China and vehicle batteries: Vying for dominance in an estimated USD $24 trillion market?

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  Quantumrun Foresight
• March 13, 2022

Insight summary

China's mastery over electric vehicle (EV) battery production has not only shaped the global automotive landscape but also ignited a race for technological advancement and strategic positioning. Leveraging its control over essential minerals and a history rooted in lithium-iron-phosphate (LFP) technology, China's dominance affects pricing, availability, and the overall growth of the EV market. The far-reaching implications include shifts in labor markets, international trade dynamics, environmental challenges, consumer preferences, and a greater emphasis on recycling and waste management within the industry.

China and vehicle batteries context

Current innovation in next-generation electric vehicle production will determine the ability to commercialize and mass-produce electric vehicle batteries. Still, China’s dominance in the production of EV batteries is rooted in history. The invention of a battery formulation in the 90s called lithium-iron-phosphate (LFP) by John Goodenough, an American professor, has been integral in China’s prolific production of batteries. Furthermore, thanks to a decision by a Swiss-based patent-holding consortium that restricted China’s use of LFP batteries to their local market, China maximized the opportunity to manufacture these batteries without paying exorbitant licensing fees.

With an estimated market value of USD $200 billion, China's top car battery maker, Contemporary Amperex Technology Ltd (CATL), was first to market with its next-generation sodium-ion battery and unveiled plans to set up a supply chain in 2023. The innovation was driven by resource availability as demand for cobalt—a key ingredient in lithium-ion batteries and used in longer-range EVs—spiked in 2020, resulting in a 50 percent price increase over six months.

The vulnerability of the car battery manufacturing industry in the US and Europe is further hampered by China, which has secured its supply chains by investing directly in cobalt mining operations and signing long-term supply agreements for the resource. 

Disruptive impact

With the majority of rare earth elements and critical minerals required for battery production, China has positioned itself as a key player in the supply chain. This dominance can lead to a reliance on China for these essential components, potentially affecting the pricing and availability of EV batteries. For countries and companies outside China, this reliance may lead to challenges in securing a stable and cost-effective supply, thereby affecting the overall growth of the electric vehicle market.

The expiration of LFP patents and the interest of Western car manufacturers in LFP technology may seem like a shift away from China's dominance. However, China's extensive experience and established infrastructure in battery production could still keep them ahead in the game. This trend can influence the strategies of governments and companies, encouraging them to invest in domestic production capabilities or form strategic alliances. 

China's leadership in battery production also has broader socio-economic and environmental impacts. The country's focus on cleaner energy aligns with global efforts to reduce carbon emissions, and its dominance in battery production can drive technological advancements in energy storage solutions. This leadership not only supports China's own transition to a greener economy but also sets a precedent for other nations. 

Implications of Chinese battery dominance

Wider implications of Chinese battery dominance may include: 

• The potential for China to set global standards in battery technology, leading to a uniformity in production methods and technology adoption that may limit differentiation among manufacturers.
• A shift in labor markets towards specialized skills in battery production and related technologies, leading to a need for retraining and education in countries aiming to compete with China.
• The creation of new alliances and trade agreements between countries seeking to reduce dependence on China's battery supply, leading to a reconfiguration of international trade dynamics.
• An increased focus on domestic mining and processing of essential minerals for battery production, leading to potential environmental challenges and stricter regulations in countries outside China.
• The potential for consumer preferences to shift towards EVs equipped with specific battery technologies, leading to changes in marketing and sales strategies for automotive companies.
• Governments outside China investing more in research and development of alternative energy storage solutions, leading to a diversification of technologies and potential breakthroughs in energy efficiency.
• A possible increase in electronic waste as countries ramp up battery production to meet demand, leading to a greater emphasis on recycling and waste management practices within the industry.

Questions to consider

• China's continued domination of battery manufacture may embolden its geopolitical power and strategic decision-making to export electric vehicles only and not batteries. How do you think the US and European countries should mitigate this risk?
• Chinese companies have invested heavily in cobalt mining and securing this essential battery metal supply chain, while no Western company has made similar investments. Why do you think western companies have not actively invested?