Summary
Approvals for new projects are becoming stricter, and technological upgrades are accelerating. Which battery capacities can continue to expand in the next five years?
In the first half of this year, China's total lithium battery production exceeded 1,240 GWh, a year-on-year increase of 44%.
On the flip side of the rapid demand growth is the ongoing capacity expansion.
According to statistics on public projects, in the first seven months of 2026, the number of signed capacity expansion projects for domestic lithium batteries reached 100, with a total planned annual capacity of approximately 2,608 GWh.
Meanwhile, the construction conditions for new projects are changing.
In September this year, multiple media outlets learned from battery companies and industry chain insiders that the approval and management of new domestic power and energy storage battery projects have become stricter, and some projects that have not yet officially started construction have been temporarily suspended.
On September 28, the Ministry of Industry and Information Technology and six other departments issued the "15th Five-Year Plan for the Development of the New Battery Industry", further clarifying the direction of industrial development for the next five years.
On the one hand, by 2030, the scale of China's new battery industry must continue to grow steadily, all-solid-state batteries will initially achieve large-scale application, and the cycle life of long-life lithium batteries will reach 15,000 cycles.
On the other hand, the plan requires optimizing the layout of the lithium battery industry and supporting mergers and reorganizations of enterprises. The supporting interpretation explicitly proposes continuing to implement capacity early warning regulation and standardizing price competition.
From the governance of industry competition order at the beginning of this year, to the adjustment of battery consumption tax implemented in September, and the upcoming cancellation of export tax rebates, policies affecting the operations and investments of battery companies are being implemented intensively.
In the next five years, the battery industry still needs to expand supply, but which capacities are worth continued investment has become a question that must be re-answered.
01 New Projects Suspended, Approved Capacities Continue to Be Released
Battery capacity management is shifting from policy guidance to the project level.
In June 2024, the Ministry of Industry and Information Technology revised the "Regulatory Conditions for the Lithium-ion Battery Industry", explicitly proposing to reduce manufacturing projects that merely expand capacity, and requiring enterprises applying for regulatory announcements to have an actual output of no less than 50% of their actual capacity in the previous year.
This requirement belongs to the conditions for industry regulatory announcements and is not an administrative approval threshold for new projects.
In January 2026, the Ministry of Industry and Information Technology and three other departments proposed improving the capacity monitoring and hierarchical early warning mechanism to strictly control redundant construction.
In April, the four departments once again deployed capacity early warning regulation, standardized price competition, compressed supplier payment terms, and required the regulation of local investment promotion behaviors.
Capacity expansion, price competition, and local investment promotion have entered the same round of industry governance.
By May, relevant measures began to extend to specific projects.
According to a report by Caixin on September 10, relevant departments launched an assessment of power and energy storage battery capacity and utilization rate at the end of 2025. From mid-May 2026, domestic related new projects were temporarily suspended, and at the end of the year, construction qualifications for the next stage will be determined based on the assessment results.
Among them, projects that have obtained a series of construction procedures such as environmental impact assessment and energy assessment before May will not be affected. Enterprises with a higher capacity utilization rate are expected to obtain project construction qualifications for the next stage.
Relevant implementation details currently mainly come from media investigations, and a unified national approval standard for new projects has not yet been announced.
However, the impact on different enterprises can already be foreseen.
Ningde Shidai's 2026 semi-annual report disclosed a battery system capacity of 525 GWh, an output of 498 GWh in the first half of the year, and a capacity utilization rate of 94.86%, while there is also 764 GWh of capacity under construction.
Its capacity under construction has already exceeded the current capacity scale.
These projects will gradually form new supply as construction progresses, and the specific release time still depends on the construction and ramp-up situations of each base.
For projects that are still in the planning and signing stages, the approval and start times face greater uncertainty.
The tightening of capacity expansion management will not immediately change the overall supply growth trend of the industry.
The previously accumulated project reserves are becoming an important condition for enterprises to expand their manufacturing scale in the next stage.
The "15th Five-Year Plan" released on September 28 further proposed optimizing the layout of the lithium battery industry in accordance with the principles of regional agglomeration and subject concentration, and supporting mergers and reorganizations of enterprises.
In the past few years, local investment promotion has driven the intensive landing of large-scale battery projects, and capacity scale has become an important indicator for local industrial layout and enterprise market competition.
Today, new projects face more constraints such as capacity utilization rate, construction conditions, and regional redundant layout.
For local governments, how many GWh projects to continue to introduce needs to be reconsidered.
For battery enterprises, the importance of how many construction procedures have been obtained, how many projects are under construction, and whether the existing capacity is fully utilized is rising.
02 Full-load Production on One Side, Voluntary Abandonment of Capacity Expansion on the Other
Why does the industry still need to prevent redundant construction when battery production has increased by 44%?
Data disclosed by enterprises show a clear divergence in capacity.
Ningde Shidai's capacity utilization rate reached 94.86% in the first half of the year.
Penghui Nengyuan has an even higher production load.
The 2026 semi-annual report shows that the company's annualized lithium-ion battery capacity is 10.121 billion Ah, and the output in the first half of the year is 8.386 billion Ah. Calculated according to the company's disclosed caliber, the capacity utilization rate reaches 165.72%.
During the same period, the company also had 3.969 billion Ah of capacity under construction.
The capacity statistical calibers of the two companies are different, but the production loads disclosed by each are at a high level.
At the other end of the industry chain, some enterprises have voluntarily cut investments.
Ruitai Xincail previously terminated the Ningde Huarong 400,000-ton-per-year lithium-ion battery electrolyte project. In 2026, the company also decided to terminate the construction of some remaining production lines of Zhangjiagang Chaowei Xinneng. The original plan was for 4,000 tons of electrolyte new material capacity, but only 2,800 tons were actually built.
The company disclosed that some completed projects have a low capacity utilization rate and failed to achieve the expected returns due to factors such as market competition, customer certification, and fixed asset depreciation.
Some enterprises are still producing at high loads and continuing to expand capacity, while others have already begun to abandon their original investments.
This divergence is also reflected in the product structure.
The energy storage cell market is a typical case.
In 2025, 314Ah was still the mainstream specification for large-scale energy storage cells. Entering 2026, 500Ah+ large-capacity cells began to enter the procurement market in a concentrated manner.
In the energy storage cell framework procurement launched by Guodian Nanrui in June this year, 314Ah and 587Ah correspond to a demand of about 2 GWh each.
Enterprises such as Zhongguo Huaneng and Zhongchu Keji have also set up independent procurement requirements for larger capacity cells.
GGII expects that the penetration rate of 500Ah+ energy storage cells will approach 20% in 2026.
314Ah still undertakes a large number of delivery tasks, while 500Ah+ has begun to compete for new orders.
For enterprises that have invested heavily in building 314Ah production lines, a new round of upgrades means investments in equipment adaptation, process adjustment, and customer verification.
Some production lines can be compatible with new products through transformation, while others need to reconfigure key equipment or even build dedicated production lines.
Product upgrades go far beyond capacity changes.
The "15th Five-Year Plan" explicitly proposed that by 2030, the cycle life of long-life lithium batteries will reach 15,000 cycles, and the product defect rate of leading enterprises will reach the PPB level.
The 15,000-cycle life and PPB-level defect rate have put forward higher requirements for long-term product reliability and large-scale manufacturing quality, respectively.
Among them, PPB is at the parts-per-billion level. This goal involves impurity control, process stability, online detection, and product consistency during the manufacturing process.
Previously, battery enterprises mainly competed in products around energy density, rate, capacity, and cost. With the development of long-life energy storage and high-safety power batteries, the defect control capability in the large-scale manufacturing process will also become more important.
This will further widen the gap in actual manufacturing capabilities among different production lines.
With the same nominal capacity of 10 GWh, the product specifications, manufacturing yield, and actual delivery capabilities that different enterprises can produce may vary greatly.
The fact that a 314Ah factory has not yet reached full production does not mean that it can directly undertake 587Ah orders.
Even if an enterprise is producing at full load, it cannot prove that all new capacity investments are necessary.
If the capacity utilization rate further becomes an important basis for capacity expansion qualifications, how to evaluate the actual manufacturing capacity of existing production lines will be an unavoidable issue.
Especially in the new round of product upgrades, enterprises need to digest the existing capacity and also need to invest manufacturing resources for higher-performance and higher-quality products.
This will directly affect the technological iteration and investment rhythm of battery enterprises in the next few years.
03 Approved Projects, Production Line Transformation, Mergers and Reorganizations: How Will the Next Round of Capacity Expansion Proceed?
Recent enterprise announcements show that battery enterprises are already adopting different ways to allocate manufacturing resources.
First is the continued construction of existing projects.
Ningde Shidai's 764 GWh of capacity under construction means that previous project reserves will still support subsequent expansion. Whether the relevant capacity can be released as planned depends on construction progress, order demand, and production line ramp-up.
Second is the use of existing factories and production lines for capacity expansion and technological upgrades.
On September 9, Changhong Nengyuan announced that its subsidiary Changhong Sanjie plans to invest CNY 287 million to build a 21700 full-tab battery production line in Taixing, Jiangsu.
The project will add an annual capacity of about 57 million units, all of which will be implemented using existing factories. It only requires the purchase of new production equipment and does not involve factory infrastructure construction.
According to the plan, the equipment will be in place by the end of this year, and the installation and debugging will be completed by the end of March 2027.
Adding advanced product manufacturing capabilities within existing factories has become an investment choice for enterprises.
In Dafeng, Yancheng, the 12 GWh energy storage battery project of Tianhe Chuneng provides another situation.
On September 7, the local government announced that the factory building and main production equipment of the project have been constructed and installed, but due to the improvement of cathode material performance and changes in raw and auxiliary materials, the environmental impact assessment needs to be re-submitted for approval.
The project capacity has not increased, but the product upgrade has triggered a re-submission for approval.
This case belongs to normal environmental impact assessment management requirements and has no proven direct relationship with recent capacity expansion regulation, but it reflects the actual procedures faced by the upgrading of existing production lines.
The third way is the integration of existing assets.
In September, Ningde Shidai's acquisition of equity in the Chongqing Yaoning power battery project under the Jili system received approval for the review of concentration of undertakings.
This planned 18 GWh power battery factory has undergone multiple construction plan adjustments since construction started in 2021.
Before the project was officially put into production, the ownership of assets had already changed.
The transaction has a commercial background of existing cooperation between Jili and Ningde Shidai, but it also provides an observation window: already formed factories, equipment, and industrial supporting facilities can be reallocated through equity transactions.
This echoes the direction of the "15th Five-Year Plan" to support mergers and reorganizations and promote regional agglomeration and subject concentration.
For equipment and material enterprises, the next round of investment demand will also become more differentiated.
The continued construction of existing projects will still release demand for equipment procurement and production line ramp-up; the upgrading of existing production lines will bring opportunities for flexible manufacturing, equipment transformation, and process optimization.
The industrialization of new system batteries such as all-solid-state and sodium-ion batteries involves new material systems, dedicated equipment, and manufacturing processes.
The "Plan" also explicitly proposed promoting the development of standards in key areas such as all-solid-state batteries and sodium-ion batteries, and making up for the lack of standards for product safety levels, performance classification, and rapid testing.
This is directly related to new technology investments.
Moving from pilot testing to large-scale manufacturing, enterprises need to solve problems such as process scale-up, product verification, and manufacturing consistency. Unified technical standards and testing and evaluation systems will affect product certification, customer introduction, and industrialization progress.
Tax policies have further added to this variable.
Starting from September 1, lithium-ion batteries will resume the collection of consumption tax at a rate of 2%, which will be increased to 4% in September 2027.
Qualifying solid-state and sodium-ion batteries will receive a phased consumption tax exemption arrangement until the end of 2028.
According to relevant regulations, products enjoying the tax exemption policy must meet the corresponding national standards.
For new system batteries, technical standards are already directly related to product tax treatment.
On the export side, the value-added tax export tax rebate rate for related battery products has been reduced from 9% to 6%, and will be canceled starting from January 1, 2027.
These policies do not directly limit new capacity, but will affect enterprises' product costs, export returns, and investment returns.
For enterprises that relied on continuous capacity expansion, cost dilution, and low-price competition to expand their share in the past, investment decisions need to consider more operational variables.
For enterprises with stable orders, mature manufacturing capabilities, and clear product upgrade requirements, new investments still have a commercial foundation.
The next round of new supply will come simultaneously from the production of projects under construction, the upgrading of existing production lines, and the integration of existing manufacturing resources.
However, the investment conditions for different enterprises are diverging.
For enterprises with a large number of projects under construction, the focus is on the rhythm of production and order fulfillment.
Enterprises with a lower capacity utilization rate need to improve the efficiency of existing assets and find new products and customers.
Enterprises in the period of technological upgrading need to make a new choice between old line transformation, new production line construction, and manufacturing costs.
At present, the unified national approval indicators for new projects and the specific applicable rules for different construction methods still need to be further clarified.
According to previous media disclosures, the capacity assessment at the end of 2026 and subsequent project management arrangements will become an important node for observing this round of changes.
In the past few years, the lithium battery industry has rapidly established a globally leading manufacturing scale through continuous capacity expansion.
In the next five years, with the improvement of capacity governance, product upgrades, and quality standard requirements, the investment competition among battery enterprises will further diverge.
Who has projects that can continue to be constructed, who can upgrade existing production lines to next-generation products, and who has the ability to transform planned capacity into high-quality, low-cost actual delivery will be more worthy of attention than the paper capacity expansion scale.