China lithium battery demand – China Lithium Battery Demand Faces Sharp Early 2026 Slump as NEV Sales Drop and Policy Shifts Reshape the Electric Vehicle Market 30-12-2025
China lithium battery demand
China Lithium Battery Demand Set to Decline in Early 2026
China lithium battery demand is expected to experience a notable downturn in early 2026, driven primarily by weakening new energy vehicle sales and upcoming changes to national tax policies. This outlook was shared by Cui Dongshu, secretary-general of the China Passenger Car Association, who highlighted structural challenges facing the battery and electric vehicle supply chain.
As China remains the world’s largest producer and consumer of lithium batteries, shifts in domestic demand have wide-reaching implications for automakers, battery manufacturers, raw material suppliers, and global energy transition trends.
Production Cuts and Factory Holidays Expected
Battery manufacturers across China are preparing for softer market conditions. According to CPCA leadership, many battery producers are expected to cut output or schedule temporary holidays in early 2026 to manage inventory levels and reduce operational pressure.
This adjustment reflects a typical response to demand volatility, but the scale of the expected decline makes the situation more significant than usual. China lithium battery demand in early 2026 is projected to drop sharply compared with the fourth quarter of 2025, a period that traditionally benefits from strong year-end vehicle sales.
Reduced production may also affect upstream suppliers, including lithium processors and cathode material manufacturers, who rely on consistent battery output to maintain stable revenue.
NEV Sales Decline Is the Core Driver
The most important factor behind falling China lithium battery demand is the anticipated drop in passenger NEV sales. CPCA forecasts suggest that passenger NEV sales in early 2026 could fall by at least 30 percent compared with the final quarter of 2025.
This decline is largely linked to changes in China’s vehicle purchase tax policy. Consumers and fleet buyers accelerated purchases toward the end of 2025 to take advantage of existing incentives, effectively pulling forward demand that would normally occur in early 2026.
As a result, the market is expected to face a sharp sequential slowdown once those incentives are reduced.
Commercial NEVs Add to the Downturn
Commercial new energy vehicles also contributed to the expected slump. Deliveries of electric buses, trucks, and logistics vehicles surged before the end of the year as companies rushed to benefit from subsidies and favorable tax treatment.
This front-loaded demand is now expected to leave a gap in early 2026 sales volumes. With fewer large commercial orders entering the market, China lithium battery demand will face additional downward pressure during the first months of the year.
Exports Offer Limited Support
China’s NEV exports are expected to remain relatively resilient in early 2026. However, CPCA analysts believe export growth will provide only limited relief for domestic battery demand.
While overseas markets continue to adopt electric vehicles, exported NEVs represent a smaller share of total battery consumption compared with domestic sales. In addition, logistical costs, trade barriers, and local sourcing requirements in some markets constrain export-driven growth.
As a result, exports alone are unlikely to offset the decline in China lithium battery demand caused by weaker domestic consumption.
Weak US Demand for Energy Storage Batteries
Demand from the United States for Chinese energy storage batteries has also failed to provide meaningful support. Battery shipments to the US dropped sharply in 2025, and there has been little evidence of a recovery strong enough to influence overall demand trends.
This decline reflects shifting trade policies, local manufacturing incentives in North America, and growing geopolitical uncertainty. For Chinese battery producers, reduced access to the US market further limits external demand channels during a period of domestic slowdown.
Slowing Growth in Power Battery Sales
Recent data underscores the cooling momentum in the market. In November, power battery sales for passenger vehicles in China reached 57.1 GWh, representing a 13 percent year-on-year increase.
While still positive, this growth rate was significantly lower than the 46 percent recorded in the same month the previous year and below the 34 percent growth seen in November 2023. This deceleration signals that China lithium battery demand is already losing momentum ahead of the anticipated early 2026 downturn.
From January to November, cumulative power battery sales reached 478.7 GWh, up 23 percent year on year. This figure also marked a slowdown from the 37 percent growth recorded during the same period in 2024.
Subsidy Suspensions Weigh on Market Confidence
Another factor dampening demand is the suspension of NEV trade-in subsidies by several local governments. These subsidies played a crucial role in stimulating consumer upgrades and supporting steady sales growth.
With fewer incentives available, year-end NEV sales growth has been weaker than expected, further reinforcing the likelihood of reduced China lithium battery demand in the coming quarters.
Tax Policy Changes Create Early-Year Pressure
Looking ahead, China’s NEV purchase tax exemption policy is set to change. Starting next year, the exemption will be replaced with a 5 percent levy, half of the standard 10 percent rate but still a meaningful increase from zero.
This policy shift is expected to discourage some early-year purchases, particularly among price-sensitive consumers. The result is likely to be additional pressure on NEV sales and, by extension, China lithium battery demand in early 2026.
What This Means for the Industry
The projected decline in China lithium battery demand highlights a period of adjustment rather than a long-term reversal. Structural growth drivers such as electrification, energy transition goals, and technological innovation remain intact.
However, in the short term, manufacturers will need to manage capacity carefully, control costs, and prepare for more volatile demand cycles shaped by policy changes and subsidy timing.
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