The Battery Glut Nobody Planned For

Six months ago, battery cells were a bottleneck. Today, American factories are sitting on a 10% surplus — and the companies that locked in long-term supply contracts at peak pricing are about to learn an expensive lesson in timing.

The shift happened fast. Samsung SDI and LG Energy Solution both posted record Q4 BESS revenue, pivoting production lines away from a softening EV market and into energy storage. Qcells just signed a 5 GWh deal using LG’s Michigan-made LFP cells. Domestic manufacturing capacity that was supposed to feed an electric vehicle boom is now flooding the stationary storage market instead.

This isn’t a blip. It’s a structural repricing of the entire commercial battery supply chain.

The EV-to-ESS pipeline nobody modeled. The conventional wisdom held that energy storage would always compete with electric vehicles for cell supply. Automakers would get priority. Storage developers would take what was left, at whatever price manufacturers dictated. That logic made sense when EV sales were climbing 40% year-over-year. It falls apart when EV manufacturers start repurposing production lines because they can’t move inventory.

Samsung SDI’s Q4 numbers tell the story: BESS sales surged while EV cell revenue flatlined. LG Energy Solution reported the same dynamic. These aren’t companies dabbling in storage as a side business. They’re restructuring around it. When two of the world’s largest cell manufacturers pivot simultaneously, the downstream effects ripple through every procurement negotiation in the industry.

The domestic content paradox. The Inflation Reduction Act created a powerful incentive to source cells from American factories. But it also created an assumption — that domestic supply would remain tight, justifying premium pricing. The Qcells/LG deal in Michigan is instructive. Those LFP cells qualify for full domestic content bonus credits under the ITC. A year ago, that compliance came at a steep cost premium over imported cells. Today, with Michigan production ramping and EV demand softening, the premium is compressing.

This is the paradox: the IRA succeeded in building domestic manufacturing capacity, but the market conditions that were supposed to sustain high margins — constrained supply meeting surging demand — are evaporating faster than the factories can recoup their capital investments.

Merchant storage is already feeling it. The oversupply isn’t just a cell-level phenomenon. It’s cascading into project economics. ERCOT interconnection applications dropped 50% after merchant battery revenues collapsed from $192/kW to $43/kW. The math that justified speculative grid-scale projects at 2024 prices doesn’t work at 2026 prices. Powin’s bankruptcy isn’t an outlier — it’s the first domino.

The projects that penciled at $192/kW merchant revenue were already aggressive. At $43/kW, they’re underwater. And the pipeline of new capacity entering ERCOT and other deregulated markets hasn’t stopped — it’s just slowed. The batteries already under construction will come online into a market that can’t absorb them at profitable rates.

Who wins in a buyer’s market. The companies best positioned aren’t the ones with the biggest pipelines or the most manufacturing capacity. They’re the ones who waited. Commercial and industrial buyers who delayed procurement decisions through 2025’s supply-constrained pricing environment now face a fundamentally different negotiation. Cell costs are declining. Domestic options are multiplying. And manufacturers desperate to fill repurposed production lines are offering terms that would have been unthinkable eighteen months ago.

Consumers Energy’s $17B capital plan includes $5B in battery storage through 2035. That’s a decade of procurement leverage in a market where suppliers are competing for every megawatt-hour. Utilities with patient capital deployment strategies will extract concessions that fast-movers locked out by signing contracts at the top.

The consolidation math. Oversupply always ends the same way: consolidation. The weakest manufacturers and integrators get acquired or go bankrupt. The survivors emerge with lower cost structures and fewer competitors. Powin is the proof of concept. The question is how many more follow before the market finds equilibrium.

The uncomfortable reality is that the IRA’s manufacturing incentives accelerated capacity buildout faster than demand could absorb it. The policy achieved its goal — domestic battery manufacturing is real, operational, and scaling. But the market it created is now punishing the very companies it subsidized.

The commercial inflection. Behind-the-meter commercial storage exists in a different economic universe than merchant grid-scale. Commercial projects are underwritten by demand charge savings and tariff arbitrage, not wholesale market speculation. They don’t need $192/kW merchant revenue to pencil. They need reliable cells at competitive prices — exactly what an oversupplied market delivers.

The irony is that the grid-scale bust may be the best thing that ever happened to commercial storage economics. Every cell that can’t find a profitable home in a 200 MWh merchant project is a cell available at better pricing for a 200 kWh commercial installation. The supply chain that was built to serve utility-scale is about to discover that the commercial market — smaller per-project but vast in aggregate — absorbs volume at margins that still work.

The battery industry spent five years worrying about scarcity. The next five will be defined by abundance. The winners won’t be the companies that built the most factories. They’ll be the ones who figured out what to do with all the cells.