UBS: 2026 Outlook Remains Supportive of the Lithium Up-Cycle
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UBS hosted a conference call bringing together its China autos lead, global battery coordinator, and China BESS head to assess 2026 prospects for electric vehicles and battery energy storage systems globally and in China. Despite Chinese EV retail and wholesale volumes declining 16% and 23% year-on-year at the start of the year, due to stimulus withdrawal, new purchase taxes, and rising commodity costs, UBS still forecasts domestic EV market growth of 8% and wholesale growth of 15% for 2026, supported by stronger exports. The team projects approximately 20% year-on-year growth in lithium battery output, reinforcing the current lithium up-cycle. On BESS, Chinese state-owned enterprises are expected to increase capital expenditure, with capacity pricing mechanisms serving as a key catalyst. Combined with intraday spreads potentially widening from CNY 0.25 to CNY 0.40 per kWh, BESS IRRs could reach 7 to 8%, above the roughly 6% hurdle rate. UBS forecasts BESS deployments of 230 GWh in 2026 and 325 GWh in 2027. Rising battery material costs present a mild headwind, with a 50% increase in cell material costs translating to only about 9% higher BESS site costs. Solid-state battery progress, including solutions to dendrite formation, supports long-term lithium intensity and demand.