Vertical integration once dominated battery storage. Falling cell prices and smarter integrators are changing that balance fast. Here’s how to choose wisely.
Why Vertical Integration in Battery Storage Suddenly Matters
By the end of 2025, global grid-scale battery storage is on track to pass 200GWh of cumulative deployments. That’s a lot of lithium sitting between renewables and the grid — and the companies that own those batteries will either thrive or struggle based on one deceptively simple choice:
Do you buy battery cells on the market, or do you control the whole stack from cell to complete energy storage system (ESS)?
Most companies get this wrong. They either romanticize full vertical integration because “that’s what Tesla does”, or they treat batteries like generic commodities and ignore supply risk, performance, and bankability.
Here’s the thing about cell-to-ESS vertical integration: it’s not a yes/no question. It’s a strategic dial. Turn it too far in either direction and you add cost or risk that shows up years later in project returns.
This matters because grid-scale storage is now core infrastructure for green technology. Solar and wind without storage hit curtailment and grid constraints. Storage that’s late, unreliable, or too expensive delays decarbonisation and kills project IRRs.
In this post, I’ll break down what’s really happening between vertically integrated cell makers and flexible system integrators, how that affects project risk and returns, and how to make smarter ESS procurement decisions for 2026 and beyond.
Vertical Integration vs Integrators: What’s the Real Trade-Off?
Vertical integration in energy storage means a single company designs and manufactures the battery cells, assembles modules and racks, and ships complete ESS solutions. Integrators instead buy cells and focus on system design, software, and deployment.
Both models sit at the heart of the clean energy transition, but they create very different risk profiles.
What vertically integrated ESS suppliers offer
Vertically integrated suppliers (think large cell makers that also sell containerised ESS) typically provide:
- Tight control over the supply chain – From cathode and anode through to complete racks and containers
- Better component-level optimisation – Cells, BMS, and thermal systems tuned together
- Clear accountability – One name on the warranty and performance guarantees
For asset owners and lenders, that single throat to choke is attractive. It’s why bankability studies historically leaned toward vertically integrated players: more control, more traceability, more predictable quality.
The flip side? Vertical integration is capital-intensive. You’re tying your ESS roadmap to your own cell factories, with multi-billion-dollar capex commitments. When the market shifts — like it just did with global battery oversupply — that fixed structure becomes a constraint.
What system integrators bring to the table
System integrators like Fluence, Wärtsilä, or a growing set of newer players don’t make cells. Instead, they:
- Procure cells from multiple manufacturers
- Focus on system architecture, controls, and grid integration
- Build value through software, optimisation, and service
This flexibility is powerful right now. Integrators
- Scale faster because they’re not limited by one factory’s output
- Shop for better pricing and chemistries in a market where cell prices are falling
- Rebalance their supply base if one manufacturer runs into financial or technical trouble
The reality? Neither model is “better” in isolation. The right choice depends on your project’s risk tolerance, timeline, and the maturity of your own procurement and technical teams.
Market Data: Why Integrators Are Gaining Ground
The upstream storage market is still concentrated, but integrators are growing shipments faster than cell manufacturers and taking more share of end systems — even though cell makers still ship more total volume.
Analysts tracking the top 10 companies in each group have seen a few key trends over the past years:
- Cell manufacturers still ship more GWh overall, largely because most also serve the EV market
- Three of the top five ESS suppliers by volume are integrators, not vertically integrated cell makers
- The gap between leaders and everyone else is widening in both groups, as the biggest players entrench their positions
A telling detail: the standard deviation of shipments is higher for integrators than for cell makers. That means you have a few integrators doing extremely well, and a long tail of smaller players still finding their footing.
From a bankability perspective, this matters. It’s not “integrators vs cell makers” – it’s “top-tier, proven players vs the rest” in each camp.
Why integrator growth is accelerating
Several structural tailwinds favour integrators in the medium term:
-
Lower capex requirements
Building a cell factory takes billions. Building a strong integration and software business takes talent and tens of millions. That’s why new entrants are far more likely to be integrators than cell producers. -
Oversupply and price declines in cells
Since 2022, lithium prices dropped sharply and global cell manufacturing entered oversupply. Cell prices fell, compressing margins at the cell level but giving integrators cheaper input costs. -
Capex pullback from cell makers
Many cell manufacturers, including those that had years where capex exceeded revenue, are now scaling back investment in new capacity. Integrators, free from that burden, can keep growing their project pipelines by switching suppliers.
For investors in green technology infrastructure, this shift has a clear takeaway: integration and software are where a lot of the upside now lives, while cell production is becoming more commoditised and cyclical.
Financial Health, Bankability, and Why Lenders Care
Bankability in ESS isn’t just “will the company survive?” — it’s “will their storage business still exist, support products, and honour warranties in 10–20 years?”
That nuance is crucial for long-lived energy assets.
How analysts evaluate ESS bankability
Specialist reports typically blend:
- Financial strength – Often using metrics like the Altman-Z score to assess default risk
- Manufacturing profile – Cell production capacity, assembly capability, and shipped ESS volumes
Historically, vertical integration scored heavily on the manufacturing side. Owning cell production was a big plus.
But the market has changed:
- Integrators now account for a substantial share of global ESS shipments
- Some have proven they can compete head-to-head with vertically integrated giants
- Cell production is no longer the only defensible advantage
Because of that, some rating methodologies have reduced the weighting of cell production in their manufacturing scores. The focus is shifting toward:
- Reliability and scale of ESS deployments
- Software maturity and controls performance
- Track record on safety, degradation, and warranty support
From a lender’s point of view, this is rational. A project backed by a strong integrator with diverse suppliers and a large installed base can look as safe — or safer — than one tied to a vertically integrated cell maker that’s highly exposed to commodity swings.
How oversupply is re-shaping margins
Cell manufacturers’ operating margins track cell prices pretty closely. Since 2022, that’s meant:
- Cheaper cells, squeezed margins for producers
- Better system-level economics for integrators and project developers
Some cell makers are offsetting the pain with:
- Growing overseas revenue
- Aggressive cost reductions and process improvements
But the broader pattern is clear: margin is migrating up the stack. It’s harder to earn outsized returns just making cells. There’s more durable value in:
- System integration
- Long-term service contracts
- AI-driven optimisation and fleet management
For readers following our green technology series, this is a familiar pattern. Commodity layers race to the bottom; intelligence and integration layers capture more value.
How AI and Software Tilt the Balance Toward Integrators
AI, advanced controls, and fleet optimisation software increasingly determine how much value you actually extract from an ESS, and integrators are generally better positioned to own that software layer.
You can think of it this way: a 100MWh battery that’s poorly controlled is a stranded asset. A 100MWh battery with strong bidding algorithms, degradation-aware dispatch, and grid-forming capabilities can:
- Earn more from arbitrage and ancillary services
- Reduce wear by 10–20% over its life through smarter cycling
- Provide more reliable grid support in unstable networks
Where AI makes the biggest difference
-
Revenue optimisation
AI models forecast prices, congestion, and renewable output, then schedule charging and discharging minute by minute. The same physical system can generate drastically different revenue depending on the quality of these models. -
Degradation management
Cell chemistry, temperature, state-of-charge windows, and cycling history all contribute to degradation. Integrators with deep datasets across multiple chemistries can build data-driven operating envelopes that stretch useful life by years. -
Fleet-level orchestration
For utilities and IPPs with multiple projects, AI can coordinate whole portfolios: when to dispatch which asset, when to reserve capacity for grid events, when to curtail.
Vertically integrated suppliers can do this too, of course. But integrators who work across chemistries, cell suppliers, and use-cases often have a richer dataset and more incentive to make software their core differentiator.
This is exactly where green technology is heading: hardware sets the baseline, AI decides the outcome.
Practical Guidance: Choosing Between an Integrator and a Vertically Integrated Supplier
The best approach for most buyers is not to pick a side ideologically, but to evaluate partners against a few hard-nosed criteria: risk, flexibility, and lifetime value.
Here’s a simple way to think it through.
When a vertically integrated supplier can be the better bet
You might lean toward vertical integration if:
- Your project is in a market that’s sensitive to supply chain security or local content
- You’re financing with conservative lenders who strongly favour cell traceability and single-vendor warranties
- You’re deploying large, standardised fleets and want deeply optimised hardware and firmware from a single platform
In those cases, focus your due diligence on:
- Financial resilience of the parent company
- Long-term visibility on cell chemistry roadmaps
- Warranty structure, including performance guarantees and remedies
When a system integrator is likely the smarter choice
An integrator may be a better fit if:
- You value technology and supplier flexibility over the next 10–20 years
- You want to capture cell price declines by re-tendering at scale across multiple manufacturers
- You care most about software performance, AI optimisation, and grid integration capabilities
With integrators, your due diligence should go deeper on:
- Their supplier diversification and procurement strategy
- Backend software, optimisation algorithms, and update roadmap
- Historical project performance (availability, revenue vs forecast, degradation)
Questions every ESS buyer should be asking in 2026
Regardless of model, I’d make sure to ask:
- What percentage of your revenue comes from ESS, and how fast is it growing?
- How many GWh have you actually deployed and are operating today?
- How do you monitor and manage degradation across your fleet?
- What’s your plan if one of your cell suppliers faces financial distress or safety recalls?
- How are AI and advanced analytics embedded in your offering, not just bolted on?
Those answers tell you far more about long-term reliability than whether the company owns a cell plant.
Where This Fits in the Broader Green Technology Story
Energy storage is the glue that holds modern green technology together. Solar, wind, EV charging, smart buildings — none of them scale gracefully without resilient, intelligent batteries behind the scenes.
Vertical integration made a lot of sense in the early days of storage, when every part of the stack was fragile and supply risk was high. Now that cell production has scaled and costs are falling, flexible integrators and software-first models are catching up fast.
For developers, utilities, and investors planning projects in 2026 and beyond, the question isn’t “Should I only buy from vertically integrated suppliers?” It’s:
Which partner can give me bankable hardware and the intelligence to run it profitably and safely for 20 years?
The companies that answer that question best — regardless of structure — will quietly power the next decade of decarbonisation.
If you’re building a storage pipeline or rethinking your supplier strategy, this is the moment to revisit your assumptions about vertical integration, software, and risk. The market has moved. Your procurement playbook should too.