The battery industry chain involves the manufacturing of key materials, cells, packs, and battery management systems. China currently dominates the NEV battery industry chain, especially in raw material and cell production.
The global EV Battery market is valued at USD 32.50 Billion in 2022 and is projected to attain a value of USD 193.80 Billion by 2030 at a CAGR of 25.00% during the forecast period, 2022–2028. The new energy vehicle (NEV) industry is growing rapidly, driven by the push for sustainable transport and government policies promoting electric vehicles. At the core of NEVs is the power battery that stores energy and provides power to the electric motor. The battery industry chain involves the manufacturing of key materials, cells, packs, and battery management systems. China currently dominates the NEV battery industry chain, especially in raw material and cell production. However, overseas automakers and battery makers are catching up and pose competition for Chinese companies.
Material Supply Core battery materials include lithium, cobalt, nickel, manganese, and graphite. China produces over 70% of the world's lithium-ion battery-grade graphite and 45% of cobalt, giving it an early advantage in NEV batteries. However, Chinese graphite makers face cost and quality issues.
For lithium, Australia is the largest producer with 51% of global output in 2021, followed by Chile at 19%. Chinese companies control over 50% of global refined lithium chemical production that is used in cathodes. Several Chinese lithium companies have expanded abroad through acquisitions to secure supply.
For cobalt, the Democratic Republic of Congo accounts for over 70% of global cobalt mining, with much of it purchased and refined by Chinese companies. Automakers are reducing cobalt content due to cost and ESG concerns. Tesla uses no cobalt in its new cells while CATL and LG Energy Solution have launched low-cobalt NCM batteries.
For nickel, Indonesia is the largest producer with 25% global output in 2021, followed by the Philippines. Chinese manufacturers have moved to secure long-term supply agreements with Indonesian nickel producers.
Cell Manufacturing Chinese companies dominate global NEV cell production, accounting for 73% of capacity in Q1 2023. CATL is the largest cell maker with a 36% global share in 2023, followed by BYD and LG Energy Solution. Chinese cell makers benefit from lower costs and strong government support. However, they face challenges in technology and product quality.
Outside of China, LG Energy Solution, Panasonic, Samsung SDI, and SK Innovation lead overseas cell production. They supply automakers like Tesla, Volkswagen, BMW, and Ford. Several Japanese and Korean companies plan new cell plants in the U.S. and Europe to reduce supply chain risks and fulfill local content requirements.
Tesla manufactures its own cells at its "gigafactories" and plans to double capacity by 2022. It aims to develop "million-mile" batteries with higher energy density and lower cost. Other automakers are also expanding in-house cell production.
Battery Pack Production Most battery packs for NEVs are currently produced by automakers themselves or their suppliers. China's BYD, CATL, and Gotion High-Tech lead global battery pack output. However, overseas automakers are increasingly producing their own packs. BMW will produce over 100 GWh of battery packs in-house by 2031 while Volkswagen aims to produce over 220 GWh by 2030. Tesla currently makes all packs for its vehicles.
To optimize pack performance and cost, some battery makers are moving towards integrated cell-to-pack designs that eliminate modules. This makes battery designs more customized for specific vehicles.
Battery Management System (BMS) BMS chipsets and software monitor battery performance, optimize charging, and extend battery life. China's BMS market is dominated by companies like CATL, Great Wall Precision and Sunwoda. However, overseas automakers usually develop their own BMSes with support from chipmakers like NXP, Infineon, Renesas, and Texas Instruments.
Tesla's advanced BMS algorithms give it an advantage in battery lifespan and charging performance. Some battery makers are integrating BMS functions directly into cell designs.
China's Advantages and ChallengesChina currently dominates the global NEV battery industry chain due to:
• Massive market and government support: China's huge NEV market provides scale for battery makers and a strong incentive to invest in R&D. The government promotes the industry through subsidies, standards, and local content requirements.
• Lower costs from economies of scale: Chinese companies benefit from large production volumes that allow them to lower costs for materials, equipment, and labor.
• Strong focus on technology and innovation: Chinese battery makers invest heavily in R&D to improve energy density, lifespan, safety, and costs. They are developing "coast-down" and "million-mile" batteries.
However, China also faces challenges:
• Dependence on imported materials: China relies heavily on imports for key materials like lithium, nickel, and cobalt. Chinese material refining is energy-intensive and faces environmental issues.
• Competition from overseas automakers and suppliers: Automakers are increasingly making their own battery packs and components to ensure supply security and optimize performance.
• Concerns over technology and product quality: Some Chinese cells have issues with fire risk, thermal runaway, and lifespan. Overseas automakers prefer suppliers with a proven track record.
• Geopolitical tensions: U.S.-China trade tensions and supply chain security concerns pose risks for Chinese companies that sell to the U.S. and Europe.
While China currently dominates the global NEV battery industry chain due to its large market and aggressive investments, overseas automakers and suppliers are catching up. Chinese companies will need to improve materials supply, product quality, and innovation to maintain leadership in the future battery landscape. Government policies will also be critical for continuing China's dominance.
Overseas automakers and suppliers are catching up to Chinese companies. They are building more battery cell production capacity in regions like Europe and North America to gain more control over battery supply and reduce reliance on Chinese cell makers. Major companies like LG Energy Solution, Panasonic, Samsung SDI, and SK Innovation are constructing new cell plants outside of China.
At the same time, those companies are increasingly manufacturing their own battery packs and components to ensure supply stability and optimize performance for their specific vehicles. This requires investing in battery pack production lines and developing advanced battery management technologies. For example, BMW plans to produce over 100 GWh of battery packs in-house by 2031 while Volkswagen aims for over 220 GWh of in-house pack production by 2030. Tesla currently manufactures all packs for its electric vehicles.
Some non-Chinese battery makers are improving battery technologies to compete with Chinese companies. They are developing high-energy density cells, "million-mile" batteries with longer life spans, and cell-to-pack designs that can cut costs. For instance, Tesla's advanced battery management systems give it an edge in battery life and charging performance.
Governments in countries like the U.S., Europe, and Japan are supporting the development of local battery supply chains through subsidies, incentives, and initiatives. This helps boost battery production and innovation by non-Chinese companies.
In essence, major automakers and suppliers outside of China are establishing more localized and integrated battery value chains through their own production, technology development, and government policy support. These trends pose competition for Chinese battery and electric vehicle companies seeking to expand globally.
Automakers' investments in localized battery cell production and more self-manufactured battery packs are diversifying supply chains. This reduces dependence on Chinese suppliers and makes global EV production more resilient to disruptions. With more localized production capacity, automakers can tailor electric vehicles to meet the needs of regional markets.
As automakers develop their own batteries and technology, there will be greater innovation in areas like battery energy density, lifespan, and charging speed. This increased innovation and competition from non-Chinese companies can potentially drive down costs for electric vehicle consumers over time.
China's current dominance in the EV market may be challenged if companies outside China advance battery and vehicle technology faster. This could reshape the leadership structure in the global electric vehicle industry in the coming years.
Overall, the trends point to a shift toward a multi-polar global electric vehicle market with multiple production centers instead of one dominated by China. A balance of competition and collaboration among players from different regions will likely be needed for the industry's continued growth.
The trends pose both opportunities and risks for Chinese electric vehicle and battery companies. While competition will intensify, China's large market, manufacturing scale, and focus on innovation should help maintain its strengths in the global battery and EV landscape. But Chinese companies will have to adapt to the increasing diversification and localization of supply chains.