China Warns of Lithium-Ion Battery Demand Slump in Early 2026

China’s EV battery market may face a sharp downturn in early 2026 as incentives fade, CPCA warns. Read what this could mean for supply, prices and exports.

China’s lithium-ion battery market could face a sharp slowdown as early as the beginning of 2026, according to industry warnings linked to weakening government support for electric vehicles and a cooling demand outlook. The risk is no longer seen as a short-term fluctuation, but as a potential structural shift that could affect even the sector’s largest players.

The warning came from Cui Dongshu, secretary general of the China Passenger Car Association (CPCA). He said that demand for batteries may fall significantly in the first months of 2026, following an expected drop in electric vehicle sales. One of the main drivers behind this outlook is the scaling back of tax breaks and subsidies that had previously encouraged buyers and fleet operators to accelerate purchases.

In 2024 and 2025, China’s market remained relatively resilient. Automakers and commercial vehicle producers built up battery inventories in anticipation of continued growth. However, industry representatives argue that this strength was partly driven by a rush to buy before support measures were adjusted. As a result, early 2026 could see a noticeable downturn, particularly in the commercial EV segment.

Exports, once viewed as a potential buffer against weaker domestic demand, are unlikely to fully offset the slowdown. Overseas shipments of Chinese batteries have been losing momentum, while Europe and the United States are accelerating the development of their own production capacities to reduce reliance on Chinese suppliers. This shift is already reshaping competition in the global battery market.

Pressure is also mounting due to the scale of installed capacity. According to the International Energy Agency, global battery cell manufacturing capacity now significantly exceeds current demand, with China accounting for the majority of that capacity. Against this backdrop, battery prices in China fell by nearly 30% in 2024, a much steeper decline than in other regions.

Even industry leader CATL, which holds around 38% of the global EV battery market, could be exposed to the consequences of oversupply. Intensifying price competition, shrinking margins and the need to reassess production plans may become unavoidable if the projected demand slump materialises.

Analysts suggest that the coming quarters will be a critical test for China’s battery sector. A shift from aggressive expansion to more cautious volume and pricing strategies could determine how severe the impact of a potential downturn in early 2026 will ultimately be.