Lithium iron phosphate batteries reached 84.6% of China’s power battery installations in July, a fresh record. The more consequential number in the same report is that battery production grew 54.9% over the first seven months of the year, more than three times the 15.4% growth in domestic installations, and the reasons that gap is not closing cleanly are more complicated than persistent oversupply alone.
China’s domestic power battery installations reached 74.6 GWh in July, up 33.5% year on year and the fourth consecutive month of accelerating growth, according to the China Automotive Battery Innovation Alliance. LFP batteries drove essentially all of that acceleration, rising 40.5% year on year to 63.1 GWh and lifting their share of installations to 84.6%, up from 83.3% in June and a second straight monthly record, while ternary battery installations grew just 1.8% and their share fell to 14.9%, the lowest on record. Over the first seven months, LFP accounted for 335.1 GWh of 410.2 GWh in cumulative installations, or 81.7% of the total.
The more revealing figure sits one level up the supply chain. Combined production of power and energy storage batteries reached 218.0 GWh in July, up 62.9% year on year, and cumulative output over seven months hit 1,286.9 GWh, up 54.9%, a growth rate CABIA itself notes is more than three times the 15.4% pace of domestic installation growth. Combined sales of power and storage batteries totaled 185.2 GWh in July, meaning production exceeded sales by roughly 33 GWh in the month, about 15% of output, even before accounting for the batteries produced in prior months still working through inventory. That gap is consistent with a battery sector where manufacturing capacity continues to run ahead of confirmed offtake, but the composition of where that offtake is and is not appearing has shifted enough since late 2025 that the simple oversupply story from a year ago no longer fully explains it.
Average Chinese battery pack prices fell 13% in 2025 to 84 dollars per kilowatt-hour, with the cheapest LFP cells for stationary storage bottoming near 36 dollars per kilowatt-hour, according to BloombergNEF, a decline BNEF attributed to lower input costs, overcapacity, and intense price competition compounding a multi-year shift toward LFP chemistry. That trend has partly reversed since. Prices for mainstream 314 amp-hour LFP storage cells rose from about 42 dollars per kilowatt-hour in late October 2025 to roughly 51 dollars per kilowatt-hour by April 2026, a climb of about 22%, as battery-grade lithium carbonate prices rose from the Shanghai Metal Market’s October 2025 average of roughly 73,550 yuan per tonne to about 167,000 to 181,500 yuan per tonne between January and April 2026, a move Reuters put at 167% off the prior year’s low. Three forces are driving that reversal at once. CATL suspended production at its Jianxiawo lithium mine, removing domestic supply at a moment when energy storage demand was, in the words of industry sources at a December materials conference, exceeding expectations enough that some leading cell producers were running above nameplate capacity. And on January 9, China’s finance ministry and State Taxation Administration announced that the value-added tax export rebate on battery products would fall from 9% to 6% starting April 1, 2026, before being eliminated entirely on January 1, 2027, a policy Orient Securities analysts linked explicitly to Beijing’s effort to curb what domestic commentary calls involution style competition, the destructive price undercutting that has kept large parts of the battery supply chain unprofitable.
That export rebate timeline matters for reading July’s numbers specifically. Analysts expected the phase-out to trigger a rush of front-loaded shipments as exporters worked to move volume out under the higher 6% rate before it disappears in 2027, which means part of the acceleration in both production and the 35.2 GWh of combined battery exports recorded in July, up 51.7% year on year and equal to 19.0% of total sales for the month, reflects a policy deadline pulling forward activity rather than a clean read on underlying overseas demand. Cumulative exports over seven months reached 216.6 GWh, up 43.9% year on year and accounting for 18.6% of total sales, a share of the sales base large enough that any post-deadline reversal in export pace would show up clearly in the aggregate production and sales figures CABIA reports each month.
The overcapacity that remains is concentrated further upstream than the cell data alone reveals. LFP cathode material nameplate capacity exceeded 6 million tonnes in 2024 against actual shipments of about 2.4 million tonnes, a utilization rate below 40%, with anode, electrolyte, and separator materials facing comparably elevated overcapacity, according to industry analysis of listed suppliers, several of which have posted losses for more than 36 consecutive months with debt-to-asset ratios as high as 68%. That is a materially different picture from the finished-cell level, where the same reporting describes leading producers running at high utilization and, in some cases, above nameplate capacity to meet storage demand. The CABIA data’s headline gap between 54.9% output growth and 15.4% domestic installation growth is real, but it obscures that the surplus is not evenly distributed across the supply chain: it sits overwhelmingly in cathode and other materials production, not uniformly across cell manufacturing, and the specific manufacturers running hot are increasingly the ones serving storage rather than vehicle demand.
Energy storage battery sales grew 55.4% year on year in July to 56.1 GWh, faster than the 41.6% growth in power battery sales to 129.1 GWh, even as storage sales fell 10.3% from June compared with a 3.3% monthly decline for power batteries, a steeper pullback CABIA’s own data does not explain but that is broadly consistent with the lumpy, tender-driven nature of grid-scale storage orders relative to the more continuous monthly cadence of vehicle production. China’s new mandatory minimum renewable energy consumption rules, which took effect on August 1 and convert previously voluntary provincial and corporate consumption targets into binding assessments with storage positioned as core supporting infrastructure, fall just after the July window this data covers, which means their effect on storage battery demand will only begin showing up in the months ahead rather than in the acceleration already visible in July. Whether that structural, policy-driven demand floor is enough to pull cell-level utilization further away from the persistent overcapacity still sitting in cathode and other upstream materials is the more important question the next several months of CABIA data will answer, and it is a different question from whether China’s battery sector remains oversupplied in the aggregate sense the July figures, taken alone, suggest.
