As the year draws to a close, the once-busy battery factory has seen a shift in pace. On the winter solstice, December 22nd, Xiao Wang sat in his office, scrolling through his phone all morning with no customer calls or interactions. “Two years ago at this time, my phone never stopped ringing—orders and shipment requests were constant,†he recalls. The new energy vehicle market had been on a high, driven by subsidies, but the industry lacked maturity, leading to a shortage of power batteries. Early entrants in the battery sector often found themselves overwhelmed with demand.
This year, however, the landscape has changed dramatically. Liu Yanlong, the secretary-general of the China Chemical and Physical Power Industry Association, noted in a WeChat post: “The battery market is entering a dull season. This slowdown isn’t like before; power battery factories are caught between car manufacturers and raw material suppliers, squeezed from both ends.†Many small battery companies, known for low-end production, have struggled this year as the supply-demand balance shifted.
Liu Yanlong, a reporter with the 21st Century Economic Report, explained that while overall demand for power batteries is still rising, the oversupply of capacity has made it harder for smaller firms to compete. “In the past few years, there was a shortage, but now, with too much capacity, small companies are struggling even more,†he said. Xiao Wang’s factory used to produce mobile phone batteries and only recently transitioned to power batteries. In Shenzhen, many such companies exist. “Producing power batteries isn’t just about hiring a few people and using some machines. With rapid technological upgrades, many small companies can't keep up.â€
According to data from the 5th Lithium Davos Forum, from January to October 2017, China's cumulative installed capacity of new energy vehicle power batteries reached 18.1 GWh, while production capacity exceeded 200 GWh. “It's mainly a surplus of low-end production,†an insider from a power battery company said. “More than 200 battery factories exist in China, but 80% of shipments come from the top 10 companies. The rest struggle to survive.â€
Over two years, the number of power battery companies surged. In 2011, China's power lithium battery capacity was just 3,200 MWh, with output at 653 MWh. By 2014, as new energy vehicle sales rose due to subsidies, battery shortages emerged. Carmakers faced delays due to limited supply. “At that time, quality wasn’t a priority. Subsidies focused on range, not performance,†Xiao Wang said.
By 2015, battery production capacity expanded rapidly. GBII data showed a 179% increase in power lithium battery capacity. Three main types of investments drove this growth: existing companies expanding, new entrants entering the market, and capital pouring in from outside the industry. While the surge in new energy vehicle sales fueled this expansion, battery production grew far faster than demand, creating a major capacity bubble.
Behind the rush were government policies and local incentives. “Many local governments offered land, tax breaks, and even funding to attract investment,†a battery executive told the 21st Century Business Herald. As a result, the number of power battery companies skyrocketed. GBII data shows that in 2015, there were around 84 companies, but by 2017, that number surpassed 200.
Even as subsidies for new energy vehicles declined in 2017, battery companies continued expanding. BYD, for example, aimed to reach 16GWh in production capacity by year-end, with plans to grow further. Other large players like Ningde Times also pushed for massive expansions. However, this phase marked a shift from chaos to a more consolidated market dominated by top-tier companies.
Small businesses, unable to match the scale or technology of larger firms, face elimination. “Most small companies lack the resources to keep up with the pace of innovation,†Liu Yanlong said. “They’re struggling with price, safety, and lifespan issues.†Some still use manual processes, while big companies rely on smart manufacturing.
Currently, lithium iron phosphate and ternary materials dominate the market. Though ternary batteries offer higher energy density, they require costly cobalt and nickel, making them less cost-effective. “Lithium iron phosphate is more stable and reliable, especially for buses and shared vehicles,†said an industry expert.
With subsidies phasing out by 2020, companies may reassess their battery strategies. Meanwhile, concerns over raw material supply persist, particularly for cobalt and nickel. Despite this, the long-term outlook for power batteries remains positive, with large companies driving innovation, scale, and efficiency. The industry is evolving into a more mature, competitive, and sustainable market.
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