Battery manufacturers are reallocating electric vehicle (EV) battery production capacity to grid-scale storage as EV sales decline and profit margins narrow. Leading automakers and battery suppliers are redirecting surplus capacity to meet rising demand from utilities and data centers for battery energy storage systems (BESS).
Background
Overcapacity in the EV battery sector is driving this shift. In 2024, China's lithium-ion battery capacity surpassed total demand by approximately 60%, putting downward pressure on prices and supporting large-scale energy storage deployment. Battery pack prices for EVs dropped by 8% in 2025, reaching a record low of $108 per kilowatt-hour. This reduction contributed to levelized costs of energy (LCOE) below $100/MWh for four-hour battery systems in select markets. Sources at BNEF report that manufacturing overcapacity has significantly improved the economics of grid-scale storage systems1Renewables Plus Storage Surge as Battery Costs Drop Record Low, BNEF Reports – The Global Carbon Fund.
Details
Amid a 14% year-on-year decline in battery-electric vehicle (BEV) demand and growing hybrid electric vehicle (HEV) sales, Ford is shifting its Kentucky battery manufacturing operations to BESS production. The company targets 20 GWh of annual BESS output by late 2027 using licensed lithium iron phosphate (LFP) cells in modular systems. Ford plans to deploy at least 20 GWh of annual BESS production by late 2027, prioritizing grid and data center applications over BEV outputs2EV Slowdown Drives Shift to Energy Storage Systems. The termination of the $11.4 billion BlueOval SK joint venture reflects this new strategy as Ford writes down EV investments in favor of more profitable BESS markets2EV Slowdown Drives Shift to Energy Storage Systems.
Other manufacturers are adapting as well. LG Energy Solution has identified over 50 GWh of EV battery capacity convertible to energy storage system (ESS) production and targets 60 GWh of ESS output by 2026-nearly double its 2025 level. LFP chemistry, known for lower costs relative to high-nickel automotive chemistries, is central to this realignment. LG Energy Solutions targets 60 GWh ESS capacity in 2026 by repurposing idle EV lines, emphasizing LFP chemistry for cost efficiency3LG Energy Hit by Slowing US EV Market, Pivots to ESS.
South Korean suppliers are repositioning. SK On signed a multiyear contract for up to 7.2 GWh of BESS supply starting in late 2026. Samsung SDI agreed to a $1.4 billion supply deal for prismatic LFP batteries dedicated to storage from 20272EV Slowdown Drives Shift to Energy Storage Systems.
European storage markets are expanding. Germany installed around 6.6 GWh of battery storage in 2025, maintaining its lead as the continent's largest storage market. The residential segment contracted to 9.8 GWh due to subsidy cuts and increased market maturity. Germany led European BESS deployment in 2025 with about 6.6 GWh installed; residential storage declined to approximately 9.8 GWh installations in Europe41-Blog-Shenzhen Gooree Energy Storage Technology Co., Ltd.
Outlook
Industry forecasts anticipate further growth in grid-scale and long-duration storage. European installations are set to reach 39.4 GWh in 2026, with BESS markets projected to expand by over 35% annually through 20285European
Market Outlook
for Battery Storage
2. As manufacturers increase their focus on storage and policy support grows, grid and data center requirements are expected to absorb excess EV battery output.
Policymakers may need to refine incentives for utility-scale storage. Recent studies indicate that price-based support instruments, including minimum discharge prices or markups, can improve storage investment returns without distorting power market operations6Support schemes for utility-scale energy storage: a comparative analysis - ScienceDirect.
Category: Energy & Innovation
