Producers of lithium have grappled with limited demand for the mineral years after the boom of 2020-2021 that saw EV battery makers gobbling up any available lithium and driving up prices. Sluggish EV demand has since led to a collapse of lithium carbonate prices and many producers significantly cut their output in the wake of slumping prices. However, an upsurge in the battery energy storage segment has brightened the outlook for lithium this year and a revival of the material is underway.
This resurgence has been triggered by reforms that China has instituted in its power sector resulting in increased demand for lithium by firms that manufacture the batteries that are used in stationary energy storage systems. These reforms started having an effect on lithium demand in the latter months of 2025.
There has also been a surge in the construction of data centers not only in China but also in other markets like the U.S. and Europe. This construction boom boosted the demand for lithium as these AI data centers require energy storage systems to ensure that even if power from the grid experiences an outage, the data center remains powered by the energy that has been stored in batteries.
China has earned heavily from exporting energy storage batteries. In 2025, earnings from this segment were approximately $66bn, far ahead of EVs that earned the country about $54bn in exports. This data covers the January to October period alone, highlighting how crucial energy storage batteries have been in the export earnings of China.
A forecast by Morgan Stanley shows that the world faces an 80,000-ton deficit of lithium carbonate in 2026. This projection sharply differs from the 2025 picture which indicates a surplus of approximately 61,000 tons, per data from UBS.
Demand for this mineral in the battery storage industry is projected to experience 55% growth in 2026, and battery storage is expected to consume approximately 31% of all the lithium consumed in 2026. This is an uptick from the 23% that was consumed in 2025, and it shows that more lithium is moving to battery storage away from the manufacture of batteries for EVs.
However, the price outlook for lithium could be pegged back in case manufacturers of energy storage systems switch to batteries containing sodium ions. Prices could also face further downward pressure in case EV sales fall further in key markets like China where the government is winding down the purchase subsidies that have boosted EV uptake.
It remains to be seen whether major players like Tesla Inc. (NASDAQ: TSLA) in the energy storage space stick to lithium-based batteries or switch to other chemistries that offer a different set of variables like a better safety profile or denser energy capacity.
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