China Battery Initiation: ESS Drives the Cycle, Quality Wins the Cycle; Buy CATL-A/H, Zenergy

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China Battery Initiation: ESS Drives the Cycle, Quality Wins the Cycle; Buy CATL-A/H, Zenergy

Equity Research

9 July 2026 | 3:00AM HKT

CHINA BATTERY

Initiation: ESS Drives the Cycle, Quality Wins the Cycle; Buy CATL-A/H,

Zenergy

China’s battery sector is entering a more energy storage system (ESS)-led phase of Nick Zheng, CFA

+852-2978-1405 | nick.zheng@gs.com

the cycle. EV demand remains the foundation, but ESS is increasingly driving the Goldman Sachs (Asia) L.L.C.

marginal swing in supply-demand dynamics and investor debate. We frame this Selina Yan

report around the durability of the current ESS upcycle, the risk of a supply-demand +852-2978-0178Goldman Sachs (Asia)| shuling.yan@gs.comL.L.C.

reset as new supply meets normalizing ESS demand, and the companies best Trina Chen

positioned to sustain high-quality growth through the cycle. +852-2978-2678Goldman Sachs (Asia)| trina.chen@gs.comL.L.C.

n Demand: ESS-led growth comes with cyclicality. We expect China’s battery

shipments to double to 3.64TWh by 2030E, with ESS driving a sharper 2026-27E

acceleration (35% 2-yr CAGR) before turning into a drag in 2028E, while EV

batteries provide a steadier growth anchor (17% 5-yr CAGR). Our differentiated

view is that improving project economics could pull ESS demand forward,

creating a more front-loaded adoption path than the linear market expectation.

n Supply: Expansion returns, turning tightness into utilization pressure.

Near-term ESS tightness is restoring manufacturers’ confidence to expand, with

the industry’s effective capacity on track to double to 4.60TWh by 2028E, and

capex reaching a new high of c.Rmb140bn by 2027E. We see utilization trending

lower from 2028E as supply catches up with normalizing ESS demand.