After enduring a prolonged two-year industry "winter" characterized by intense price wars, the exodus of second- and third-tier manufacturers, and widespread overcapacity, China's lithium battery industry is demonstrating clear signs of a cyclical inflection point. The pervasive market pessimism is being replaced by compelling evidence indicating that a new capital expenditure cycle led by industry leaders and driven by genuine demand recovery has commenced.

Understanding this profound transformation requires examining interconnected signals spanning from capital market sentiment to actual corporate operations, which collectively paint a comprehensive picture of industry recovery and structural improvement in fundamentals.

**Market Sentiment: From Divergent Performance to "Front-Running" Expectations**

Capital markets, serving as sensitive indicators of economic activity, began signaling initial signs of industry reversal in the second quarter of 2025. Unlike previous broad-based sector declines, a notable divergent performance emerged. Stock prices of core industry chain companies including CATL, Ganfeng Lithium, and Tianqi Lithium experienced strong rebounds.

This represents not irrational broad-based gains, but precise "capital voting." Market funds are clearly concentrating toward companies with solid financial positions, leading technological moats, and established global presence. Following brutal industry consolidation, investors have become unprecedentedly stringent regarding asset quality, with long-term certainty trumping short-term speculation.

More profound changes are evident at the market psychology level. Investor sensitivity to supply-side information has been dramatically amplified, clearly indicating that market focus has shifted. A representative event occurred when news about CATL potentially facing temporary production interruptions due to mining permit expiration at a Jiangxi facility triggered collective 10% surges in related lithium stocks.

This extreme reaction to minor supply disruptions reveals fundamental expectation reversals. Previously, markets primarily worried about insufficient demand and high inventory levels; now, the balance has tilted toward concerns about potential supply tightness. Market sentiment resembles a fully drawn bowstring, where any signal suggesting supply tightening triggers violent fluctuations—a classic precursor to cyclical bottom-to-top inflection.

**Financial Data: "Volume Compensating for Price" Logic Universally Validated**

While capital market performance represents expectation-based "front-running," 2025 interim financial reports provide the most solid real-world support for these expectations. According to second-quarter 2025 data, China's entire lithium battery industry chain achieved RMB 267.864 billion in operating revenue, up over 11% year-over-year and over 13% quarter-over-quarter.

Compared to steady revenue growth, profitability recovery has been even more remarkable. Quarterly net profit attributable to parent companies reached RMB 21.765 billion, surging 30.49% year-over-year and growing 18.68% quarter-over-quarter. This marks the second consecutive quarter of both year-over-year and quarter-over-quarter rapid net profit growth across the industry chain.

The breadth of this recovery validates its health. From upstream cathode materials (achieving 164.02% year-over-year net profit growth in Q2), to midstream anode materials and electrolytes, to downstream battery manufacturing, virtually all segments achieved significant profitability improvements. This demonstrates that current recovery is driven by broad terminal demand rather than isolated events.

Underlying financial data, a core logic pervading the entire industry has been repeatedly validated: strong sales volume growth has begun effectively offsetting negative impacts from product price declines. Albemarle's semi-annual performance shows that despite market expectations of $0.82 per share losses in a pessimistic atmosphere, it surprisingly achieved $0.11 per share in adjusted earnings. Notably, this outperformance occurred against a backdrop of approximately 20% year-over-year declines in lithium carbonate spot prices.

Albemarle explicitly stated in earnings reports that strong physical demand was the primary driver, specifically manifesting as 18% year-over-year growth in global electric vehicle production in the first half of 2025, plus 42% year-over-year surge in grid-scale battery energy storage installations.

Similar logic is clearly visible among Chinese industry leaders. Tianqi Lithium achieved profitability in the first half of 2025 after previous losses. The company directly stated in earnings guidance that performance improvement was primarily due to "increased production and sales of lithium compounds and derivatives compared to the same period last year."

This series of earnings revelations is crucial for understanding this cycle's initiation. Stock market pricing mechanisms are forward-looking, trading future expectations rather than current spot prices. When investors clearly see that industry leaders can leverage strong market positions and scale effects to restore profitability through increased sales volumes, they begin positioning ahead of time, betting on industry fundamental reversals and inevitable future price inflection points.

**Operating Reality: Capacity Bottlenecks Trigger New Investment Round**

Financial data improvements ultimately trace back to production line activity levels. Starting from Q4 2024, capacity utilization rates at leading domestic lithium battery manufacturers began synchronized recovery, reaching a critical threshold in the first half of 2025.

Industry data shows that in the first half of 2025, capacity utilization rates at leading Chinese battery manufacturers exceeded the important industry "prosperity line" of 80% for the first time since 2022. The top six manufacturers all achieved utilization rates above 80%. Some manufacturers' premium production lines operated at full capacity for extended periods, requiring external contract manufacturing to meet surging seasonal order delivery demands.

CATL exemplifies this trend. As early as Q3 2024, the company quietly restarted large-scale equipment procurement. By the first half of 2025, its overall capacity utilization climbed to 90%, very close to the 95% historical record achieved during the 2021 industry peak.

In heavy asset manufacturing, such high utilization rates indicate existing production lines are approaching physical limits, making it difficult to handle sudden demand growth while challenging normal equipment maintenance and production line upgrades. Consequently, initiating new capacity investments has shifted from a strategic option to an urgent operational necessity.

Ultimately, corporate capital expenditure data provides the most definitive confirmation of the new cycle's launch. Based on 2025 semi-annual reports, China's lithium battery industry's total capital expenditure turned positive year-over-year, growing 31.72%. Capital expenditure recovery has continued for two quarters with accelerating momentum.

Particularly in battery manufacturing, Q1 and Q2 2025 capital expenditure growth rates were 23% and 40% respectively, showing clear acceleration. CATL's first-half 2025 capital expenditure reached RMB 20.2 billion, up 46% year-over-year, representing the company's second-highest level historically, only below 2022's expansion peak. Investments primarily target accelerated domestic expansion and global deployment.

EVE Energy's concurrent capital expenditure reached RMB 4.4 billion, surging 104% year-over-year, achieving a doubling. Investment focus includes deepening overseas presence, such as announcing approximately RMB 865 million investment in June for its second-phase energy storage battery factory construction in Kulim, Malaysia.

Regarding under-construction capacity scale, as of the first half of 2025, CALB, CATL, and Gotion High-tech all have under-construction capacity exceeding 100 GWh levels. These massive figures clearly announce that major industry participants have reached consensus and are using real capital to officially launch a new round of capacity expansion.

**Demand Foundation: Structural Transformation-Driven Genuine Growth**

What gives these companies—previously battered by price wars in the last cycle—such firm confidence to restart large-scale investments? The answer lies in the profound, potentially long-lasting positive structural changes underlying this recovery's demand drivers.

Previous market concerns about demand prospects (such as overseas installation rush exhaustion, domestic policy adjustment suppression) not only failed to materialize but were replaced by outperformance in two major sectors.

**Energy Storage: The "Second Growth Curve" from Auxiliary to Primary Role**

Energy storage markets are growing far beyond expectations, evolving from a supplementary role to one of the core engines driving lithium battery demand. According to recent international investment bank research, by 2025, energy storage systems account for 27% of global total battery production, significantly higher than 23% in 2024 and 18% in 2023.

In lithium iron phosphate batteries, their position is even more prominent. Since June, energy storage systems have consumed over 40% of global LFP battery production. In companies like EVE Energy and CALB's shipment structures, energy storage batteries account for nearly half of total volume.

Based on current strong momentum, multiple market institutions have substantially raised 2025 global energy storage system battery shipment forecasts by approximately 50%.

Recently in China, the National Development and Reform Commission and National Energy Administration issued the "Large-Scale Construction Special Action Plan for New Energy Storage (2025-2027)," proposing that national new energy storage installed capacity reach over 180 million kilowatts by 2027, driving approximately RMB 250 billion in direct project investment.

Local governments represented by Inner Mongolia are successively implementing capacity price supplement policies, greatly improving independent energy storage project investment returns. Some subsidized projects achieve IRR levels of 10-20%, further stimulating sustainable market-driven construction demand.

**Power Batteries: Demand Elasticity from "Pure Electric Return"**

The power battery segment, as the primary demand driver, experienced dramatic internal growth structure changes in 2025, bringing new growth momentum to the industry.

In 2025, China's new energy vehicle market growth structure changed significantly. Pure electric vehicle retail sales growth regained strength, with August alone showing 17.2% year-over-year growth, while previously fast-growing plug-in hybrid and range-extended vehicles clearly decelerated. Plug-in hybrid vehicle sales even showed 7.3% year-over-year decline.

Institutional calculations show that by June 2025, plug-in hybrid vehicle channel inventory exceeded 1 million units, with their domestic new car market share potentially declining for the first time since promotion began.

This transformation results from the previous cycle's echoes. Significant power battery price declines made pure electric vehicle manufacturing costs and prices more competitive. Scale effects in turn improved pure-electric-focused automakers' profit margins, enabling more aggressive market offensives.

Pure electric vehicles' strong return directly drove rapid improvement in "per-vehicle battery capacity," a core demand indicator. In August 2025, China's new energy vehicles averaged 54.0 kWh per vehicle versus 46.4 kWh the previous year, representing substantial 16.4% year-over-year growth.

This growth partially stems from increased pure electric proportions and partially from new plug-in hybrid models' increased battery capacity (up 5.6% year-over-year in the first half). This means that even if overall new energy vehicle sales growth remains stable, actual power battery demand growth will gain considerable multiplier effects from "per-vehicle battery capacity" improvements.

Simultaneously, power battery cell prices have stabilized while energy storage battery cell prices, after prolonged declines, have modestly recovered from RMB 0.25/Wh bottom levels to RMB 0.27-0.28/Wh since July. This provides cushioning for battery manufacturers' profitability recovery and capital expenditure resumption.

In conclusion, from capital market expectation shifts to corporate earnings recovery, to capacity bottleneck-triggered capital expenditure restarts, the lithium battery industry's new cycle inflection point has been established. Behind this lie two solid pillars: energy storage market explosion and power battery demand structure optimization.

However, is this capital expenditure wave merely a simple repetition of the previous cycle? How will it unfold with entirely new characteristics, and how will it reshape the industry's future landscape?