Everbright Securities has released a research report indicating that the lithium battery sector is experiencing a continuous trend of strong fundamentals against weak expectations. Moreover, there are signs that this strong reality is intensifying during the peak season, while the weak expectations remain difficult to disprove. The operations of leading battery manufacturers and anode material companies are expected to remain stable, and as the industry's outlook for 2027 becomes clearer, some of the overly pessimistic expectations held previously are likely to be corrected.

Market attention on leading companies is notably high, and investors should continuously monitor opportunities for valuation shifts. Conversely, sub-sectors with strong cyclical attributes or those currently at high price levels offer greater speculative potential, but it is necessary to wait for the market to price in the strong fundamentals.

Revenue Shows Accelerated Growth for Multiple Quarters, with a Significant Surge in Net Profit

According to the report, sample companies in the lithium battery industry recorded revenue of RMB 482.9 billion in Q2 2026, a year-on-year increase of 64% and a quarter-on-quarter increase of 22%. Since Q1 2025, the year-on-year growth rates have been consistently positive and accelerating, indicating a positive second derivative in the growth trajectory. Compared to Q1, the sectors showing further improvement in year-on-year growth rates include upstream resources, lithium iron phosphate, electrolyte and 6F, copper and aluminum foil, and batteries, with the effect of simultaneous volume and price increases strengthening.

The net profit attributable to shareholders for these sample companies in Q2 2026 stood at RMB 51.3 billion, a significant year-on-year surge of 107% and a quarter-on-quarter increase of 14%. The single-quarter net profit margin reached 10.62%. Industry profits have seen year-on-year growth for six consecutive quarters, with the profit growth rate far outpacing revenue growth. This is partly due to a low base effect and partly due to a confluence of factors such as price increases, higher capacity utilization rates, and inventory gains, which have collectively driven substantial profit growth. However, it is unlikely that this multi-factor synergy will repeat in the future.

Profitability Recovery Pace Moderates

In terms of profitability, the gross margin for Q2 2026 was 20.7%, which declined quarter-on-quarter after several periods of continuous improvement. This represents a 1.4 percentage point increase year-on-year but a 1.4 percentage point decrease quarter-on-quarter. The net margin for Q2 2026 was 11%, up 2 percentage points year-on-year but down 0.7 percentage points quarter-on-quarter.

The strong industry fundamentals continue to unfold, with downstream demand maintaining high turnover and inventory growth. The operating rates for wet-process separators, iron phosphate, and lithium hexafluorophosphate have surpassed the 80% boom-bust line in recent months, while the operating rate for lithium iron phosphate is nearing 80%, indicating persistently tight supply-demand dynamics.

In Q2 2026, compared to H2 2025, the sectors with record-high inventory turnover rates include separators, copper and aluminum foil, and lithium carbonate. Looking at the inventory structure, the proportion of finished goods increased in H1 2026 compared to H2 2025, shifting from stockpiling raw materials due to upstream price hikes to a phase of building inventory for the peak season and pre-installation demand.

The inventory-to-sales ratio for battery cells continues to decline. As of July 2026, the inventory-to-sales ratio for energy storage cells has been consistently decreasing, rebounding slightly to 0.39 after the mid-year shipment peak, yet it remains at historically extremely low levels. The inventory-to-sales ratio for power cells has been improving steadily since the beginning of this year.

Battery Cycle on a Healthy Upswing with Orderly Capital Expenditure

Capital expenditure in the battery sector reversed its decline and began to rise from Q1 2025, maintaining a level of around RMB 23 billion for three consecutive quarters, with year-on-year growth rates between 30% and 40%. Since Q4 2024, the year-on-year growth rate has been positive for seven consecutive quarters. Capital expenditure across most material sectors is also recovering, with positive year-on-year growth.

Looking at contract liabilities, there is sustained momentum for future earnings growth. Sectors such as copper and aluminum foil, ternary cathode materials, lithium iron phosphate, and structural components saw significant year-on-year growth in contract liabilities in Q2 2026.

Risk Warning

Potential risks include lower-than-expected sales of downstream new energy vehicles, underperformance in energy storage bidding, and changes in policy and subsidy risks.