Citi sees balanced battery market downcycle with selective picks

Investing.com -- Citi analysts said they expect a more balanced downcycle in the battery market as capacity expansion catches up with demand, marking a shift from the previous downturn period of 2022-2024.

The firm witnessed a battery price cycle inflection in 2025, followed by upward revisions in consensus forecasts across the value chain. The analysts said they are less bearish than market expectations for the upcoming downcycle.

Citi updated its sector preference ranking to battery, battery parts, LFP cathode, separator, lithium, anode, electrolyte, and NCM cathode. The firm's cross-sector top picks include CATL-A, CALB, EVE Energy, LGES, KDL, Yuneng, and Panasonic.

The analysts expect a moderating demand trend in 2027-2028 following the demand boom in 2025-2026 led by energy storage systems. The firm cited three reasons for a different outlook compared to previous cycles: battery and lithium prices did not reach levels that would damage end-market demand, battery makers added capacity more aggressively while component players remained cautious, and Chinese policymakers worked to limit excessive capacity expansion.

Citi said tier 2 battery makers are gaining market share in China as automakers evaluate suppliers for battery cost and performance. The firm does not expect this to hurt CATL, which continues to advance research and development efforts and gain share in markets outside China.

The analysts said a battery price war is unlikely and believe the sell-off in Chinese stocks has already priced in demand headwinds.

For China, Citi selected CALB and EVE Energy for potentially strong growth in 2027 as they continue to gain share. The firm chose CATL-A for expected better-than-consensus sales growth and unit profit, KDL for its defensive characteristics and humanoid robot exposure, and Yuneng for its valuation with limited fundamental downside.

Citi picked LGES in Korea for its first-mover advantage in capturing US energy storage system demand for grid-scale projects and data centers. The firm selected Panasonic in Japan for its Battery Backup Unit business for data centers, where it holds approximately 80% market share.

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