China’s dominance of the global battery supply chain is unlikely to change significantly over the next two years, while an anticipated surge in battery storage shipments to Europe could put pressure on residential and commercial and industrial (C&I) storage prices toward the end of 2026, according to Ali Arfa, an analyst at EUPD Research.
Arfa said EUPD Research estimates that China’s manufacturing share varies considerably across the battery value chain. Chinese companies account for approximately 70% to 95% of raw material extraction and processing, while China’s share of cathode and anode active material manufacturing can reach around 95%.
The country accounts for approximately 80% to 90% of battery cell manufacturing and 70% to 75% of battery pack production, according to Arfa. “When you’re talking about battery packs, China’s manufacturing share is about 70% to 75%,” he told pv magazine.
pv magazine Session @ NetZero Milan Expo Summit 2026
The dynamics shaping global PV supply chains – including solar modules, inverters, and battery energy storage systems – will be discussed during the “Decoding solar supply chains” session at the NetZero event in Milan on Oct. 21.
The session will examine the forces reshaping clean energy supply chains, from manufacturing and sourcing strategies to shifting trade and regulatory requirements. It will also explore what these developments mean for companies procuring solar and energy storage equipment in an increasingly complex global market.
Join us in Milan to hear from industry experts and take part in the discussion on the future of solar supply chains.
The figures illustrate how China’s share gradually declines as the value chain moves closer to finished energy storage systems, with battery pack and system assembly also taking place in Europe, the United States and other markets.
Arfa does not expect this picture to change materially in the short term. “In two years, things probably won’t look all that different,” he said, pointing to the scale already achieved by China’s largest battery manufacturers and the difficulty European producers face in competing with them.
Export rebate change could trigger shipment surge
A more immediate issue for the global storage market is the changing Chinese export rebate regime. Arfa said the export tax rebate for Chinese battery products is set to fall from 9% to 6% before being eliminated in January 2027. He expects the change to encourage manufacturers to bring forward shipments, including significant volumes destined for Europe.
“That is why we see huge shipments that are basically coming to different places, especially Europe, before that time,” he said, noting that the resulting inventory risk is not evenly distributed across the storage market.
Utility-scale battery storage projects are generally supplied against specific orders, limiting the likelihood that large volumes of systems will accumulate in warehouses. Residential and smaller C&I systems move through distributors, wholesalers and installers, creating more opportunities for inventory to build up in sales channels.
EUPD Research estimates European residential energy storage installations at approximately 15 GWh to 17 GWh in 2026. Arfa said shipment indications from some leading storage manufacturers suggest volumes that could exceed what the European market can absorb in the short term.
One bottleneck is the capacity of installers and distributors to move that equipment into end-user projects. “The installers in Europe have their own limitations. They sometimes cannot deliver these amounts that you tell them,” Arfa said.
He consequently expects concerns about oversupply to become more pronounced toward the end of 2026. Reports are already emerging from installers that some wholesalers and distributors are lowering prices. For example, unconfirmed reports suggest that installers in Germany are seeing wholesalers offer products at prices below those available directly from manufacturers.
“I would imagine that in the last quarter or the last month of this year, there will be a little bit more concern on this oversupply issue,” Arfa said.
The effect could continue into the first quarter of 2027, before shipment volumes normalize following the removal of the Chinese export rebate.
Arfa therefore sees the greatest potential for temporary oversupply in the residential and C&I segments during the fourth quarter of 2026 and first quarter of 2027. He does not expect the same dynamic to affect utility-scale storage to the same extent.
Utility-scale storage prices likely to remain stable
For utility-scale buyers, Arfa sees little reason to expect a comparable price decline.
“I would say that the prices for utility are more or less going to be stable,” he said, noting that relatively tight battery cell inventories could counteract some of the downward pressure associated with manufacturing capacity. “Some people are also talking about the prices potentially going up.”
That means the storage market could increasingly diverge by segment: excess inventories and discounting could weigh on residential and C&I system prices, while utility-scale projects remain comparatively insulated because systems are generally manufactured and shipped against confirmed orders.
Over a longer horizon, Arfa expects technological progress and learning effects to continue reducing battery storage costs. But he does not expect that structural decline to translate into significant utility-scale price reductions over the next few years. “In the short term, over the next two or three years, I don’t expect utility-scale project prices to decline significantly,” he said.
European manufacturing
Over the medium term, the outlook for Europe could depend partly on policy decisions at the EU level, including rules addressing cybersecurity and high-risk suppliers. Arfa said the EU would need to establish the conditions for a larger domestic manufacturing base before it could realistically challenge Chinese suppliers.
He pointed to the United States as a market that has used trade measures alongside incentives for domestic manufacturing. Europe, by contrast, faces a more complicated geopolitical and industrial environment.
In the longer term, Arfa expects Chinese manufacturers themselves to establish more manufacturing capacity in Europe. “In the long term, what I see is these Chinese manufacturers coming to you,” he said. “It could be beneficial for the supply chain to bring some manufacturers onshore.”
He linked that outlook to increasing geopolitical fragmentation and the possibility of disruptions to global shipping routes. In such an environment, locating production closer to end markets could become increasingly attractive, even for companies that currently manufacture predominantly in China.
Arfa was more cautious about drawing conclusions on lithium supply and other raw materials. He did, however, point to signs of relatively tight battery cell inventories.
The post European storage inventories on the rise appeared first on pv magazine Global.
