Global Battery Demand Skyrockets but Profit Margins Shrink Due to Oversupply

Global Battery Demand Skyrockets but Profit Margins Shrink Due to Oversupply

January 20, 2026

The global market for lithium-ion batteries is experiencing strong growth in demand while at the same time facing a severe surplus in production capacity that is squeezing profit margins for manufacturers, a new industry report shows. Demand for Li-ion batteries climbed from about 1 terawatt-hour  in 2024 to nearly 1.6 TWh in 2025, but available manufacturing capacity outpaced that demand by around 900 gigawatt-hours (GWh), especially in Asian markets.

The McKinsey & Company analysis highlighted the rapid expansion of battery output, which has driven prices down — battery pack costs dropped to around $108 per kilowatt-hour in 2025 — but this has tightened industry margins as supply significantly overshoots consumption. Despite falling prices and advances in technology, the imbalance between capacity and demand is making it harder for producers to maintain healthy profits.

Looking ahead, the global battery market is still expected to grow substantially, with forecasts projecting total demand to reach about 4.2 TWh by 2030 and 6.8 TWh by 2035, and lithium-ion technology remaining dominant, accounting for more than 85 % of total battery demand.

Different battery chemistries are evolving in the market. Lithium Iron Phosphate (LFP) batteries are projected to increase their share, especially in electric vehicles and stationary storage, due to their lower cost and safety advantages, while Nickel-Manganese-Cobalt (NMC) variants continue to be important for long-range EVs. Emerging options such as sodium-ion and solid-state batteries show promise but are not expected to overtake conventional lithium-ion cells at large scale in the near term.

Regional dynamics in battery production are also shifting. While Asian manufacturers — particularly in China — currently dominate global supply chains, Europe and the United States are pushing to grow domestic battery industries. In Europe, initiatives under the Green Deal aim to meet a significant portion of clean technology needs locally by 2030, while U.S. incentives, such as the Section 45X production tax credit, are helping lower manufacturing costs and boost local production capacity.

Beyond electric vehicles, battery energy storage systems (BESS) are becoming increasingly critical for integrating renewable energy into power grids. Installed BESS capacity is expected to climb from around 200 GWh by the end of 2025 to between 500 GWh and 700 GWh by 2030, as utility-scale storage becomes essential for balancing supply and demand in power systems worldwide.

In summary, while global battery demand continues to rise strongly, oversupply and excess production capacity are placing pressure on industry margins. Continued technological progress, policy support, and balanced capacity expansion will be key factors shaping the future of the battery industry.