Major Chinese automobile-related electric battery firms reported annual losses in 2017, though upstream material producers made handsome profits.

Analysts anticipate tougher years for the battery segment amid a glut of capacity and the phasing out of subsidies for the sector.

Raw material companies mainly producing lithium and cobalt registered significant growth last year, according to their recent annual reports. For instance, the net income of Jiangxi Ganfeng Lithium Co Ltd rose by 216 percent year-on-year to 1.47 billion yuan ($232.9 million).

The price hike of raw materials was part of the reason for reduced profits in downstream battery firms.

Guangdong Dynavolt Renewable Energy Technology Co Ltd forecast a net loss of 129 million yuan in 2017, down 237 percent year-on-year, according to a statement. BYD Co Ltd reported that its net profit shrank 19.5 percent from a year earlier to 4.07 billion yuan.

Guizhou Anda Energy Technology Co Ltd, another battery manufacturer, registered a profit decline of 24.5 percent year-on-year. The firm said in the report that the sudden decrease is partly due to "the rising cost of raw materials" and "the adjustment of a government subsidy program for new-energy vehicles".

China has been cutting financial incentives for new energy cars, after stimulating the market for years. Subsidies will be phased out altogether by the end of 2020, according to the Ministry of Industry and Information Technology.

Wu Zhixin, vice-president of the China Automotive Technology & Research Center, said that subsidy cuts will see small and uncompetitive players wiped out faster than expected, but companies with outstanding performance would not be affected much.

Another bottleneck facing the battery segment is low capacity utilization. According to a report from Shenzhen Gaogong Industry Research Co, the industry's average capacity utilization stood at only 40 percent last year.

The number of battery companies fell 50 percent year-on-year to 100 in 2017, according to the China Automotive Technology and Research Center.

"It was just the beginning of the shake-up," said Fang Jianhua, former chairman of Hefei Gaoxuan High-tech Power Energy Co. "By 2020, more than 90 percent of the power battery companies are likely to be eliminated."

To survive stiff competition, small and medium-sized manufacturers may opt for mergers with bigger companies, Liu Yanlong, secretary-general of the China Industrial Association of Power Sources, said at a recent seminar.