US energy storage market shifts as EV battery manufacturers pivot to oversupply

As the United States moves from promise to production, the domestic energy storage market has shifted far more rapidly than many policy-makers and investors anticipated. What began as a wave of high‑profile factory announcements following the Inflation Reduction Act of 2022 has yielded an unexpected reality in 2026: an effective oversupply for lithium‑based energy storage system (ESS) cells, driven less by new stand‑alone plants and more by a strategic pivot among existing electric vehicle (EV) battery manufacturers.

According to reporting by Solar Power World, companies that touted gigawatt‑scale greenfield builds , names such as KORE Power, American Battery Factory and Pomega , stalled or retreated when the cost and regulatory uncertainty of new factory builds collided with a market anxious about continued federal support. By contrast, established EV battery producers have retooled and repurposed lines to supply stationary storage, offering immediate, high‑volume capacity without the lead times of greenfield construction.

The pattern is already clear: LG Energy Solution and AESC, long producers of batteries for American EVs, retooled existing lines to produce lithium‑iron phosphate (LFP) cells for ESS in 2025; SK Battery America and Samsung SDI intend to begin ESS production in 2026; and automakers such as Ford are shifting capacity between EV and stationary applications. Ford’s announced $3.5 billion LFP facility in Marshall, Michigan, intended to produce lower‑cost LFP cells for vehicles from 2026, illustrates the blurred lines between automotive and grid markets and the commercial logic behind converting underutilised EV lines to serve storage needs. The company said the project will help its domestic battery supply chain while enabling it to benefit from federal tax credits under the Inflation Reduction Act.

Policy changes have sharpened the incentive to pivot. The successor to the IRA, the One Big Beautiful Bill Act (OBBBA), removed some EV owner incentives while leaving in place tax credits and compliance rules that favour domestic ESS supply. As a result, EV demand softened and underused EV battery lines presented an opportunity: stationary battery markets could absorb output and secure IRA‑style benefits linked to domestic cell content and foreign entity of concern (FEOC) restrictions. Industry analysts and trade groups say that dynamic accelerated the conversion of EV cell plants to ESS production.

That conversion is not trivial. EV cells commonly use nickel‑manganese‑cobalt (NMC) chemistries while stationary systems increasingly favour LFP for safety, cycle life and cost. “If the form factor is the same, converting NCM to LFP cell production line takes several months to a year,” said Anjali Joshi, market intelligence analyst at Intertek CEA, underscoring that retooling can be rapid when manufacturers already work with compatible prismatic, cylindrical or pouch formats.

Where greenfield projects struggled to promise sub‑5‑GWh outputs, the incumbent EV producers enter the market with much larger scale. Genx Solutions’ analysis of U.S. capacity expansion between 2022 and 2025 highlights this shift: LG Energy Solution’s Holland, Michigan, facility alone represents a reported $1.4 billion investment and roughly 16.5 GWh of annual LFP capacity when it began LFP production in May 2025. Industry data and capacity announcements suggest the four established domestic lithium cell manufacturers can meet, or even exceed, the United States’ 2025 deployment levels, helping explain why market participants describe the domestic ESS cell market as oversupplied in 2026.

Trade association and market commentary reflect confidence in domestic supply. “Energy storage is being quickly deployed to strengthen our grid as demand for power surges and is helping to drive down energy prices for American families and businesses,” said Noah Roberts, ACP VP of energy storage. “Despite regulatory uncertainty, the drivers for energy storage are strong and the industry is on track to produce enough grid batteries in American factories to supply 100% of domestic demand. Energy storage will be essential to the expansion of the U.S. power grid and American energy production.”

That optimism is tempered by realistic caveats about ramp rates and utilisation. Intertek CEA’s Joshi noted capacity figures assume full factory utilisation, historically Korean EV battery plants have run at 70–80%, so an apparent surplus could narrow if ramps are slow. She added that Korean suppliers account for a substantial share of FEOC‑compliant ESS cell capacity, meaning U.S. availability depends in part on the speed at which those overseas‑linked operations can achieve and sustain domestic‑market production rates.

A parallel but critical development is the emergence of domestic supply chains for battery materials and cathode active materials (CAM) that meet IRA compliance standards. Materials firms such as 6K have moved to supply both LFP and NMC CAM that they say meet U.S. government mandates for IRA compliance. 6K’s UniMelt production system is promoted as capable of producing multiple lithium‑ion materials, including NMC, LFP, lithium salts and alkaline CAM, potentially reducing reliance on imported CAM. The company said its CAM has demonstrated performance across more than 30 partners in the lithium‑ion ecosystem and that it is delivering material from its Battery Center of Excellence for customer qualification.

Federal support under both the Inflation Reduction Act and earlier Department of Energy programmes underpins much of this industrial change. DOE annual reporting and Bipartisan Infrastructure Law fact sheets document grants and awards to domestic materials and cell projects, including funding for projects to produce battery‑grade lithium hydroxide and CAM at U.S. facilities. Those investments are explicitly intended to bolster supply‑chain resilience and meet the content requirements embedded in tax credits and production incentives.

The net effect is a market that, almost overnight by some accounts, has moved from tightness to a degree of surplus at the cell level. For project developers and industrial decarbonisation professionals, the immediate benefits are tangible: greater access to domestically made LFP cells that simplify FEOC compliance and may accelerate project timelines and reduce logistics complexity. For manufacturers and materials suppliers, the opportunity is to capture volume now rather than wait for uncertain permissions and the long buildouts associated with greenfield factories.

Yet this is not an unalloyed win. Oversupply risks compress margins, could slow some announced projects’ financeability, and places a premium on manufacturers’ ability to convert form factors and chemistries efficiently. The longer‑term balance between domestic greenfield investments and retooled incumbents will hinge on utilisation rates, the speed of materials qualification and the stability of tax and regulatory incentives that helped trigger the initial surge in announcements.

For stakeholders tasked with industrial decarbonisation, the lesson is practical: domestic ESS capacity is available today largely because EV battery makers pivoted production lines and domestic materials capacity is being scaled to meet policy‑driven compliance tests. That alignment between policy, materials and manufacturing creates a pathway to accelerate grid‑scale deployments, but it also requires close attention to ramp schedules, chemistry choices and the policy signals that will determine whether this supply environment remains accommodative or tightens as markets rebalance.