Cathode materials are the core component of lithium batteries, accounting for a very high share of lithium battery material costs, and they have a decisive impact on the overall cost level and performance of batteries. Demand is driven by two engines, new energy vehicles and energy storage, while the supply side combines capital-intensive and technology-intensive characteristics, making it a classic cyclical industry whose profitability is squeezed by bargaining pressure from both upstream and downstream and disrupted by rapid technological iteration.

After going through a downcycle of overcapacity and weak profits, the industry has now entered a phase of structural recovery. Downstream market demand is improving, industry inventories are being steadily depleted, and policy constraints on irrational capacity expansion are having an effect, so the supply-demand balance is improving at the margin and corporate earnings are gradually warming up. However, the profit improvement shows structural features, with clear stratification among companies and divergence between technology routes. Leading companies, relying on their competitive advantages, show stronger profit resilience and recover faster, while the lithium iron phosphate route is recovering more strongly overall than ternary materials. Looking ahead three to six months, the industry recovery trend is expected to continue, but it still faces potential pressures from fluctuations in end-user demand and core raw material prices, as well as the release of low-end capacity. On the credit side, overall industry risk has eased somewhat, but stratification among entities is pronounced: leading companies have sound credit profiles, mid-tier companies see earnings fluctuate elastically with industry momentum, and tail-end companies, with severely homogenized products and insufficient technical upgrading capability, face relatively high risks of market clearing and credit exposure. At this stage, the industry's competitive logic is gradually shifting from extensive scale expansion to refined quality and efficiency improvement, and technological upgrading and capacity structure optimization will become the core themes of long-term industry development.

Section One: Industry Attribute Definition and Logic Deconstruction

(1) Industry Classification and Attribute Definition. Lithium battery cathode materials refer to intercalation compounds that reversibly de-intercalate and intercalate lithium ions in lithium-ion batteries. During charging, lithium ions are extracted from the cathode material lattice and migrate through the electrolyte to the anode, and during discharging, lithium ions are re-embedded into the cathode lattice. Cathode materials are the core material of lithium batteries, and their performance directly determines battery energy density, safety characteristics, cycle life and applicable scenarios. They also account for a very high share of lithium battery material costs, about 40%, significantly affecting the overall battery cost, and represent the material with the largest scale and output value in the lithium battery industry chain. According to different material systems, cathode materials can be divided into lithium cobalt oxide, lithium manganese oxide, lithium iron phosphate and ternary materials, among which lithium iron phosphate and ternary materials are the two most widely used materials in power batteries, and lithium iron phosphate is the most widely used material in energy storage batteries.

Demand-side attributes: Cathode material demand shows a triple-driven pattern of "consumption as the base, energy storage adding elasticity, and exports expanding boundaries," with growth space and short-term disturbances coexisting, and the industry as a whole shows a distinct intertwining of growth attributes and cyclical fluctuations. The cathode material industry is jointly driven by consumption, investment and exports. Consumption drivers mainly come from new energy vehicles and consumer electronics terminals. New energy vehicles are discretionary consumer goods and are greatly affected by household purchasing power, vehicle purchase subsidies and model iteration, with the market gradually shifting from early adopter groups to mass consumption. The traditional consumer electronics sector has entered a mature development stage, and under the penetration of AI technology, it is shifting from "broad-based scale growth" to a structural development cycle dominated by "premiumization, intelligence and innovation." In addition, the explosion in AI computing demand has pulled advanced storage capacity and created a siphon effect, causing consumer-grade storage supply to shrink. Rising memory chip prices are being transmitted to terminal products, which to some extent suppresses consumer electronics end demand and disrupts industry stability, but in the future, as advanced storage capacity is released, AI is expected to become a core driver of a new round of growth in the consumer electronics industry. Investment drivers are mainly concentrated in energy storage, primarily in grid-side, power-side and user-side energy storage project construction investment. Energy storage demand is anchored to the goal of building a new power system and has a rigid long-term growth foundation, but short-term demand stability is easily disturbed by subsidy policy adjustments, project approval pace and changes in power market revenue mechanisms. Export drivers are mainly reflected in external demand increments brought by new energy vehicle overseas expansion, but are easily affected by geopolitics and overseas trade policies.

Supply-side attributes: The supply side of cathode materials combines both capital-intensive and technology-intensive attributes, which couple to form a reinforcing system, showing the characteristics of capital enabling technological iteration and technology feeding back capital returns. The cathode material industry has both capital-intensive and technology-intensive attributes, and the two are not a simple linear superposition but form a mutually reinforcing coupled system. Capital intensity is reflected in the fact that production line construction requires large-scale fixed asset investment, and plant construction, purchase of specialized production equipment, production line technical upgrades and large-scale capacity expansion all place high demands on financial strength, with the industry showing large upfront capital expenditure and a relatively long investment payback period. Technology intensity is reflected in material formulations, process control, modification iteration and customer certification, where technology leaders build product barriers through formulation optimization and process improvement. In addition, while mainstream materials are iterating and upgrading, the layout of frontier materials adapted to the industrialization needs of solid-state batteries is accelerating, driving the industry's technical barriers higher. Capital investment provides a platform for experimental verification and production line transformation for technological iteration, while technological breakthroughs feed back into capital formation through improved product yield and performance premiums, and this dual attribute jointly builds the industry's entry barriers.

Industry chain position: The cathode material industry faces two-way bargaining constraints from upstream and downstream, with profitability adjusting dynamically with supply-demand relations in the industry chain, while companies show significant internal divergence due to differences in technology, capacity and industrial layout. Upstream of cathode materials are mineral raw materials such as lithium, cobalt and nickel, which are processed into precursors and then synthesized through certain processes to produce cathode materials. Downstream lithium battery manufacturing is mainly divided into power lithium batteries, consumer lithium batteries and energy storage lithium batteries, ultimately applied in new energy vehicles, mobile phones, computers and energy storage stations. The cathode industry connects the resource end and cell manufacturers (battery plants), and its bargaining power is squeezed from both upstream and downstream, with profit distribution changing dynamically with the supply-demand landscape. The upstream resource end, relying on mineral scarcity and supply rigidity, has strong pricing dominance, and raw material price fluctuations can quickly transmit to the cathode material manufacturing segment, continuously squeezing its profit space, while downstream battery leaders, relying on large-scale capacity and customer channel advantages, have prominent bargaining power and impose strong constraints on cathode product procurement prices (mainly processing fees), making the cathode material industry's overall bargaining power relatively weak. In addition, the internal landscape of the industry is clearly differentiated. Small and medium-sized manufacturers, constrained by weak technology, dispersed capacity and insufficient cost control, are vulnerable to industry cyclical fluctuations, while leading companies, relying on advanced technology, large-scale capacity, stable customer resources and integrated layout and other cost advantages, have greater adjustment space and certain bargaining initiative, and possess stronger profit resilience amid cyclical fluctuations.

Cyclical attributes: The strong cyclicality of cathode materials stems from the mismatch between supply construction time lags and demand growth, and after the pain of capacity clearing and industrial policy guidance, companies in this recovery round are expanding capacity more rationally and restrainedly, with industry competition logic shifting from scale expansion to quality improvement. The strong cyclicality of cathode materials is determined by their own industrial characteristics. A typical cycle evolution path is as follows: an upturn in momentum attracts large-scale capacity expansion by companies, then concentrated release of capacity leads to oversupply, ultimately triggering an industry downturn. The root cause lies in the dual constraints that supply expansion lags demand growth and that the industry continuously faces pressure from technological iteration. In recent years, the industry fell into a predicament of overcapacity and low-price competition, resulting in overall profit pressure and the exit of some small and medium-sized enterprises, a situation that has been relatively well constrained by regulatory policies related to "anti-involution" in the industry. Unlike previous cycles, in this recovery round driven by incremental demand such as energy storage, the market has shown greater rationality and restraint in the face of recovering demand. Leading companies' strategic focus has shifted from scale expansion to quality and efficiency improvement, paying more attention to revitalizing existing capacity, adjusting and optimizing product structure and reducing production costs rather than massively adding new capacity. This shift in business philosophy is expected to smooth the magnitude of cyclical fluctuations and promote healthy and sustainable high-quality development of the industry.

(2) Policy and External Environment Scan. The policy environment for the lithium battery cathode material industry shows the parallel characteristics of "domestic efforts to curb involution, optimize structure, support innovation and expand demand" and "high overseas barriers and strong compliance." Multiple policies on industrial supervision, trade controls, technological iteration and demand support resonate, continuously promoting capacity clearing, technological upgrading and competitive landscape reshaping in the cathode material industry. On the industrial policy front, since 2024, actions related to governance of the lithium battery industry have been intensively introduced, with the policy focus shifting from scale expansion to quality and efficiency improvement. In June 2024, the Ministry of Industry and Information Technology issued the "Lithium-ion Battery Industry Standard Conditions (2024 Edition)," clearly guiding companies to reduce manufacturing projects that simply expand capacity, while regulating cathode material product performance requirements: lithium iron phosphate specific capacity must be at least 155mAh/g, ternary material specific capacity at least 180mAh/g, lithium cobalt oxide specific capacity at least 165mAh/g, and lithium manganese oxide specific capacity at least 115mAh/g. In September, the Ministry of Industry and Information Technology and other departments jointly issued the "National Lithium Battery Industry Standard System Construction Guide (2024 Edition)," in which cathode material standards mainly regulate requirements and testing methods for materials such as lithium cobalt oxide, lithium manganese oxide and lithium nickel cobalt manganese oxide, as well as requirements and testing methods for key indicators such as material conductivity, magnetic substance content and electrochemical performance, providing systematic standard leadership for the cathode material industry. In 2025, policy control over the industry intensified further, with multiple departments proposing the work orientation of comprehensively rectifying "involution-style" competition through special meetings and industry seminars. In August, the Ministry of Industry and Information Technology and seven other departments issued a notice on the "Work Plan for Stable Growth of the Nonferrous Metals Industry (2025-2026)," explicitly proposing to scientifically and reasonably lay out projects such as lithium carbonate, avoid repetitive low-level construction, and improve the precision and effectiveness of investment. Overall, the series of policies are intended to constrain irrational capacity expansion, promote capacity structure optimization and force backward capacity to exit. In addition, in January 2026, the Ministry of Finance and the State Taxation Administration issued an export tax rebate policy. Starting April 1, 2026, VAT export rebates will be cancelled for products such as lithium hexafluorophosphate, lithium manganese oxide, lithium cobalt oxide and lithium nickel cobalt manganese oxide, to guide the industry from low-price scale going global to high-quality, high-value-added competition. On the international trade policy front, China has implemented export controls on key items, while overseas green regulation and trade barriers are stacking up, and cathode material exports face dual challenges of compliance access and supply chain constraints. In October 2025, the Ministry of Commerce and the General Administration of Customs announced Announcement No. 58 of 2025, publishing the decision to implement export controls on items related to lithium batteries and artificial graphite anode materials. In the cathode material field, lithium iron phosphate cathode materials with compaction density greater than or equal to 2.5g/cm3 and gram capacity greater than or equal to 156mAh/g, and precursor-related items for ternary cathode materials, were explicitly included in the control scope. On the other hand, the EU's New Battery Regulation officially took effect in August 2023, and its accompanying carbon border adjustment mechanism entered the implementation phase in January 2026, imposing full life-cycle supervision on power batteries and implementing hard access conditions such as carbon footprint and recycled material proportions in stages, posing a systematic test for domestic battery companies' supply chain management and data governance capabilities. At the same time, the U.S. Inflation Reduction Act sets localization thresholds for raw material sourcing, further raising external resistance for domestic companies going global. On the technological change front, the state continues to strengthen top-level strategic planning and accelerate the iterative upgrading of new battery technologies, using technological innovation to drive quality and upgrading of the cathode material industry. In February 2025, the Ministry of Industry and Information Technology and seven other departments issued a notice on the "Action Plan for High-Quality Development of New Energy Storage Manufacturing" (hereinafter referred to as the "Action Plan"), explicitly proposing to develop diversified new energy storage body technologies, covering areas such as sodium batteries, and to research and develop high-capacity cathode materials, focusing on the development directions of long life, high specific energy, wide temperature range and high power. In June 2026, at the 2026 annual forum of the China Automotive Battery Innovation Alliance, the Ministry of Industry and Information Technology stated that it would increase key technology research, focusing on breakthroughs in key technologies such as all-solid-state batteries and high-specific-energy lithium-ion batteries, and increase research on materials such as lithium-rich manganese-based cathodes, silicon-based anodes and solid electrolytes. In September 2026, the Ministry of Industry and Information Technology and the National Development and Reform Commission jointly issued the "15th Five-Year Plan for the Development of the Electronic Information Manufacturing Industry," explicitly proposing to enhance innovation capacity across the entire new battery industry chain and develop key materials such as high-voltage, high-stability, large-capacity cathode materials. Under policy guidance, technologies such as solid-state and sodium-ion are expected to achieve industrial breakthroughs and reshape the future competitive landscape, and companies lacking technical reserves will face iteration risks. On the demand-side policy support front, China is making coordinated efforts in the two major terminal areas of new energy vehicles and energy storage, providing solid support for cathode material demand growth. In the new energy vehicle field, in March 2025, the Ministry of Transport and nine other departments issued the "Guiding Opinions on Promoting the Integrated Development of Transportation and Energy," clearly proposing to accelerate the promotion of new energy vehicles and continue advancing the application of new energy vehicles in urban buses, taxis, postal and express delivery, and urban freight distribution, expanding demand space from the application scenario side. In December, the General Offices of the Ministry of Commerce and seven other departments issued a notice on the "Implementation Rules for 2026 Automobile Trade-in Subsidies," clearly providing subsidy support for vehicle scrapping and renewal and replacement renewal. In the energy storage field, the Action Plan proposed six major special actions from multiple dimensions including technological innovation, coordinated industrial development, transformation and upgrading, application scenario expansion, ecosystem improvement and trade and investment cooperation, aiming to continuously enhance the supply capacity of new energy storage products and better meet application needs in multiple economic and social fields. In August 2025, the National Development and Reform Commission and the National Energy Administration issued a notice on the "Special Action Plan for Large-Scale Construction of New Energy Storage (2025-2027)," further clarifying the target of more than 180 million kilowatts of new energy storage installed capacity by 2027. Under policy leadership, energy storage battery market demand is expected to continue to be released, thereby providing solid support for cathode material demand growth.

(3) Analysis of Momentum Drivers and Transmission Paths. The mismatch in capacity cycles between upstream and mid-downstream, combined with pricing mechanisms and end demand constraints, jointly constitutes the time lag and differentiation characteristics of price transmission in the lithium battery industry chain. The mainstream pricing model in the cathode material industry is "upstream price linkage plus processing fee," where upstream price increases are directly transmitted to downstream, and the core variables for cathode plant profits are processing fees and per-ton profit. Under the traditional model, processing fees are mostly locked at a fixed price, and combined with mismatches in procurement and sales timing, this leads to insufficient flexibility in upstream and downstream profit distribution, with time lags and differentiation in industry chain price transmission. The industry is currently gradually exploring a new model that splits the processing fee into two parts: the lithium iron phosphate raw material cost and a fixed processing premium, with the lithium iron phosphate portion adjusted monthly in line with market prices, enabling cathode plants to achieve timely cost transmission, but the industry has not yet widely adopted this model. From the perspective of capacity construction cycles, the approval, construction and ramp-up cycles of new projects at the upstream mineral resource end are significantly longer than those of midstream materials and downstream cell manufacturing. If terminal demand recovers rapidly in the short term, upstream supply cannot be released in sync, and price increases amid supply-demand tightness will first benefit upstream resource companies, allowing them to gain the benefits of rising volumes and prices. By contrast, cathode materials are in the midstream of industry chain transmission, bearing the cost impact of upstream raw material price increases on the one hand and facing strong bargaining constraints from downstream cell manufacturers on the other, continuously facing cost pressure tests, with profit stability highly dependent on corporate bargaining power, industry chain integration level and cost pass-through efficiency.

Section Two: Industry Momentum Tracking and Cycle Positioning

(1) Price and Gross Margin Trends: Direct Reflection of Momentum. Since the second half of 2025, affected by factors such as rising core raw material prices and improved supply-demand conditions, lithium carbonate and lithium iron phosphate prices have rebounded significantly, and the industry has shown dual characteristics of rising volumes and prices and marginal profit repair, while ternary cathode material price recovery has been relatively moderate. At present, domestic lithium battery shipments are dominated by lithium iron phosphate. According to EVTank statistics, China's total cathode material shipments reached 4.987 million tons in 2025, up 52% year on year, with the share of lithium iron phosphate cathode material shipments rising to 79%. This article focuses on lithium iron phosphate to analyze price trends of cathode materials and core raw materials. Cathode material product prices are greatly affected by raw material price fluctuations and industry supply-demand conditions, and the core cost-side driver is lithium carbonate prices. In 2022, rapid growth in new energy vehicle sales drove rapid expansion of demand for lithium batteries and cathode materials, but upstream lithium mine supply elasticity was weak, and lithium mine prices rose rapidly, driving up lithium carbonate and lithium iron phosphate prices. Starting in 2023, downstream demand growth slowed, lithium resource supply was released, and combined with high industry chain inventories accumulated during the previous price increase cycle, the supply-demand landscape for lithium carbonate reversed, and the cathode material industry entered a downturn, with lithium carbonate prices continuing to fluctuate downward to low levels. In the second half of 2025, along with steady growth in new energy vehicle demand and an explosion in energy storage demand, lithium carbonate prices, after more than two years of decline, saw a notable rebound. In 2026, supported by demand growth, lithium carbonate prices rose in stages, driving lithium iron phosphate prices upward step by step, and the industry showed dual characteristics of rising volumes and prices and marginal profit repair, ushering in a profit repair window. Ternary cathode costs are jointly driven by nickel, cobalt and lithium, and the price cycles of nickel, cobalt and lithium show the characteristics of "broad direction convergence with small-rhythm divergence." Lithium is mainly demand-driven, with large cyclical elasticity, and plays a trend-setting dominant role in ternary cathode costs. Cobalt is strongly constrained by resources, and the Democratic Republic of the Congo is an important marginal source of global cobalt supply, with its export quota system and related restrictive policies easily disturbing cobalt prices. In addition, the market share of ternary cathodes is relatively low, and cobalt demand increments are relatively limited. Nickel continues to fluctuate within a narrow range. Affected by changes in nickel, cobalt and lithium resource prices and by industry demand tilting toward lithium iron phosphate, ternary material price recovery is weaker than that of lithium iron phosphate. Taking the price on September 18, 2026 as an example, lithium iron phosphate (power type) prices rose 52.14% year on year, while ternary cathode materials (power monocrystal, 5-series) rose 28.09% year on year.

(2) Demand-Side Tracking: The Source of Momentum. Driven by the pattern of "power as the foundation, energy storage as the spearhead," cathode material demand continues to expand, shipments grow rapidly and product structure continues to tilt toward lithium iron phosphate. Against the backdrop of continued global energy transition, technological progress in photovoltaics and energy storage has gradually revealed the cost advantages of new energy, and the energy storage battery market has seen explosive growth. At the same time, demand in the new energy vehicle market continues to grow. The coordinated development of the two major application scenarios, power and energy storage, jointly drives continuous expansion of demand in the lithium battery industry chain. According to EVTank statistics, global lithium battery shipments reached 2,280.5GWh in 2025, up 47.6% year on year, and global lithium-ion battery shipments are expected to reach 3,016.3GWh and 6,012.3GWh in 2026 and 2030, respectively. Driven by demand, China's cathode material shipments grew from 253,000 tons in 2017 to 4.987 million tons in 2025, with a compound annual growth rate of about 45%. From a structural perspective, benefiting from the comprehensive advantages of lithium iron phosphate in cost and performance, the product structure of cathode materials continues to tilt toward lithium iron phosphate. Downstream terminal demand for cathode materials is mainly concentrated in three major areas: new energy vehicles, energy storage and consumer electronics. According to the "China Lithium-ion Battery Industry Development White Paper (2026)" jointly released by EVTank and EVE Economic Research Institute, of total global lithium-ion battery shipments in 2025, lithium-ion battery shipments for the new energy vehicle sector were 1,495.1GWh, accounting for 65.6% of total shipments, and shipments for the energy storage sector were 651.5GWh, accounting for 28.6% of total shipments, meaning lithium battery demand is mainly jointly driven by the two major areas of new energy vehicles and energy storage. From the perspective of sub-sectors, continued growth in new energy vehicle sales and steady increases in penetration rates provide a continuously expanding base for lithium battery demand, with global new energy vehicle sales reaching 20.5425 million units in 2025, up 19.15% year on year. According to EVTank forecasts, global new energy vehicle sales will reach 28.496 million units in 2026, while the China Association of Automobile Manufacturers predicts China's new energy vehicle sales will be 19 million units in 2026, with growth slowing to 15.2%, as domestic new energy vehicle sales growth faces pressure due to factors such as a high sales base. In the first half of 2026, China's new energy vehicle sales reached 7.446 million units, up 7.3% year on year. Although domestic auto demand growth has weakened, power battery demand still has structural positives such as rising battery capacity per vehicle, overseas demand expansion and accelerated electrification of commercial vehicles, which are expected to support future power battery shipment growth. At the same time, growth in new energy storage installations is significantly leading, and energy storage is taking over from new energy vehicles to become a new engine driving battery industry growth, with the lithium battery industry entering a development stage driven by both new energy vehicles and energy storage. Overall, follow-up demand for cathode materials is strong, and industry momentum has strong support. Among leading companies, the transaction amount between Hunan Yuneng and downstream customer CATL related to phosphate cathode materials continues to expand, with expected related-party transaction amount in 2026 increasing by about 160% compared with the actual amount in 2025, and order scale expanding significantly.

(3) Supply-Side Tracking: The Game Between Capacity and Inventory. Driven by new energy vehicle and energy storage demand, leading companies maintain high operating rates, the Matthew effect in the industry continues to strengthen, and combined with obvious lithium carbonate inventory depletion, cathode material supply and demand show structural tightening, providing strong support for momentum in the short term. Since 2025, leading cathode material companies, relying on technology, capital and stable supply chain advantages, have maintained high operating levels, with some companies achieving full production or even overloaded production during the year, and industry demand support is strong. But at the same time, divergence within the industry is pronounced, with many small and medium-sized manufacturers facing idle capacity and insufficient operating rates, and the process of clearing low-end backward capacity is still ongoing. Amid increasingly fierce market competition, capacity with backward production processes, high energy consumption, substandard product performance and lack of core technologies and independent innovation capabilities is continuously weakening in market competitiveness, and industry resources are accelerating toward leading companies with cost and technology advantages, continuously strengthening the Matthew effect. Lithium carbonate is a key raw material for cathode materials. According to Xinuo Information data statistics, in the first half of 2026, China's total lithium carbonate inventory showed a downward trend, and inventory days available fell simultaneously. As of the end of July 2026, China's total lithium carbonate inventory was about 103,300 tons, down 21.33% month on month, while monthly demand was 159,700 tons, and available days fell to about 19 days. Domestic lithium carbonate inventory levels have clearly depleted, and the lithium resource supply-demand landscape is tightening at the margin. At the same time, the contraction of upstream lithium salt inventories is gradually transmitting downstream. According to market information released by SMM on August 13, 2026, cathode material industry inventory days fell from the previous 10 to 11 days to 7 to 8 days, a fairly obvious inventory reduction. The industry is in a passive destocking stage, the supply-demand landscape is improving and showing structural tightening, while low-end capacity remains in oversupply. Supported by downstream power and energy storage demand, combined with low inventories in both upstream and the cathode material industry itself, it is expected that the tight supply-demand pattern in the cathode material industry may continue in the second half of the year. China occupies a dominant position on the global cathode material supply side, but the internal competitive landscape of the industry shows different evolution directions. Concentration in the lithium iron phosphate industry is declining, with low-end overcapacity coexisting with insufficient high-end supply, while the leading effect in ternary materials continues to strengthen. In the lithium iron phosphate field, according to SMM data, global lithium iron phosphate output in 2025 was about 3.77 million tons, of which China accounted for about 99%, meaning global supply is highly concentrated in China, with output growth that year reaching 60%. From the domestic competitive landscape, in 2025 the lithium iron phosphate industry CR5 was 54.8%, with leading concentration weaker than in 2024, and Hunan Yuneng, Wanrun New Energy and Defang Nano firmly in the top three. In the first half of 2026, China's total lithium iron phosphate cathode material output was about 2.629 million tons, up 67% year on year, continuing a rapid expansion trend, with industry CR5 at 51%. In addition, the core contradiction currently facing the lithium iron phosphate industry is not total overcapacity but obvious structural divergence, with excess supply of low-end conventional capacity and insufficient supply of high-end effective capacity. In the ternary material field, according to SMM data, global ternary material output reached 1.0673 million tons in 2025, of which China accounted for 76.76%, while overseas output showed negative year-on-year growth and domestic output growth reached 19.36%. In the first half of 2026, domestic ternary cathode output was 493,000 tons, accounting for 80.62% of global output, up 40% year on year. From the competitive landscape, domestic companies' global dominance is solid, but internal competition in the industry is fierce, and the leading effect has further strengthened. According to SMM statistics, in 2025 the top five domestic ternary cathode companies by market share were Nantong Ruixiang, Bamo Technology, Rongbai Technology, Guangdong Bangpu and Minmetals New Energy. Some companies, relying on increased shipments of high-nickel products, increased their market share compared with the previous year, and industry CR5 rose from 55% in 2024 to 62% in 2025.

Section Three: Micro-Level Financial Mapping and Operating Cycle Verification

(1) Profitability and Cash Flow Quality: Micro-Level Verification of Momentum Transmission. Since the second half of 2025, lithium battery industry momentum has continued to recover, driving a profit repair inflection point in the cathode material industry, but profit improvement shows structural features, with clear stratification among companies and divergence between routes. According to iFinD statistics, from 2023 to 2025, total operating revenue of the battery chemicals industry was 419.868 billion yuan, 331.600 billion yuan and 412.148 billion yuan, respectively; gross margins were 14.26%, 13.83% and 14.61%, respectively; and net profits were 15.250 billion yuan, 1.993 billion yuan and 13.008 billion yuan, respectively. Over the past three years, gross margins in the battery chemicals industry fluctuated within a narrow range, but net profits fluctuated sharply. This divergence was mainly driven by the downward and upward product price cycle, annual differences in asset impairment provisions and rigid period expenses. From the perspective of industry operating logic, the operating performance of lithium battery material companies is significantly affected by industry cyclical fluctuations. Due to the transmission of cyclical forces, overall industry operating performance came under pressure in 2024, while in the second half and at the end of 2025 industry momentum showed marginal improvement, and profits in some sub-sectors reached a phased inflection point. [1] Data source: Tonghuashun A-share battery chemicals industry, including cathode materials and precursors, anode materials and graphite processing, electrolyte and separator industry chains, battery auxiliary materials and other companies. In terms of cathode materials, from the financial data of specific sample companies, from 2023 to 2025, affected by industry cyclical fluctuations, most cathode material companies saw large fluctuations in operating revenue, generally showing a "V"-shaped trend, with profitability also fluctuating. In 2024, due to the impact of excess supply brought by earlier concentrated capacity expansion, declining average product prices, slowing downstream demand growth and price war transmission from automakers, sample companies generally saw revenue and profit decline, highlighting cyclical pressure in the industry. In 2025, driven by the gradual clearing of inefficient capacity, the rapid increase in energy storage demand in the second half and the rebound in product prices after bottoming out around mid-year, sample companies generally saw revenue recover and industry profit levels gradually repair, but sample companies' gross margins and net profit performance diverged significantly. Leading companies, relying on integrated layout, scale and high-quality customer barriers, have stronger risk resistance and lead in profit repair speed and elasticity, such as Hunan Yuneng, Xiamen Tungsten New Energy and Easpring Technology, while small and medium-sized manufacturers lag in profit improvement. At the same time, in this round of momentum recovery, the profit repair pace of lithium iron phosphate route companies is better than that of ternary materials. Lithium iron phosphate companies, supported by the explosion in energy storage demand, generally achieved simultaneous growth in volume and profit, with significant profit repair, such as Hunan Yuneng, while Wanrun New Energy, Defang Nano and Anda Technology significantly reduced losses. By contrast, ternary materials have entered a stage of stock competition and structural optimization, with profit under pressure and divergence, such as Rongbai Technology, whose performance declined for three consecutive years and which recorded a loss in 2025. Companies with high-end product layouts have better profitability, while those with low-end product layouts still bear greater pressure. Entering the first half of 2026, cathode material industry momentum continued, and the corporate performance repair trend further consolidated. Except for Rongbai Technology and Zhenhua New Material, whose absolute core products are ternary materials, other sample companies saw significant year-on-year growth in both revenue and net profit, while Rongbai Technology and Zhenhua New Material also rebounded year on year in performance, making the overall industry repair trend clear. In terms of cash flow quality, from the absolute value of operating cash flow, in 2025, among the sample companies, Xiamen Tungsten New Energy, Rongbai Technology, Wanrun New Energy, Easpring Technology, Mengguli and Zhenhua New Material showed net operating cash inflow greater than net profit, and combined with cash collection ratio data, the collection quality of the above companies in the period was relatively high-quality. By contrast, Hunan Yuneng and Defang Nano showed relatively large net outflows and relatively low cash collection ratios, with cash collection ratios of 45% and 64%, respectively, in 2025.

(2) Capital Expenditure and Asset Efficiency: Directional Judgment of the Operating Cycle. In 2025, investing cash flow of cathode material companies continued to show net outflows, but the scale of outflows generally narrowed, and industry investment overall became more cautious. From 2023 to 2025, cash paid by the battery chemicals industry for the purchase and construction of long-term assets was 74.244 billion yuan, 57.845 billion yuan and 44.801 billion yuan, respectively. During the same period, industry investing cash flow continued to show net outflows, with scales of 77.980 billion yuan, 66.574 billion yuan and 44.805 billion yuan, respectively. Although industry investing cash flow showed net outflows, the scale of net outflows and cash expenditure for purchasing and constructing long-term assets have declined year by year. After the pain of capacity clearing and industrial policy guidance, new capacity expansion plans have clearly contracted, with funds mainly directed to rigid continued investment in projects under construction, production line technology replacement, industry chain integration and overseas plant construction. From the financial data of cathode material companies, from 2023 to 2025, except for Defang Nano, whose investing cash flow showed net inflow in 2024 due to recovery of investments, the investing cash flow of the remaining cathode material sample companies all showed net outflows. In 2025, Hunan Yuneng and Easpring Technology had relatively large net outflows that expanded year on year, while the net outflow scale of other companies narrowed significantly year on year or remained at a relatively low level, with industry investment overall becoming more cautious. Among them, Hunan Yuneng's outflow increased year on year, with funds mainly used for upstream integrated capacity layout and capacity expansion, while Easpring Technology's net outflow increased year on year due to increased investment in European projects and reduced redemption of structured deposits upon maturity. In terms of asset efficiency, from 2023 to 2025, under the influence of industry cycles, the accounts receivable and inventory turnover efficiency of the battery chemicals industry showed slight fluctuations. Accounts receivable turnover days were 78.61 days, 93.40 days and 83.11 days, respectively, and inventory turnover days were 91.98 days, 101.64 days and 97.39 days, respectively. From the accounts receivable turnover efficiency of cathode material sample companies, leading companies and companies in the lithium cobalt oxide and lithium iron phosphate routes, such as Hunan Yuneng, Wanrun New Energy, Easpring Technology, Defang Nano and Anda Technology, mostly fluctuated in line with industry cycles. In 2025, benefiting from the recovery in industry momentum and downstream demand, the turnover efficiency of related companies improved year on year, and turnover days were all controlled within 90 days. Rongbai Technology, due to a sharp decline in revenue and accumulated historical receivables, and Minmetals New Energy, due to weak collection performance in 2025, had relatively low accounts receivable turnover efficiency. Tail-end companies such as Fengyuan Group, Mengguli and Zhenhua New Material, affected by weaker customer structures, insufficient bargaining power and relatively long payment terms, had relatively low overall accounts receivable turnover efficiency. Although there was improvement in 2025, it remained above 119 days, with prominent pressure from occupied funds. In terms of inventory turnover efficiency, in 2025, except for Zhenhua New Material, whose turnover efficiency was relatively low, the turnover efficiency of the remaining samples was relatively high, especially leading companies or lithium iron phosphate route companies. Hunan Yuneng, Wanrun New Energy, Defang Nano and Anda Technology had turnover days basically within 60 days.

(3) Leverage Levels and Liquidity Safety: The Group Background of Credit Risk. Cathode material companies generally keep asset-liability ratios within 70%, and overall leverage is acceptable, but most companies have weak coverage of short-term debt by monetary funds, with some short-term debt repayment pressure. In addition, attention should be paid to the risk of rising leverage caused by corporate capacity expansion in this round of momentum recovery. From the end of 2023 to the end of 2025, the asset-liability ratio of the battery chemicals industry was 50.71%, 53.20% and 55.02%, respectively, showing a slight upward trend year by year. From the data of cathode material sample companies, at the end of 2025, most sample companies' asset-liability ratios were controlled within 70%, and overall leverage was acceptable. At the liquidity safety level, Easpring Technology, Minmetals New Energy and Zhenhua New Material had current ratios above 2 times, and their monetary funds had strong coverage of short-term debt, with relatively low liquidity risk. The current ratios of the remaining sample companies were in the 0.6-1.5 range, but their monetary funds/short-term debt indicators all fell below 0.5 times, reflecting certain short-term debt repayment pressure across the industry. In a new round of momentum upturn, corporate capacity expansion will bring new capital expenditure demand, and it is necessary to be alert to upward pressure on leverage while paying attention to the realization of project investment returns and leverage sustainability.

Section Four: Credit Divergence and Risk Entity Profiles

At present, companies in the lithium battery industry chain are going through a recovery stage after the trough, and corporate credit risk divergence is relatively obvious. According to industry chain position, market position and innovation capability, relevant companies can be divided into three tiers: leading, middle and tail, and their credit risk characteristics can be studied. [2] Since 2023, typical sample companies have had no new bond issuance, so this article does not conduct research and analysis on credit spreads.

(1) Credit Risk Profiles from a Tiered Perspective. 1. Leading companies: system stabilizers and cyclical buffer layer. Leading cathode material companies, relying on advantages such as scale, technical barriers, high-quality customer resources and integrated industry chain layout, have become the core stabilizers of the industry credit system, with prominent cyclical risk buffering capacity and overall credit risk at a low level in the industry. The cathode material industry has relatively high market concentration. Leading companies occupy mainstream orders for power batteries and energy storage batteries and are deeply bound to mainstream domestic and overseas automakers and energy storage operators, with strong order sustainability, effectively avoiding operating risks such as order shortages and customer loss faced by small and medium-sized enterprises. On the technology side, leading companies continue to lay out frontier research and development, leading the industry in product yield, energy density and safety performance, with obvious product premiums and competitive barriers, and are less affected by technological iteration shocks. From a financial perspective, leaders have stronger anti-cyclical profitability and can mostly maintain profitability during industry downturns, while during industry upturns they rely on high capacity utilization and cost technology advantages to repair profitability first, and their profit fundamentals can support companies in carrying out countercyclical adjustments, continuously enhancing market voice through product technology iteration and industry chain layout. In addition, such companies usually have higher asset operating efficiency (accounts receivable and inventory) and more stable asset structures. At the same time, the capital market highly recognizes leading companies, with diversified financing channels and cost advantages, and they are better able to cope with cyclical shocks such as industry overcapacity and raw material price fluctuations. From the data of representative leading companies Hunan Yuneng and Xiamen Tungsten New Energy, in 2024, during the deep industry downturn, the gross margins of the above companies remained stable or increased, showing strong resilience, and net profit always remained positive. Easpring Technology, a leading company in the ternary material sub-sector, also showed this profit characteristic. 2. Middle companies: momentum-sensitive layer and intensifying divergence zone. Middle companies are in the competitive sandwich layer of the industry, the core sensitive entities to industry momentum and the main range of credit risk divergence, generally showing credit characteristics of "soundness and risk coexisting, with intensifying divergence." Such companies have certain capacity scale and technical strength, can undertake mid-end market orders and have a stable operating base, but lack the absolute barriers of leading companies, with market share and product competitiveness at the midstream level, and performance highly dependent on overall industry momentum, with weak anti-cyclical capacity. During industry upturns, capacity utilization rises, product profitability repairs, corporate revenue and profit grow steadily, and credit conditions remain stable. But during industry downturns, overcapacity and intensified price wars, middle companies are the first to face order shrinkage shocks, with insufficient profit resilience. Against the backdrop of intensifying industry competition, high-quality middle companies can break through through technological upgrading and binding to high-quality niche customers, continuously optimizing credit qualifications, while companies with lagging transformation and weak cost control will gradually fall into profit difficulties, with credit risk rising rapidly. 3. Tail-end companies: risk exposure layer and clearing pressure zone. Tail-end companies are small in scale, weak in technology and poor in risk resistance. They are the concentrated exposure area of industry credit risk and continue to face core pressure from market clearing, with overall fragile credit qualifications and large risk exposure. Such companies lack core technologies and core customer resources, and their products are mostly low-end homogenized products. They are at a significant disadvantage in industry price wars, lack sustainable competitive advantages, have long-term low capacity utilization and remain in inefficient operating conditions. At the operating level, tail-end companies have poor order stability, and raw material price fluctuations or slight fluctuations in industry demand can directly lead to sharp revenue declines, making them more likely to fall into the predicament of revenue shrinkage and operating losses. At the same time, such companies have relatively low capital market recognition, narrow financing channels and relatively high financing costs, and are prone to financing obstruction and capital chain rupture during industry downturns. Against the backdrop of structural overcapacity, stricter industry regulation and rapid technological iteration, tail-end companies face great difficulty in transformation and upgrading, and market clearing pressure continues to rise, making them the main entities for industry credit defaults and bankruptcy risks.

(2) List of Key Risk Warning Signals. At the macroeconomic and industry levels, the following risk signals need close attention. First, terminal demand risk signals. Affected by new energy subsidies, energy storage policy adjustments and downstream demand fluctuations, if terminal industry demand declines for two consecutive quarters without stabilizing, industry-wide inventory and accounts receivable turnover efficiency continue to decline, finished goods inventory passively accumulates, and inventory risk rises significantly, this can be regarded as a warning signal of weakening industry momentum. Second, supply risk signals. During industry upturns, capital helps industry entities to expand capacity aggressively in a concentrated manner, and concentrated capacity release can easily cause supply-demand mismatches, so close attention should be paid to the continued accumulation of structural overcapacity risk in the industry. Third, raw material risk signals. Core main materials such as nickel, cobalt and lithium have high external dependence, and prices are prone to large fluctuations due to the global supply landscape and international trade situation. Cathode material companies are in the midstream of the industry chain, with lagging pricing transmission and weak bargaining power, and overall industry gross margins continue to face pressure, so attention should be paid to the impact of main material price fluctuations on corporate operations. At the micro corporate level, the following risk signals need close attention. First, profitability risk signals. Weak downstream demand leads to continued declines in corporate capacity utilization, which in turn causes revenue contraction, sharp profit declines or even losses. It is necessary to focus on assessing corporate going-concern and technological iteration capabilities, while being alert to asset impairments and occupied funds caused by deteriorating receivables and inventory turnover. Second, debt repayment risk signals. If a company's asset-liability ratio is higher than the industry average and the coverage multiple of short-term debt by monetary funds remains below 0.5 times, it indicates insufficient liquidity reserves, pressure on the debt structure and prominent short-term debt risk, and attention should be paid to its short-term debt repayment risk. Third, going-concern risk signals. Against the backdrop of overall industry capacity expansion and steady progress in technology research and development, if a company's capital expenditure and technology research and development investment are significantly lower than the industry average, it is likely due to tight cash flow and limited investment and financing capacity, with the company proactively reducing or terminating project investment. This will also directly weaken the company's technical barriers and capacity competitiveness, constraining its long-term development potential and operational sustainability.

Section Five: Industry Development Outlook

(1) Comprehensive Judgment of the Industry Momentum Cycle. Based on a comprehensive judgment of industry supply-demand conditions and corporate micro data, China's lithium battery cathode material industry is currently in the early stage of structural recovery, having moved past the depression and bottoming stage of overcapacity and continuously declining prices in 2023-2024, and showing cyclical characteristics of "overall recovery with sub-sector divergence." On the demand side, continued expansion of new energy vehicles combined with high-speed growth in new energy storage installations forms a dual-drive pattern, and overall industry shipments continue to climb, effectively underpinning the industry's momentum base. On the supply side, in this round of momentum upturn, irrational industry capacity expansion has been effectively constrained, the pace of new capacity release has slowed, and combined with continuous lithium carbonate inventory depletion, the industry chain supply-demand landscape has improved, driving gradual repair of product prices, corporate capacity utilization and profits since the second half of 2025. At the micro corporate level, leading cathode material companies maintain high capacity utilization and have achieved a "V-shaped" reversal in profitability, verifying the industry recovery fundamentals, but small and medium-sized tail-end companies and ternary route companies are recovering more slowly. Looking ahead three to six months, the structural recovery momentum is expected to continue. Lithium iron phosphate is expected to maintain high momentum supported by strong energy storage demand, high-end high-nickel ternary materials are expected to recover steadily, while low-end homogenized products will remain under pressure. This round of momentum upturn differs from previous extensive expansion in that industry capacity expansion is becoming more rational, policies continue to rectify "involution-style" competition in the industry, and combined with external constraints such as overseas export controls and carbon barriers, the industry will focus on quality and efficiency improvement. There is no clear short-term momentum downturn inflection point for now, and potential disturbances mainly come from new energy vehicle terminal demand falling short of expectations, large fluctuations in upstream core raw material prices and price decline risks triggered by concentrated release of low-end capacity.

(2) Industry Credit Risk Outlook. In the next three to six months, credit risk in the lithium battery cathode material industry will show a pattern of overall convergence, tiered divergence and tail-end pressure. From the overall trend perspective, industry momentum recovery is driving repair in corporate revenue, profit and cash flow, and combined with regulatory policies guiding rational industry capacity expansion and strictly controlling low-end repetitive construction, systemic overcapacity risk in the industry is easing, and overall credit risk continues to converge. At the entity risk divergence level, leading cathode material companies are deeply bound to high-quality downstream customers, have strong capacity utilization and profit resilience, reasonable leverage levels and continuously solid credit qualifications, with risks basically controllable. Middle companies' performance fluctuates elastically with industry momentum, profit stability is weak, short-term debt repayment pressure generally exists, and credit risk fluctuates slightly. Tail-end companies have severely homogenized products, low capacity utilization, slower profit repair and limited financing, and their credit exposure risk remains persistently high. At the external environment level, domestic industrial policies continue to optimize the industry competitive landscape and force backward capacity to exit, which is conducive to improving the industry credit ecosystem. However, external factors such as overseas trade barriers, core raw material price fluctuations and rapid industry technological iteration still test corporate cost control, technical reserves and compliance operation capabilities, and may intensify credit fluctuations for some companies with weak risk resistance.

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