visible in February and March. On the one hand, battery output remained resilient, supported by OEM volume targets and the new-model cycle; on the other hand, lithium salts and certain battery materials rebounded into a sensitive range, repeatedly interrupting any meaningful profit recovery for both OEMs and battery manufacturers. As a result, the market’s focus for Q2 has shifted: it is no longer just about whether sales can grow, but whether demand can deliver and whether margins can hold up under high costs and supply-side disruptions.
The key feature from late February to early March was an optically strong demand profile driven by the combination of post-holiday ramp-up and front-loaded orders (including some rush-to-export activity, although the overall volume was limited). After the Lunar New Year, both automakers and battery makers restored production quickly. Together with certain OEMs maintaining their Q1 sales push, the chain saw a relatively aggressive inventory build. Orders during this period reflected a mix of recovery and tactical behavior: partly to fill the delivery gap created by the holiday, and partly to pre-position capacity and materials ahead of April’s new model launches and major auto show catalysts. Therefore, the strength observed at that time should not be interpreted as a confirmed inflection in full-year demand; it was more a forward shift in timing. In the lithium market, such periods tend to reinforce “demand is recovering” narratives, amplifying price sensitivity to expectations.
In March, the narrative shifted from volume after ramp-up to whether higher costs could be passed through and whether orders could remain sustainable. With broad-based upstream cost inflation, battery pricing began to diverge based on contracting mechanisms. Cell makers using formula-linked pricing were more able to pass through costs—at least from a financial/accounting perspective—while those locked into fixed “all-in” pricing faced more pronounced margin compression. Many suppliers chose not to push price negotiations to the limit in Q1, instead postponing intensive renegotiations to the post-holiday window. The result is that the industry still appeared to be producing and delivering in March, but profit pressure accumulated within the chain—the core contradiction did not disappear, it was simply deferred. Accordingly, market expectations for Q2 started to diverge: optimists focused on the new-model cycle and resilient production schedules, while more cautious participants emphasized that if sales do not deliver, margins will be the first to deteriorate.
Against this backdrop—before the cost-versus-margin tension had been resolved—supply-side disruptions further increased uncertainty. Zimbabwe’s Ministry of Mines announced a suspension of raw ore and lithium concentrate exports (including in-transit cargo), tightened export eligibility and compliance requirements, and signaled a longer-term policy direction toward domestic processing, with an in principle plan to ban concentrate exports by 2027. For the market, the impact of such events is rarely about immediate tonnage loss. It typically works through two channels: first, it undermines confidence in supply-chain stability, making it easier for a risk premium to be priced into lithium; second, it changes behavior across traders and downstream buyers—encouraging earlier locking-in and precautionary stocking during periods of heightened price sensitivity, thereby amplifying short-term volatility. The time lag is also critical: shipping from Zimbabwe to Chinese ports typically takes 2–3 months, so even if export flows are disrupted, the market’s physical perception is more likely to emerge after April. This creates a unique Q2 setup: the market must simultaneously validate whether sales can deliver in April–May while also facing the potential for supply timing disruptions in raw materials.
On the demand side, the validation window is concentrated in April–May. The Beijing Auto Show and a dense pipeline of new model launches provide a short-term catalyst for end-market demand—one reason why OEMs have generally “gritted their teeth” to build inventory and keep production schedules elevated despite rising costs. However, the key question is not how many models are launched, but whether new products can translate into a sustained sales uptrend.
If April–May sales significantly exceed expectations, the chain may enter a positive feedback loop: better deliveries would accelerate channel inventory depletion, improve OEM inventory turnover, and incentivize automakers to maintain higher production levels—supporting sustained power battery orders. At the same time, lithium inventories would be consumed faster, making prices easier to hold. In this scenario, Q2 would be interpreted as demand confirmation, improving risk appetite across the market.
If, however, April–May sales are merely average, the downside dynamics become more pronounced. A portion of current production and inventory build is expectation-driven and front-loaded; if sales do not deliver, OEMs are more likely to cut schedules in May–June to correct inventories. With costs still elevated, automakers will tend to push pressure upstream to protect their end-market competitiveness, leaving cell makers—especially those with a high share of fixed-price contracts—more exposed. In other words, the biggest risk in Q2 is not weak sales alone, but the combination of weak sales and high costs, which can trigger margin compression and order contraction and rapidly shift market sentiment from recovery expectations to confirmed weakness.
The energy storage segment’s ability to serve as a buffer for power batteries also needs to be re-evaluated in a Q2 framework. Current storage project pipelines in April–May remain relatively solid, and overseas orders are stable, which can partially smooth utilization volatility for cell makers. However, if lithium carbonate prices stay high, project IRRs will be squeezed—especially for price-sensitive projects or those with strict grid-connection timelines—raising the risk of delayed commissioning. If storage timelines slip while power-side demand fails to meet expectations, cell makers could face a phase where neither demand driver provides strong support, materially shaping market views for the second half of Q2.
Overall, incorporating March into the picture makes the Q2 validation logic clearer. In March, OEMs were both pushing volumes and building inventory ahead of new models, naturally lifting cell demand, while rising costs and delayed price pass-through accumulated margin stress. Meanwhile, supply-side disruptions (such as Zimbabwe) pushed raw-material uncertainty into the post-April window. Ultimately, Q2 is not about a single variable, but whether three conditions can hold simultaneously: (1) sales can remain consistently above expectations, (2) costs can stay relatively stable, and (3) supply disruptions prove to be more sentiment-driven than a true physical contraction. If any one of these fails, the market is more likely to see amplified volatility rather than a trend-level reversal.
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