China warns battery makers on overcapacity risks in EV and energy storage sectors

Summary:

• China warns battery sector of rising overcapacity risks

• Industry ministry urges capacity optimisation and supervision

• EV and energy storage batteries under closer scrutiny

• Data-centre buildout has boosted demand but fuelled oversupply

• Solar sector cited as cautionary example

China’s industry ministry has issued a fresh warning to battery manufacturers, urging firms to rein in capacity expansion and address rising risks of overcapacity across the electric vehicle and energy storage sectors, a signal that policymakers are becoming increasingly concerned about disorderly competition and margin erosion.

In a statement released Thursday following a meeting earlier in the week, Ministry of Industry and Information Technology said it had called on battery makers to optimise industry capacity, regulate competitive behaviour and strengthen oversight across the EV and energy storage battery supply chain. The comments were published via the ministry’s official WeChat account.

The warning comes at a time when demand for energy storage batteries has surged, driven in part by the rapid global buildout of data centres and power-hungry digital infrastructure. However, the ministry cautioned that manufacturers have responded by blindly expanding production capacity, creating conditions that could lead to oversupply, falling prices and industry-wide losses.

Officials explicitly drew parallels with China’s solar sector, where years of aggressive capacity expansion ultimately triggered severe price declines, collapsing margins and financial stress across the industry. That episode has become a policy touchstone for regulators seeking to prevent similar outcomes in other strategic manufacturing sectors.

The message underscores a broader shift in Beijing’s industrial policy framework. While China continues to prioritise advanced manufacturing, green technology and energy transition sectors, authorities are increasingly focused on quality, profitability and sustainability, rather than headline output growth alone. Regulators have in recent months stepped up rhetoric around curbing “excessive competition” and discouraging redundant investment.

For battery makers, the guidance suggests tighter scrutiny of new projects, heightened regulatory oversight and potential constraints on expansion plans, particularly for smaller or less competitive players. Larger, better-capitalised firms may ultimately benefit if policy action accelerates consolidation and restores pricing discipline.

Market implications are nuanced. In the near term, the warning may weigh on sentiment toward battery and EV supply-chain stocks, especially those heavily exposed to capacity growth assumptions. Over the medium term, however, a clampdown on overcapacity could stabilise margins, support healthier industry economics and reduce the risk of a solar-style price collapse.

The ministry’s intervention highlights Beijing’s intent to balance strategic ambition with financial stability as China’s battery industry enters a more mature phase.