(Yicai) Sept. 8 -- China’s energy storage cell industry is expected to undergo years of capacity clearing as regulators move to rein in structural overcapacity after a prolonged expansion, industry insiders said.

Fresh cell projects now require regulatory approval before they can proceed, meaning companies can no longer unilaterally push ahead with new capacity, an industry insider told Yicai. Some production lines and companies using outdated technologies could also face closure.

“In the next few years, the energy storage cell industry will usher in a cycle of capacity clearing,” a source at an energy storage company told Yicai. For example, outdated production capacity for cells below 314 ampere-hours will gradually be shut down.

As outdated capacity is eliminated in an orderly manner, the supply of new-generation batteries should become better aligned with actual market demand, the same source added.  

“Some smaller, less competitive battery makers will gradually be squeezed out of the market, while their inefficient battery cell capacity will also be phased out,” the first insider said.

Rapid Capacity Expansion

Years of rapid expansion have left the industry, which makes batteries used in grid-scale energy storage systems, increasingly vulnerable to structural overcapacity.

China’s energy storage battery output exceeded 400 GWh in the first half of this year, doubling from a year earlier, Wang Shijiang, deputy department director at China’s industry and information technology ministry, said at the 2026 World Power Battery Conference held last week. From January to May, cumulative bidding for new energy storage projects topped 100 GWh, marking a more than twofold increase from a year earlier.

Yet capacity continues to surge. Chinese companies plan to add more than 800 gigawatt-hours of annual energy storage cell capacity this year, Tian Qingjun, senior vice president of green-tech company Envision Group, warned at the conference. Completed capacity is expected to reach about 1.2 terawatt-hours to 1.5 TWh by year-end, while total capacity covering completed, under‑construction and planned‑to‑be‑built projects will exceed 2 TWh.

Concerns remain that overcapacity could trigger price wars. Much like photovoltaic panel production lines, energy‑storage cell production lines feature continuous manufacturing processes. Each shutdown entails high costs stemming from material scrap and equipment readjustment. To preserve cash flow and market share, enterprises are highly likely to repeat the mistakes seen in the photovoltaic sector: they may keep running production amid overcapacity and get trapped in price wars to secure product sales.

Regulators Target Excessive Competition

The scale of the capacity buildup has also alarmed regulators.

The risk of structural overcapacity across the industry cannot be ignored, while homogenization and rat-race competition urgently need to be addressed, MIIT's Wang said at the conference. The industry’s standards system and safety assurance capabilities also need to be strengthened, he added.

The State Administration for Market Regulation has included measures to prevent excessive competition in key sectors such as lithium batteries in its comprehensive rectification framework, SAMR Chief Engineer Liu Min said. The regulator is working with other government departments on capacity warnings and regulation, curb cut‑throat price competition, and other measures to create a fair competitive environment for the industry.

Editors: Tang Shihua, Emmi Laine