By the end of November, Longpan Technology (HK: 02465) signed a supplementary agreement with Chuna New Energy, stipulating the procurement of 1.3 million tonnes of cathode materials from 2025 to 2030. Based on the market price at that time, the total contract value is estimated to reach a staggering RMB 45 billion. This follows the RMB 47 billion contract signed between CATL (SZ: 300750) and Wanrun New Energy (SH: 688275) in early May, marking another blockbuster deal that sent shockwaves through the entire industry.

Huaxia Energy Network has observed that large-scale contracts in the lithium battery industry chain have exploded since the start of this year. Other lithium battery giants such as EVE Energy (SZ: 300014), Guoxuan High-Tech (SZ: 002074), and CALB (HK: 03931) have successively disclosed major procurement agreements covering key segments including lithium iron phosphate, positive and negative electrode materials, electrolyte, copper foil, and separators. These orders often amount to billions or even tens of billions of yuan, with contract terms mostly ranging from 3 to 5 years.

The downstream market has also seen a spate of multi-billion-yuan contracts. For instance, in November, HyperStrong Energy (SH: 688411) signed a 10-year strategic cooperation agreement with CATL, under which the procurement volume alone from 2026 to 2028 will be no less than 200 GWh. In December, Hithium Energy Storage signed a cooperation agreement with CRRC Zhuzhou Institute, committing to supply no less than 120 GWh of energy storage products during the "15th Five-Year Plan" period.

Since the beginning of the year, driven by the market boom, the lithium battery industry chain has re-entered a phase of "high capacity utilization, strong demand, and high expectations", leading to tight supply across the chain. This has resulted in a more intense long-term contract signing spree than ever before. While this helps both supply and demand sides stabilize the supply chain and mitigate the impact of market fluctuations, it has also triggered a frantic capacity expansion wave.

Having just emerged from the previous adjustment cycle, the energy storage industry is once again in a frenzy. Industry insiders are worried that following the surge in long-term contracts, will the sector fall into the quagmire of severe overcapacity, just like the photovoltaic (PV) industry did a few years ago, from which it still struggles to recover?

Behind this flurry of long-term contracts lies the explosive growth of the energy storage and new energy vehicle (NEV) markets this year.

Fueled by the concentrated commissioning of domestic new energy power stations, rising overseas demand for new energy consumption, and the growing energy storage supporting demand brought by U.S. AI infrastructure construction, the energy storage market is experiencing unprecedented prosperity. According to data from the National Energy Administration and third-party institutions, global lithium battery energy storage installations reached 170 GWh in the first three quarters of 2025, a year-on-year increase of 68%. Among this, domestic newly connected installations stood at 82 GWh, up 61% year-on-year, while overseas energy storage reached 94 GWh, a 74% year-on-year rise.

In the power battery sector, demand has surged significantly along with the growth in NEV sales. According to data from South Korea's SNE Research, global power battery loading volume hit 811.7 GWh in the first three quarters of this year, a 34.7% increase compared to 602 GWh in the same period last year.

The explosive downstream demand has rippled up to the midstream and upstream segments, leading to full-capacity operations and bustling production activities across all links of the industry chain.

"Traditionally, December is the off-season for the industry, but this year, energy storage battery production scheduling is expected to achieve double-digit month-on-month growth in December," an industry insider told Huaxia Energy Network. Public data shows that since the third quarter, CATL's capacity utilization rate has exceeded 90%. EVE Energy also stated that its energy storage battery orders are robust and the company is operating at full capacity. Hithium Energy Storage has maintained full production at its Xiamen and Chongqing bases since March this year.

REPT BATTERO (HK: 00666) reported that its capacity utilization rate has remained above 90% since the second quarter, even hitting 100% in July. Longking Environmental Protection (SH: 600388) indicated that its order backlog for energy storage cells has been scheduled until June 2026.

On the upstream materials side, the lithium hexafluorophosphate (LiPF₆) production capacity of Tianci Materials (SZ: 002709), and the lithium iron phosphate (LFP) production capacities of Hunan Yuneng (SZ: 301358) and Anda Technology are all fully utilized, with some even exhibiting a "production line selecting orders" phenomenon. Shanshan Co., Ltd. (SH: 600884), a leading negative electrode material manufacturer, has had to outsource some orders to external contractors to meet supply demands.

Public information shows that the global energy storage cell capacity utilization rate reached 86% in 2025, far exceeding the 65% level in 2024.

Against the backdrop of high capacity utilization, enterprises' strong demand for raw materials has triggered price increases across the board.

Huaxia Energy Network has noted that recently, prices have risen across multiple segments including lithium carbonate, electrolytic cobalt, lithium hydroxide, lithium hexafluorophosphate, lithium iron phosphate, wet-process separators, electrolyte, and negative electrode materials. Among these, on December 10, the spot average price of battery-grade lithium carbonate stood at RMB 96,230 per tonne, surging 31.80% over two months. The price of lithium hexafluorophosphate, a core electrolyte material, has skyrocketed by over 260% in nearly five months, with the average price exceeding RMB 180,000 per tonne.

In this context, leading enterprises, aiming to reduce production costs and ensure supply chain security, have successively "locked in orders" with upstream suppliers, making the frequent emergence of large-scale contracts a natural outcome.

A sales manager at a battery procurement company complained to the media, "Currently, even if we pay full upfront payment, we can only pick up the battery cells in March next year."

The person in charge of another energy storage system enterprise commented, "The 'cell shortage' is not a matter of insufficient total supply, but rather a structural mismatch. The supply shortage is concentrated in large-capacity energy storage cells, such as the mainstream 314Ah cells."

Upstream material suppliers are also grappling with delivery challenges. The head of a leading lithium battery copper foil manufacturer stated that the company's existing production capacity is "inadequate, resulting in immense delivery pressures."

"Current order volumes have actually exceeded the peak production capacity of enterprises," an analyst covering the electric equipment and new energy sector at a securities firm noted. To fulfill long-term order requirements, the energy storage industry is launching a new round of capacity expansion.

Huaxia Energy Network has observed that this wave of capacity expansion is mainly concentrated among leading enterprises in each segment. For example, CATL announced multiple new capacity projects in Fujian, Shandong, Henan, and other regions this year, with newly planned production capacity exceeding 70 GWh, and an additional 16 GWh of under-construction battery system capacity added in the first half of the year.

Guoxuan High-Tech has planned a total of 40 GWh of lithium battery and power battery production capacity in Nanjing and Wuhu, while also mapping out 20 GWh of power battery capacity each in Slovakia and Morocco. In addition, several other lithium battery leaders including CALB, EVE Energy, and Sunwoda Electronics (SZ: 300207) have clearly disclosed their capacity expansion plans. Among them, Chuna New Energy and CALB each have newly planned production capacity as high as 150 GWh. On June 18, CALB's high-performance lithium battery project broke ground in Changzhou.

According to incomplete statistics from Huaxia Energy Network, the total newly planned production capacity of battery enterprises in this round exceeds 510 GWh, involving a total investment of RMB 176.2 billion.

Beyond battery manufacturers, leading enterprises in the midstream and upstream materials sectors have also launched capacity expansion initiatives, such as Pulead Technology Industry (SH: 603659), a dual leader in negative electrode materials and coated separators; Shangtai Technology (SZ: 001301), a leading negative electrode material producer; and Fullshare Precision Industry (SZ: 300432), a technology-driven leader in high-compaction lithium iron phosphate.

According to statistics from GGII (Gao Gong Industry Research Institute), from January to August this year, the number of newly signed and commenced capacity expansion projects in China's lithium battery industry chain reached 183, with a total investment of approximately RMB 400 billion.

These figures only cover data up to August, and capacity expansion has intensified further in the fourth quarter. In the first half of this year, the energy storage industry was on the verge of a wave of excess capacity consolidation; now, the tide has turned to a scramble for capacity expansion. The unpredictable industry trends have aroused deep concerns among many rational observers.

Currently, leading enterprises in the lithium battery industry generally hold an optimistic outlook for the future.

For example, He Jiayan, Vice President of Ganfeng Lithium Industry (SZ: 002460), recently stated that the lithium industry has entered an upward cycle. Bu Xiangnan, Executive Vice President of Chuna New Energy, also commented, "The industry will see another growth of 35% to 40% next year, translating to shipments of 800 GWh to 900 GWh."

Analysts at Bernstein wrote in a report, "This year marks the market bottom, and we expect the lithium market to remain tight from 2026 to 2027." Some enterprises also predict that the energy storage industry chain is likely to witness a cyclical price increase in 2026.

However, a senior industry insider told Huaxia Energy Network that there is considerable "water" in the current industry capacity expansion data. He said, "The current capacity expansion is more about seizing orders and stabilizing market share. Whoever possesses more production capacity will be able to secure more orders."

Clearly, in the face of the current high-growth cycle, players in the energy storage sector are grappling with mixed emotions. On one hand, having just emerged from a downturn, energy storage practitioners deeply cherish the current prosperous times; on the other hand, no one wants to miss out on orders due to insufficient capacity, yet a stampede-style capacity expansion will inevitably lead to overcapacity.

It is worth noting that participants in this wave of "capacity expansion" are mainly leading enterprises in the industry. This may indicate that although the industry has entered a high-boom cycle, market differentiation and reshuffling are still ongoing, and hidden risks persist in the energy storage sector. Excessively aggressive capacity expansion will quickly deplete the high-growth cycle, leaving large, well-capitalized, and agile enterprises to dominate the market, while small and medium-sized enterprises will be left with nothing.

Looking at the previous path taken by the adjacent PV industry, large-scale capacity expansion driven by an order boom is a development that requires high vigilance. Companies once believed that holding orders justified confident capacity expansion, but when the industry cooled down, these orders turned into "worthless paper".

After the announcement of China's "dual carbon goals" in 2020, the PV industry embarked on a period of explosive growth, becoming one of the most profitable sectors in the country. Large-scale long-term contracts worth tens of billions or even hundreds of billions of yuan emerged one after another, followed closely by an industry-wide capacity expansion wave.

However, by the second half of 2023, the PV industry plunged into a downturn due to severe overcapacity. To this day, the industry has been struggling for more than two years, yet there are still no signs of excess capacity consolidation or a market rebound. Almost all leading enterprises have reported consecutive quarterly losses, and the entire industry is mired in a slump with heavy losses.

By the end of June this year, the total liabilities of 140 listed PV companies reached a staggering RMB 2.32 trillion, with an overall asset-liability ratio of 63.20%. If non-listed PV enterprises, companies queuing for IPOs, and a large number of cross-industry entrants are included, the total liabilities of the entire PV industry may have exceeded RMB 3 trillion. For those enterprises that rushed to expand capacity back then, the more frenzied their expansion was, the more painful their debt repayment is today.

The painful and profound lessons from the PV industry are still fresh in memory. The energy storage industry must absolutely avoid repeating the same mistakes. Only by abandoning the mindset of capacity competition and embracing a differentiated, high-end development path can enterprises survive healthily and sustainably, and reap the dividends of the energy storage industry's robust growth.