China Lithium Battery Demand Seen Falling in Early 2026

China’s lithium battery sector is heading into a period of contraction in early 2026 as domestic electric vehicle sales decline and export growth weakens, according to industry officials, even as Beijing moves to lower import tariffs on selected battery-related materials and other products.

The warning came from Cui Dongshu, Secretary General, China Passenger Car Association, who said demand for batteries used in new energy vehicles is expected to fall sharply from the end of 2025 into early 2026. The anticipated downturn is linked to the phasing out of tax incentives for vehicle purchases, a slowdown in battery exports, and a pull-forward effect caused by buyers accelerating purchases to capture subsidies.

“Looking into 2026, demand for new energy batteries will drop drastically from the end of this year, so battery makers should cut production and take some rest to cope with the fluctuations,” Cui said in a personal post on social media.

According to Cui, sales of green passenger vehicles are expected to fall by at least 30% in early 2026 compared with the fourth quarter of 2025, as tax incentives for car purchases are withdrawn. He added that electric vehicles used for commercial purposes will “definitely” see a sharp decline in the same period. “The commercial EV market will fall at the beginning of 2026 after buyers rush to purchase vehicles by the end of this year to secure subsidies and tax breaks,” Cui said.

The expected drop in battery demand is likely to affect major manufacturers, including Contemporary Amperex Technology Ltd. and EVE Energy, which have expanded capacity to meet rising domestic and overseas demand over the past several years. A sudden contraction could pressure utilization rates and pricing across the supply chain.

Cui said the loss of domestic demand is unlikely to be compensated by exports. While China remains a key supplier to overseas markets, recent trade data point to diverging trends. Chinese lithium battery exports to the European Union, the country’s largest overseas market, increased by 4 percent in 2025 from a year earlier. In contrast, exports to the United States fell 9.5 percent over the same period.

“The decline in exports to the US shows that the surge in demand for energy storage driven by the artificial intelligence boom there is not translating into higher demand for Chinese batteries,” Cui said.

Market analysts have also flagged growing policy risks in the US. UBS analyst Yishu Yan said this month that Chinese manufacturers face uncertainty stemming from US restrictions on projects that receive investment tax credits if they involve so-called “foreign entities of concern.” Such measures could further constrain access to the US market for Chinese battery suppliers.

Against this backdrop of weakening demand, Chinese authorities have signaled adjustments on the cost side of the industrial chain. The Customs Tariff Commission of the State Council announced that China will lower import tariffs on some products beginning in 2026, including resource-based commodities such as recycled black powder used in lithium-ion batteries.

Under the new framework, provisional import tariff rates for 935 products will be set below the most-favored-nation rates applied to World Trade Organization members. In addition to battery-related materials, the tariff reductions will apply to certain medical products, including artificial blood vessels and diagnostic kits for specific infectious diseases.