China has put the brakes on the expansion of battery production capacity. Local governments across the country have effectively halted the acceptance of applications for new battery production facilities for electric vehicles and energy storage systems (ESS) since the second half of this year, according to a report from the Chinese media outlet Caixin on September 7. Additionally, relevant departments of the central government are currently reviewing the overall status of existing and planned battery production capacity, with a particular focus on ESS battery cells. This move is interpreted as a signal that the Chinese government is beginning to manage the oversupply issues in the lithium battery industry.
In recent years, driven by expectations of growth in the electric vehicle and ESS markets, there has been a surge in the establishment of battery production facilities in China. However, as companies rushed to increase their production capacity to secure market share, overlapping investments and price competition intensified. The Chinese government is concerned not about the current supply shortage but about a potential oversupply that could emerge in one to two years. Since it takes considerable time to plan and operate battery plants, large-scale investments based on current demand could lead to production capacity exceeding actual market size in the future.
Since the beginning of this year, the Chinese government has repeatedly pointed out the oversupply issues in the lithium battery sector. There is growing concern that if battery companies expand their production capacity based solely on current high demand, future supply could significantly outpace actual demand. However, China has not completely banned the expansion of ESS battery production. Projects that have already been reported or are under construction, as well as existing projects that have received approval, will continue as planned. Upgrades in technology, modifications to existing production lines, and the construction of overseas plants are also not restricted. The key aspect of this measure is to temporarily halt the expansion of new production capacity.
After completing a comprehensive survey of industry production capacity, the Chinese government is expected to establish a monitoring and alert system for production capacity and may reopen the approval process for new factory construction.
As China, which dominates the global ESS battery supply chain, adjusts its expansion pace, it is anticipated to impact the global market. In particular, the prices of ESS batteries, which have been declining due to aggressive expansions by Chinese companies, are expected to rise in the future.
* This article has been translated by AI.
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