Analysis of CATL's Lithium Iron Phosphate (LFP) Production Capacity Layout and Industry Supply-Demand Dynamics

First, we need to clarify a key issue:

[1][2][3]

Based on verifiable information, CATL’s LFP-related production capacity layout is as follows:

Project	Production Capacity Scale	Status
Bangpu Times Yichang Project	450,000 tons/year	Commissioned in December 2025 [1]
Long-Term Agreement Order with Rongbai Technology	3.05 million tons (cumulative 2026-2031) [2]	Signed
2025 China Total LFP Production Capacity	6.473 million tons [3]	Industry-wide

The so-called “7.37 million tons” may be a misunderstanding caused by adding multiple figures together. Based on actual data,

, accounting for about 77.8% of China’s total LFP output in 2025. This proportion indeed reflects the strong upstream material locking strategy of leading battery enterprises [2].

---

Based on industry data, the LFP industry exhibits the following supply-demand characteristics [3][4][5]:

Indicator	2024	2025	2026 (Forecast)
China’s Production Capacity (10,000 tons)	500	647.3	950
Output (10,000 tons)	250	392	560
Demand (10,000 tons)	280	375	560
Capacity Utilization Rate	50%	60.6%	59%
Capacity/Demand Ratio	1.79x	1.73x	1.70x

: The industry’s overall production capacity is about 1.7 times the demand, with structural overcapacity, but the degree of overcapacity is showing marginal improvement.

---

The most prominent feature of the LFP industry is the

structural differentiation [3][6]:

:

• In 2025, 3rd generation products (compaction density ≥2.50g/cm³) accounted for 44.8% of total output [6]
• Only 5-6 enterprises have mass-produced 4th generation products, with an annual supply of only 1-1.2 million tons [5]
• Leading enterprises have a capacity utilization rate of over 90%, with some operating beyond capacity [3]

:

• Products of 2nd generation and below account for about 33.5% of the market and are continuously shrinking [6]
• Small and medium-sized enterprises have low capacity utilization rates and unsatisfactory operating rates [3]
• The entire industry has been in continuous losses for over 36 months, with the average asset-liability ratio of 6 listed enterprises reaching 67.81% [3]

---

According to multiple forecasts,

[3][5][6]:

Risk Factor	Impact Assessment
New Capacity Commissioning	Approximately 1.5 million tons of new capacity is expected to be commissioned in 2026, which is lower than the demand growth rate [3]
Demand-Side Support	Booming energy storage market + increasing penetration rate of new energy vehicles [3]
Overseas Demand	Export growth in Vietnam, Thailand, the US and other regions [7]
Policy Factors	MIIT’s “anti-involution” policy promotes the clearance of low-quality production capacity [8]

SMM predicts that the global total output of LFP cathode materials will reach 5.6-5.8 million tons in 2026, a year-on-year increase of about 55%, which basically matches the demand growth [5].

Risk Factor	Specific Performance
Continuous Capacity Expansion	The nominal production capacity is expected to reach 9.5 million tons in 2026, with effective capacity of approximately 9 million tons [5]
Technology Iteration Risk	The release of 4th generation product capacity may change the supply-demand pattern [6]
Overseas Competition	LFP battery projects of overseas enterprises such as LG Energy Solution may impact exports [9]

---

CATL has implemented a

supply chain control strategy by signing long-term agreements with multiple cathode material enterprises [10]:

Cooperating Enterprise	Signed Scale	Features
Rongbai Technology	3.05 million tons (2026-2031) [2]	Subject to regulatory inquiry, with disputes over performance capability
Fulin Seiko	Approximately 700,000 tons	Capacity locked [6]
Longpan Technology	Approximately 800,000 tons	Capacity locked [6]

1. Guarantee Supply Security
   : Lock the capacity of leading material enterprises to ensure stable raw material supply
2. Lock High-Quality Capacity
   : Prioritize binding with enterprises capable of technological upgrading to secure supply of high-end products
3. Mitigate Price Fluctuations
   : Lock processing fees through long-term agreement mechanisms to reduce the impact of raw material price fluctuations
4. Promote Industry Integration
   : Accelerate the clearance of low-quality production capacity and improve industry concentration

---

Question	Answer
Claim of 7.37 million tons of capacity	Data is questionable; actual signed capacity is approximately 3.05 million tons
Is capacity 10 times the demand?	No, actual capacity is about 1.7 times the demand
Is there severe overcapacity?	There is structural overcapacity, but it is generally controllable

: The industry is expected to maintain a healthy supply-demand state, with core supporting factors including:

• Booming energy storage market (shipment growth of over 40% expected) [3]
• Increased power demand driven by AI development [7]
• Continuous increase in the penetration rate of new energy vehicles
• Accelerated clearance of low-quality production capacity

: Need to pay attention to:

• The matching degree between continuous capacity expansion and demand growth
• The reshaping of product structure by technological iteration
• Overseas market expansion and policy risks

: The industry is shifting from the “scale expansion” stage to the “quality improvement” stage. Technological innovation and integrated layout will become the core capabilities for enterprises to navigate the cycle. It is recommended to focus on leading enterprises with mass production capabilities of high-end products and cost control advantages.

---

[1] Dian Dong Zhi Jia - “Breaking News! CATL’s Supplier Under Investigation! Involving RMB 120 Billion Orders” (https://www.eet-china.com/mp/a468568.html)

[2] The Economic Observer - “RMB 120 Billion Large Order Subject to Late-Night Regulatory Inquiry, Rongbai Technology Suspends Trading Urgently!” (http://www.eeo.com.cn/2026/0114/779211.shtml)

[3] NetEase Finance - “Overcapacity, Frenzy, and ‘Fragmentation’ of LFP” (https://www.163.com/dy/article/KJO9S4V405118O92.html)

[4] Securities Times - LFP Output Data

[5] Shanghai Metals Market (SMM) - LFP Production Capacity Forecast Data

[6] Sohu Finance - “Against the Backdrop of Over 4.1 Million Tons of Capacity Expansion, Overcapacity, Frenzy, and ‘Fragmentation’ of LFP” (https://m.sohu.com/a/978150431_116132)

[7] The Economic Observer - AI and Energy Storage Demand Analysis

[8] Securities Daily - “The Lithium Battery Industry Chain Knocks on the Door of Value Return” (https://finance.sina.com.cn/money/bond/2026-01-09/doc-inhfsfzx6031749.shtml)

[9] Securities Times - Overseas Market Competition Analysis

[10] 36Kr - “Against the Backdrop of RMB 820 Billion Lithium Battery Capacity Expansion, ‘Ning Wang’ (CATL) Invests Heavily to Bind the Supply Chain” (https://m.36kr.com/p/3624776439759876)