Investing.com -- Lithium prices face fresh headwinds, according to Rothschild & Co Redburn, which warned that a return to market surplus in 2027 will weigh on prices and erode the investment case for major producers.

Analyst Mazahir Mammadli's refreshed supply and demand modeling points to three converging pressures, including a reversal of battery overproduction, slowing EV sales growth and limited expansion in battery sizes as affordable, smaller-pack vehicles outsell larger models.

Central to the bear case is a dynamic playing out in China, where export tax rebates for batteries and battery components are being phased out from 2027.

Rothschild & Co Redburn says the industry is responding with elevated production in 2026, pulling forward lithium demand, but argues that "a reversal of this overproduction next year will lead to lithium demand deceleration."

On EVs, the firm sees weakness in China's first-quarter sales and a depressed North American market dragging global EV sales growth down to 14% in 2026, even as Europe and developing markets maintain momentum.

With supply ramping up across China, Argentina and the U.S., Rothschild & Co Redburn expects lithium carbonate equivalent prices to fall to "$15–16/kg by year-end."

Against that backdrop, the firm has downgraded Albemarle from Buy to Neutral, setting a price target of $188 per share, implying roughly 5% downside.

SQM is maintained at Neutral with a revised target of $83 per share. Rothschild & Co Redburn concludes that "the risk/reward for lithium stocks is not as attractive as before."