How China has dominated the battery race

TL;DR

• Lithium-ion batteries have an important role to play in facilitating the energy transition and producing electric vehicles to reduce global emissions, but they are an imperfect solution that requires mined raw materials and investment in production, safety, and battery duration.   

• China is the world’s largest producer of lithium-ion batteries, with six of the top 10 global manufacturers based in the country, including CATL and BYD who are jointly responsible for 52.6% of the market.  

• Many factors contribute to China’s dominance including its market size, investment, and technology. Government subsidies have promoted adoption of EVs, its focus on cost-efficient lithium iron phosphate (LFP) batteries has helped it keep prices low, and its investment in mining cobalt and nickel in the Democratic Republic of Congo have helped China have a stake in every aspect of battery production.  

• CATL and BYD are the two largest lithium-ion battery manufacturers with a shared commitment to continual innovation and international expansion. BYD has recently developed a new electric powered bus for London, while CATL has launched the first LFP battery to have a range of over 1,000km.  

• China looks set to continue its dominance in the short-term, but investments in new factories in Europe and the US, new types of battery being developed by Japan and South Korea, and the untapped potential of recycling rather than manufacturing lithium-ion batteries could provide other nations with an opportunity to close the gap. 

The detail

Lithium-ion batteries have a key role to play in the fight against climate change. Not only are they fundamental to facilitating the energy transition, but they also provide power for electric vehicles (EVs). Indeed, moving away from petrol and diesel and embracing EVs will be essential if the world is to meet its ambitious climate goals and achieve net zero by 2050.  

As an energy source, lithium-ion batteries fuel everything from smartphones and laptops to EVs and renewable energy storage systems. Their ability to stabilise power grids is one of the reasons why solar and wind power can be integrated into the electricity grid. However, it is arguably lithium-ion batteries’ use in EVs that will have the biggest impact on the climate crisis.  

Transport currently accounts for approximately one-fifth of global CO2 emissions. Road travel is responsible for three-quarters of those emissions, with 45.1% coming from passenger vehicles such as cars and buses. With the International Energy Agency (IEA) predicting that global transport will double and car ownership rates will increase by 60% come 2070, there is an urgent need to pivot to EVs so that transport emissions are reduced and the environmental cost of sector growth can be offset.  

With that said, lithium-ion batteries aren’t necessarily a silver bullet solution. While technological advancements continue to be made, batteries still present myriad challenges.  

Battery life remains an issue, despite improvements in energy density that have helped to prolong it. Battery production is also limited by scale, requiring significant investment to reduce production costs. Further, their development relies on scarce and finite resources such as lithium, cobalt, and nickel.  

This reliance on raw materials also means that producing lithium-ion batteries can have a detrimental impact on the environment. The extraction, processing, and disposal of battery materials can lead to habitat destruction, water pollution, and carbon emissions, for example. 

Despite these limitations, lithium-ion batteries still represent one of the best solutions we currently have available to power the energy transition and fuel the widespread adoption of EVs – and here, China is leading the charge.  

China dominates the market  

Globally, the production of EV batteries grew by 42% year on year in 2023. However, according to market reports, China currently owns 62.9% of this market.  

Six of the top 10 companies producing lithium-ion batteries are based in the country, with two companies – CATL and BYD – holding a 52.6% market share between them. CATL claims 36%, reporting an impressive cell output of 243.3GWh in 2023, while BYD occupies a relatively distant second place with 17% with an output volume of 117GWh.  

There are several reasons why China has achieved this dominance, although some argue that it’s less a case of China having the secret sauce and more due to the West’s inaction regarding lithium-ion battery production. Regardless of the West’s potential failings, China undoubtedly benefits from its investment in technology, market size, and industrial chain as well as its government’s targeted policies and subsidies.  

The country’s large-scale adoption of EVs has been one of the leading contributors to its dominance in the lithium-ion battery space. 35% of all car sales in China in May 2023 were electric, while the 6.2M EVs sold nationally in 2022 represent 59% of global EV sales.  

Further, China is also home to a prominent Tesla factory, with the EV pioneer’s site in Shanghai now outproducing its plant in California. Governmental support, meanwhile, has additionally played a pivotal role in growing the EV sector; in 2021, China’s largest automaker SAIC, received $598 million in state subsidies, for example.  

Critically, the Chinese government continues to support the switch to EVs in a variety of ways. In response to pressure from its own citizens and the global population at large to clean up its atmosphere and lower its global footprint, China now offers direct subsidies for EV manufacturers, reduced purchase tax, and has imposed no restrictions on EV purchase or use in first-tier cities and provincial capitals. Indeed, such strong legislative approval would be important for any country looking to expand its lithium-ion battery production as the process is relatively pollutive and requires government tolerance.  

Price has also been an important factor. According to a BloombergNEF report, China’s battery packs come in at US$127 per kilowatt hour, which is approximately a third lower (33%) than prices in North America and Europe. Even so, these prices relate to cost-effective lithium iron phosphate (LFP) batteries rather than more expensive lithium nickel manganese cobalt oxide (NMC) oxides with a longer range. These longer range NMC batteries are preferred in the European market, with Japanese and Korean manufacturers responding to this market gap, looking to compete with their continental neighbour by developing the next generation of batteries tailored to the demands of the West.  

As one of the most influential factors helping China win the so-called “battery arms race”, the country’s dominance in raw material mines equally shouldn’t be underestimated.  

China’s battery production is over 80% dependent on the import of nickel and cobalt from overseas. The mining fields in the Democratic Republic of Congo are the most abundant source of these materials – a country in which China has significant presence. In fact, cobalt specialist supplies Darton Commodities estimate that Chinese refineries supplied 85% of the world’s battery-ready cobalt last year.  

Indeed, any country looking to mount a serious challenge to China would need to compete at every stage of the production process, from the mining of raw materials to the production of consumer ready EVs, while simultaneously keeping costs low.  

Such a daunting prosect has led many potential competitors to decide that like-for-like competition is impossible, and they should instead focus on finding success through technological innovation. It is, therefore, perhaps unsurprising that BloombergNEF estimates that China’s battery production capacity will still be three times as much as the rest of the world combined by 2025.  

Introducing the market leaders  

It’s worth us having a look at some of those prominent battery specialists in the Chinese market, given their forecast prominence in this domain for years to come. Let’s begin with CATL. 

The Contemporary Amperex Technology Co Limited bills itself as the global leader in new energy innovative technologies. Established in 2011 by the same team who founded ATL (the world leaders in lithium-ion batteries), CATL has been ranked number one in the global EV battery market for seven consecutive years.  

The company is headquartered in Ningde, Fujian and has been involved in some exciting partnerships, participating in the construction of the world’s largest solar power plant in Zhangbei, and entering a strategic relationship with BMW that led them to open a subsidiary in Germany in 2014.  

In 2023, CATL achieved a cell output of 243.3GWh, a yearly increase of 48% – and it’s not stopping there. At present, the firm is looking to establish development centres in Hong Kong to underpin its technology exports, and in April 2024 revealed the Shenxing Plus. This new LFP battery offers a driving range of more than 1,000km on a single charge – the first LFP to achieve such a distance.  

Tesla’s biggest rival  

The second largest producer of lithium-ion batteries in China is also the world’s largest supplier of battery-powered EVs. In the fourth quarter of 2023, BYD overtook Tesla, producing 526,000 EVs compared to Tesla’s 484,000.  

Founded by Chemist Wang Chanfu in 1995 in Shenzhen, China, BYD has arms dedicated to batteries, mining, and semiconductors. It started manufacturing lithium-ion batteries in 1996 with just 20 employees and 2.5 million Chinese yuan in capital. Its timing turned out to be impeccable as this development coincided with the growth of mobile phones.  

One of the first companies to see the potential in the automobile industry, BYD acquired automaker Xi’an Qinchuan Automobile in 2003. Its first car, the F3, launched in 2005, and its first plug-in hybrid EV, the F3DM, was launched in 2008.  

Since then, the company has become one of the world’s leading producers of rechargeable batteries and participates throughout the entire supply chain, from mineral battery cells to battery packs. The launch of its Blade battery in 2020 ensured its dominance in EV manufacturing and in 2023, BYD sold 1.57 million battery powered EVs.  

BYD continues to improve its design and engineering as well as expanding overseas; in 2024, it launched the BYD BD11, a double-decker bus tipped to replace London’s Routemasters. With a maximum range of more than 400 miles and a 532KWh battering capacity, the BD11 would be the largest electric commercial vehicle to become available in the UK.  

Continued dominance or emerging competition?  

The global demand for lithium-ion batteries is increasing. The role these batteries play in both the energy transition and growth of EVs means they will be vital in the fight against climate change. Initiatives such as the UK ban on new petrol and diesel vehicles coming into force in 2035 will be just one of the many reasons why the industry is set to grow even larger in the coming years.  

An analysis by the McKinsey Battery Insights Team in 2022 projects that the entire lithium-ion battery chain, from mining through to recycling, could grow by over 30% each year to 2030. Revenues could also increase five-fold, from $85 billion in 2022 to over $400 billion in 2030.  

With its head start, market demand, and mature production infrastructure, China is likely to retain its dominance in the short-term. However, competitors may start to gain ground. China is predicted to account for 45% of the total lithium-ion demand in 2025, this forecast to reduce to 40% in 2030.  

At the same time, the US and Europe are expected to grow their own battery production capabilities with plans to build at least 120 new battery factories. Meanwhile, Japan and South Korea are developing new types of batteries such as hydrogen fuel cells, and recycling of raw materials and batteries could create new industries for nations worldwide.  

Indeed, China may have set the pace. However, the race is not over yet.

— Lew 👋

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