China’s lead in battery manufacturing is expected to continue for years to come!
Currently, China has about 77% share in the global lithium-ion battery production capacity, followed by 6% share of Poland and US each. Europe (including non-EU members) makes up 14% share in aggregate.
With the global push for decarbonization and sustainability through energy transition to renewables and EV adoption, demands for batteries will continue to increase in the coming years. Li-ion battery production capacity is projected to increase 8x by 2027. China is likely to enjoy its dominance with around 69% share in the even bigger battery market in 2027. US and Europe (with 6 countries in the top 10) will also have greater shares – 10% and 13% respectively.
China’s dominance comes from its leadership in:
- EV market: China is the largest EV market with around 52% of global EV sales in 2021 driving the local Li-ion battery demands
- EV battery production: China has 6 out of 10 world’s largest EV battery producing companies
- Vertical integration: China dominates not just battery manufacturing but the entire supply chain from mining of metals used in batteries to producing EVs.
- Productivity: China’s global dominance in production comes from its innovation and productivity which drive costs down and sales up. Economies of scale from higher sales, local demand and vertical integration gives China the competitive advantage.
The infographics from Visual Capitalist provide great visualisation of China’s dominance in the battery manufacturing capacity and related industries and markets.
While the US and Europe are making all endeavours to increase their domestic production of batteries, the market is still dominated by Asian suppliers. As the following graphic from VC highlights, the top 10 producers are all Asian companies. Currently, Chinese companies make up 56% of the EV battery market, followed by Korean companies (26%) and Japanese manufacturers (10%). The leading battery supplier, CATL, with one-third of the market share provides lithium-ion batteries to Tesla, Peugeot, Hyundai, Honda, BMW, Toyota, Volkswagen, and Volvo.
Another graphic from the VC summarizes the 25 year history of Lithium production by country. While US accounted for over one-third of the global Li production in 1995, its share has reduced to 1% by 2021. Chile dominated until 2010 as the biggest Li producer. With global production quadrupled since 2010 to 100k tonnes in 2021, Australia has now become the largest producer with 52% market share, followed by Chile (25%) and China (13%). The three countries make up around 90% of the total lithium production.
Recent years have seen an exponential growth in EV sales. During early EV days (2011-2015), US led the sales accounting for one-third of all sales. US made a comeback with its EV sales more than doubling in 2021 supported by a 24% increase in EV model availability and production of Tesla models (which accounted for half of US EV sales).
China’s growth has accelerated by government policies and incentives propelling it to top in 2015. It sold more EVs in 2021 than the rest of the world combined. China has nearly 300 EV models, 4 of the world’s 10 largest battery manufacturers, and EV price just 10% more than conventional cars (compared to 45-50% on average in other major markets).
Europe has been consistent with sales increased by 65% in 2021. 7 out of top 10 in 2021 are European countries (Germany, France, UK, Norway, Italy, Sweden and Netherlands) – remaining 3 are China, US and South Korea. In Germany, sales increased by 72%. Germany hosts some of the biggest EV factories in Europe, with Tesla, Volkswagen, and Chinese battery giant CATL either planning or operating ‘gigafactories’ there.
It is logical that the manufacturers are located in regions which have high demand for EVs and access to raw materials. However, as the EV demand and battery manufacturing expand, it is important that the countries work on developing and diversifying the battery / raw material supply chain. This is an important lesson repeatedly learned for fossil fuels and reinforced by the current global scenario to ensure future transition to cleaner energy and decarbonisation.
Batteries are essential elements of EV and energy transition:
- In power systems, batteries (along with other solutions particularly system interconnections) are answers to the intermittency of solar and wind power generation.
- Electrification of transport sector is a key component of transition to clean/renewable energy and decarbonization, and the battery usually accounts for about one-third of an EV cost.
The concentration in battery manufacturing market therefore can have important implications in future for EV transition and energy transition, in terms of both price and security of supply.