Core Viewpoint - The profitability of the manufacturing sector in the energy storage industry is currently at historical lows, which is deemed unreasonable and unsustainable. The expected increase in prices by 10-15 cents/Wh by 2026 will significantly enhance midstream manufacturing profits while maintaining manageable impacts on downstream demand [1][4]. Group 1: Demand and Pricing Dynamics - The domestic energy storage demand is robust, with a significant year-on-year increase in project bidding data. The lithium battery sector is experiencing price increases driven by demand, raising concerns about "price increases suppressing demand" [4][19]. - The average internal rate of return (IRR) for energy storage projects in provinces with high bidding volumes is estimated at 9.58%, with a capital IRR of 13.89%, indicating strong attractiveness for investors [6][19]. - The terminal stations can accommodate an increase in upstream EPC costs of 0.1-0.15 yuan/Wh, with expected profit increases across various segments, totaling an additional 10.6 cents/Wh in profit distribution [10][19]. Group 2: Profitability and Market Expectations - The current midstream manufacturing profitability is severely constrained, but a slight reduction in terminal pricing could lead to substantial profit increases. Projections suggest that prices for lithium carbonate, energy storage cells, and energy storage integration may reach 175,000 yuan/ton, 0.4 yuan/Wh, and 0.58 yuan/Wh respectively by next year [8][14]. - The anticipated profit margins in the lithium carbonate segment and other materials are expected to exceed current market price expectations, indicating a potential undervaluation of leading companies [14][16]. - The expected price increases in the lithium carbonate segment are projected to be around 94%, significantly higher than what is currently reflected in stock prices [16][25]. Group 3: Policy and Long-term Development - Multiple provinces have announced long-term targets for energy storage, which will support the medium to long-term development of the domestic energy storage market. For instance, Xinjiang aims for 20GW by 2025 and over 50GW by 2030 [20][21]. - The non-linear growth in energy storage demand is expected to accelerate the supply-demand reversal in the lithium battery midstream, with global lithium battery demand projected to reach 2,721 GWh in 2026, a year-on-year increase of 30% [22][23]. Group 4: Supply Chain and Material Costs - The supply side is expected to face tightness in the 6F and copper foil segments, with overall industry capacity utilization rates above 75%, providing a basis for price increases [23][25]. - The materials sector, particularly in 6F, is anticipated to see significant price increases, with current market quotes already reflecting a 2.3 times increase compared to previous levels [25].