Summary of Key Points
The mid-year reports from the lithium battery industry chain are generally impressive, with 84.8% of companies reporting positive results. Leading companies such as Yancheng Salt Lake Co., Ltd. and Tianqi Lithium Corporation have seen substantial performance increases. However, starting in September, a consumption tax on lithium batteries will be reinstated (2% initially, then increasing to 4%), while sodium batteries and solid-state batteries are exempt from this tax. This policy is accelerating the elimination of less efficient production capacity among second- and third-tier companies, which is beneficial for the leading firms and new technologies. At the same time, sector stock prices have diverged from the positive financial results due to market concerns about future overcapacity and declining lithium prices. The industry is transitioning from a focus on low-price competition to one based on technology and integration.
I. Lithium Battery Mid-Year Reports: Eighty Percent of Companies Report High Profits, Leading Ones Perform Exceptionally Well
The lithium battery industry had a strong first half of the year: out of 46 companies that disclosed their forecasts, 39 (84.8%) reported positive results.
- Top Performer: Yancheng Salt Lake Co., Ltd. led with a net profit of 6.3 billion yuan, mainly due to increased sales and prices of potassium chloride and lithium carbonate—both volumes and prices rose, and the company also merged with Minmetals Salt Lake.
- Fastest Growth: Tianqi Lithium Corporation’s net profit surged by nearly 50 times (4934.91%). Last year, it suffered a loss of 7.9 billion yuan, but this year’s turnaround is largely due to the recovery in lithium prices and the significant performance improvement of its joint venture SQM (a global lithium mining giant).
- Other Leaders: Ganfeng Lithium Corporation reported profits of 3.65–4.6 billion yuan (growth rates of 787%-965%), and EVE Energy Technology Co., Ltd. also saw a profit increase, both benefiting from rising lithium prices and expanded production capacity.
In short, upstream lithium mining companies are reaping substantial gains, and midstream battery manufacturers are benefitting as well; the industry is in a period of significant growth.
II. The Arrival of the Consumption Tax: A Challenge for Second- and Third-Tier Companies, but Not for Leaders
Starting September 1st, a 2% consumption tax will be levied on lithium batteries, rising to 4% next year. Sodium batteries, solid-state batteries, and fuel cells, among other new technologies, are exempt from this tax for the next two years. This policy is expected to lead to a differentiation within the industry:
- Who Will Be Hit Hardest? Second- and third-tier battery manufacturers, which have dispersed customer bases and weaker bargaining power. The 2% tax could consume nearly 80% of their profits, and the 4% tax might force them to shut down inefficient production facilities.
- Who Is Unaffected? Leading companies like CATL and BYD have high gross margins (10%-25%) and can pass on the tax to downstream automakers or energy storage clients. Additionally, they can receive tax refunds for exported batteries, effectively reducing their financial burden.
- Hidden Winners: Automakers that produce and use batteries in-house, such as BYD, can avoid taxes, resulting in lower costs compared to those that purchase batteries from companies like CATL (by several hundred to a thousand yuan per vehicle).
The policy essentially aims to support stronger companies while eliminating weaker ones, encouraging the development of new technologies like sodium and solid-state batteries.
III. Good Performance, but Falling Stock Prices? Market Concerns About Future Overcapacity
Despite the positive mid-year reports, the lithium battery sector has declined by 33% in the past two months, with 103 companies experiencing losses, and 8 of them losing more than 50%. The reason is simple:
- Shift from Speculation to Fear of Overcapacity: From December last year to May this year, lithium prices soared from 98,000 yuan to 209,900 yuan, driving stock prices up by 20%. However, since May, prices have dropped to 143,900 yuan. Institutions predict a global lithium surplus of 20% in the second half of 2026 and 2027, leading to concerns about future sales.
- Other Negative Factors: The U.S. ban on imported foreign inverters (affecting energy storage exports) and the consumption tax policy have also raised doubts about the industry's outlook.
Despite these challenges, analysts believe that industry demand will continue to grow (35% this year and 25% next year), with energy storage batteries experiencing even faster growth (70% this year). Current valuations are relatively low, indicating a positive long-term outlook.
IV. Industry Trends: Leaders Gain, New Technologies Take Off
The combination of the consumption tax, VAT reductions, and EU anti-subsidy investigations is pushing the industry from low-price competition to one based on technology and integration:
- Greater Concentration among Leaders: Orders and production capacity are likely to shift towards leading companies like CATL and BYD, as well as their overseas facilities (which can benefit from tax refunds and avoid anti-subsidy measures).
- Opportunities for New Technologies: Exemptions for sodium and solid-state batteries will encourage more investment in research and development. For example, Tianqi Lithium Corporation is working on a pilot project for lithium sulfide (a material used in solid-state batteries), which could become a new growth driver.
- Energy Storage Is Booming: The demand for energy storage batteries is growing rapidly, and overseas markets are less affected by policy changes, benefiting companies like Sungrow Power Supply Co., Ltd.
Analysts recommend focusing on the energy storage industry chain, companies with overseas operations, integrated solutions, and stocks related to sodium and solid-state batteries in the second half of the year.
V. The Strategies of Leading Companies
- Yancheng Salt Lake Co., Ltd.: Possesses one of the world’s largest salt lakes (Chaharhan Salt Lake), offering low-cost resources for potassium chloride and lithium carbonate. By expanding its scale through mergers, it maintains a dominant position in profitability.
- Tianqi Lithium Corporation: Not only has it lithium mining resources but has also invested in solid-state battery materials (lithium sulfide). If solid-state batteries become popular, this could lead to a new growth area, transforming the company from a traditional miner into a technology-driven enterprise.
- Ganfeng Lithium Corporation: Generates profits from selling lithium salts and shares (PLS), while also maintaining a cautious optimism about future lithium prices due to the long-term demand from energy storage and electric vehicles.
These leading companies either have access to valuable resources or possess cutting-edge technologies, or both, allowing them to stay ahead in the changing industry landscape.
Conclusion
The lithium battery industry is experiencing a stark contrast between strong performers and those facing challenges. While mid-year reports are positive, policies and market expectations are evolving. In the future, smaller companies are likely to be eliminated, while leading firms and new technology providers will thrive. For investors interested in this sector, it is advisable to focus on companies with resources, technological capabilities, and overseas presence, avoiding smaller, less competitive players. (The specific companies mentioned in the article are for analytical purposes only and do not constitute investment advice.)