Lithium Value Chain Supercycle Pattern and Profit Shifting Trend

Hello Yesa, In the NEV value chain from lithium mining to refining, Battery Module and pack then to final EV cars, there are fluctuations of profit in different stage in previous 10 to 20 years, and now In the first half of 2026, the price of lithium carbonate doubled year-on-year, and the net profits of lithium mining enterprises soared, while LFP battery plants & final EV plants sufferred low net profit. how do you conclude this pattern, and when can profit shifting from mining to final battery & EV plants? Thanks

Yes, I am happy to answer your questions. The pattern is a classic commodity supercycle / boom-bust dynamic in a rapidly scaling battery metals chain, with profits swinging sharply upstream when lithium is tight and then downstream (or dissipating via competition) when supply catches up or demand softens.

Observed pattern (past ~10–20 years, focused on the recent cycle)

• Lithium is a small-volume, high-concentration commodity (mining + refining) with long lead times for new supply (hard-rock mines, brine projects, permitting, infrastructure). Demand is driven by EV batteries + (increasingly) energy storage systems (ESS), which is more price-inelastic in the short term.
• When demand surges faster than supply (or supply is disrupted), lithium carbonate/hydroxide prices spike. Integrated or low-cost miners/refiners capture outsized margins because feedstock costs are sunk or low, while chemical prices soar. Downstream battery cell/module/pack makers and EV OEMs face rising input costs. Intense competition (especially in China among LFP producers and EV makers) often prevents full cost pass-through, compressing their net margins.
• When prices collapse (oversupply from new projects + softer demand), miners suffer (high-cost operations idle or lose money), while battery and EV players benefit from cheaper materials—provided competition does not fully erode the savings via price wars.

Recent confirmation (H1 2026): Battery-grade lithium carbonate prices roughly doubled (or more) year-on-year from the mid-2025 troughs (often cited around 60k–80k RMB/t or lower in USD terms) to averages in the ~150k–180k RMB/t range (with peaks near or above 200k RMB/t). Chinese giants such as Tianqi and Ganfeng posted multi-thousand-percent profit swings or returns from losses to multi-billion-yuan net profits, with very high gross margins for those with own resources. ESS demand was a key incremental driver alongside EVs, alongside temporary supply disruptions.

Meanwhile, LFP cathode and many midstream players faced processing-fee pressure, and final EV OEMs operated under severe price competition. Chinese EV makers’ combined profits lagged far behind leading battery makers (CATL remained highly profitable overall, but many pure OEMs saw low single-digit or declining net margins; industry averages for vehicle makers fell toward ~1.5–3.6% ranges in recent periods). Battery makers as a group still earned substantially more in aggregate than the vehicle makers, but several reported gross-margin compression even as volumes rose.

This matches earlier swings (e.g., the 2021–2022 lithium spike that heavily favored miners, followed by the 2023–2025 crash that hurt upstream while helping material costs downstream).

Why profits concentrate upstream in tight periods

• Mining/refining has high operating leverage and resource scarcity/rent characteristics.
• Battery cell production is more competitive (capacity expansions, technology races in LFP/NMC, Chinese scale advantages).
• EV assembly faces the most intense end-market price competition, especially in China, plus rising expectations for affordable models.
• Cost pass-through is incomplete when OEMs prioritize market share and volume.

Vertical integration (e.g., some Chinese players spanning mining to batteries to vehicles) or long-term offtake contracts can dampen the swings for individual firms, but the overall chain still shows the commodity-driven rotation.

When can profits shift toward battery & EV plants?

Profitability shifts downstream primarily when lithium (and other battery materials) prices moderate or fall sustainably relative to battery/EV selling prices—i.e., when the market moves from deficit/tight balance into comfortable surplus, or when downstream players gain pricing power/scale efficiencies that outpace input costs. Key triggers:

1. Supply response — Restart of idled capacity, new mines/refineries coming online (Australia, South America, Africa, Chinese lepidolite/salt-lake projects), and resolution of disruptions (e.g., specific Chinese mine status has been a swing factor). Higher prices themselves incentivize this.
2. Demand growth moderating relative to supply — EV growth continues but at a less explosive rate in some markets; ESS remains strong but may not fully offset.
3. Downstream competitive dynamics — Consolidation among battery makers, successful cost reductions (learning rates, higher energy density, manufacturing yields), better vertical integration, or less aggressive EV price wars that allow margin recovery.

Near-term outlook (as of mid-to-late 2026): Many analysts see continued tightness or only gradual easing into H2 2026 / 2027, with ESS still supportive and some supply constraints lingering. Forecasts diverge—some expect prices to hold or re-test higher levels before a later correction, while others (e.g., certain BMI/Fitch views) see current levels already stretched and anticipate moderation later in 2026 into 2027–2028 as supply responds, potentially returning the market toward surplus. A sustained shift of profits toward mid/downstream would more likely materialize once prices stabilize meaningfully lower (e.g., sustained periods closer to or below levels that restore comfortable economics for higher-cost producers while easing input pressure on batteries/EVs)—plausibly from late 2026 onward into 2027–2028 if the supply ramp materializes as expected by more bearish forecasts, or later if deficits persist.

Longer term, the chain will keep cycling with EV/ESS adoption curves, technological shifts (e.g., higher-density LFP variants, sodium-ion, recycling), and geographic diversification of supply. Downstream players improve resilience via contracts, recycling, and process innovation; upstream gains from volume growth even at more moderate prices.

In short: the pattern is structural to commodity-dependent, high-growth tech supply chains. Mining profits soar in scarcity phases; battery and especially EV plant margins improve when materials normalize and competition allows retention of cost savings. You can also watch lithium chemical prices, new project ramp rates, ESS vs. EV demand mix, and Chinese EV price discipline for the next rotation.

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