Core Viewpoint - The article discusses whether the price increases in the lithium battery supply chain signify the beginning of "lithium battery inflation" or are a precursor to profit downgrades in the battery and materials sectors [7]. Group 1: Market Performance - The lithium battery sector experienced a wave of "concurrent pullback" this week [2]. - Contemporary Amperex Technology Co., Ltd. (CATL) saw its stock price peak at 380.50 yuan on January 6, before dropping to 333.01 yuan by January 28, marking a nearly 10% fluctuation [3]. - EVE Energy Co., Ltd. faced a cumulative decline of 9.05% over four consecutive trading days, with a market capitalization of approximately 125.9 billion yuan [4]. - Guoxuan High-Tech also experienced a 9.23% drop over the same period, with a total market value of around 68.4 billion yuan [5]. - Xinwanda reported a cumulative decline of 7.61% over five days, with a market capitalization of about 43.3 billion yuan [6]. Group 2: Industry Dynamics - The fundamental question remains whether the price increases in the supply chain are indicative of "lithium battery inflation" or a sign of profit downgrades in the battery and materials sectors [7]. - The automotive industry's projected revenue for 2025 is approximately 11.18 trillion yuan, with profits of 461 billion yuan, resulting in a profit margin of only 4.1% [9]. - By December 2025, the profit margin is expected to drop to 1.8%, signaling ongoing repercussions from price wars [10]. - As terminal profit margins decline, it becomes more challenging for the battery sector to pass on costs to downstream players, potentially leading to profit downgrades in the battery and materials segments [11]. Group 3: Inflation Narrative - The term "lithium battery inflation" is more closely related to an upward shift in price levels and profit recovery rather than macroeconomic inflation [15]. - The core logic is based on two points: certain materials have seen significant price increases, and terminals like energy storage still have room for profit, allowing for price increases to be passed upstream [16]. - The internal rate of return (IRR) for energy storage projects in major provinces is generally above 8%, indicating potential for cost transmission [17]. - However, if terminal revenues are unstable or pricing mechanisms lead to increased cost exposure, the inflation narrative could transition into a precursor for profit downgrades [18]. Group 4: Pricing Mechanisms and Transmission - The debate highlights the complexity of pricing mechanisms and transmission chains within the industry [26]. - Companies like Honeycomb Energy have provided insights into how inflation and downgrades manifest through specific mechanisms, including the scope of linkage clauses and pricing cycles [26]. - Even if inflation narratives hold, cost transmission is likely to occur in layers, first affecting large commodity materials and then impacting non-linked items and processing fees [27]. - The potential for a "offset model" exists, where leading battery companies can mitigate some cost pressures through resource investments and operational efficiencies [29]. Group 5: Future Outlook - The ongoing discussion around "lithium battery inflation" versus "profit downgrades" serves as a pressure test for pricing power within the industry [32]. - The ability of large commodity-linked items to continue transmitting costs, and the effectiveness of energy storage pricing contracts in incorporating mature linkage mechanisms, will be critical [32]. - Short-term market adjustments are expected to focus on these changes in mechanisms rather than solely on the price fluctuations of individual materials [33].