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China will supply three-quarters of a global battery market of 1 TWh in 2024 and its dominance has enabled major cost savings and a potential shift to lithium iron phosphate (LFP) technology, according to the International Energy Agency (IEA). According to the IEA, the battery industry is entering a new phase of development characterised by global market expansion and gradual standardisation of technology. According to the global energy body , this will likely lead to further consolidation in a sector that is being reshaped by government efforts to geographically diversify battery supply chains. The global battery market is growing rapidly as demand increases and prices continue to fall. As final data for 2024 is expected, there has been a 25% increase in electric car sales to 17 million, and annual battery demand is estimated to have surpassed 1 TWh, a historic milestone . The average battery price for a pure electric car fell below $100/kWh last year, considered a key threshold for price competition with conventional cars. Cheaper minerals have also been a major factor in falling battery costs, with lithium prices down more than 85% from their 2022 peak. Advances in battery technology are also supporting the downward trend in prices. Global battery manufacturing capacity is expected to reach 3 TWh in 2024 and is expected to triple by 2029 if all announced production facilities materialize. Chinese dominance China produces more than three-quarters of the world’s batteries, and product prices will have fallen by almost 30% by 2024, according to the IEA, faster than anywhere else in the world. As a result, Chinese batteries cost 30% less than European ones and 20% less than American products, and many Chinese electric vehicles are cheaper than internal combustion engine alternatives. China’s highly integrated supply chain, below-market prices for critical minerals and the rise of manufacturing giants like CATL and BYD have seen the nation make more than 70% of all EV batteries in the world to date. A shift in focus to cheaper-to-make LFP batteries in China has also helped drive down costs. LFP devices power nearly half of the world’s new electric vehicles and cost around 30% less than the lithium-nickel-cobalt-manganese oxide (NMC) products that used to dominate. Intense competition among nearly 100 battery companies in China has also driven prices. While that is likely to lead to fewer competitors in the near future, the IEA expects China to continue to dominate global battery production by some distance. In other places South Korean and Japanese NMC battery makers are already major players in the industry, albeit primarily outside their own borders. The South Korean companies’ nearly 400 GWh of annual battery production capacity dwarfs the 60 GWh owned overseas by Japanese companies and the 30 GWh of overseas lines owned by Chinese entities. Since those overseas facilities are located in key automotive markets, it will be interesting to watch to what extent Korean and Japanese battery makers will pivot toward LFP. Known for their innovation, these companies are also attempting to develop new technologies, such as solid-state batteries. In the United States, annual battery manufacturing capacity has doubled since 2022, following the implementation of tax credits for manufacturers, reaching more than 200 GWh in 2024. According to the IEA, nearly 700 GWh of additional manufacturing capacity is under construction. Around 40% of existing battery manufacturing capacity is operated or has been developed by established battery manufacturers in close collaboration with car manufacturers. However, battery component production lines have progressed more slowly and most of the demand for anodes and cathodes continues to be met by imports. Demand for batteries for stationary applications has increased by more than 60% annually over the past two years, opening up a customer base beyond electric vehicles, albeit at a lower volume. Southeast Asia and Morocco are emerging as potential production hubs for batteries and their components, according to the IEA. In Indonesia, which produces half of the world’s nickel, the first plants for electric vehicle batteries and graphite anodes were planned to start production in 2024. Morocco has the world’s largest reserves of phosphate, a key mineral for LFP batteries, as well as an established automotive manufacturing industry and free trade agreements with the European Union and the United States. These factors contributed to more than $15 billion worth of investments announced in battery and component manufacturing in 2022. New production capacity Despite rapidly falling product prices and continued innovation, the degree of concentration in battery supply chains has raised security concerns among governments. Announcements such as China’s recently proposed export restrictions on lithium and battery cathode processing technology have further highlighted the issue. The IEA believes that efforts to expand battery production to new markets and reduce the cost gap with China require sufficient and sustained demand for batteries. Sales of electric vehicles, which currently account for 85% of the battery market, are the only driver that can create sufficient volume. Collaboration with established battery producers, through joint ventures or technology licensing agreements, could reduce the time and investment required to produce batteries outside China and develop domestic supply chains. Another important factor is international collaboration. Many markets may not be large enough to justify a large investment in manufacturing batteries and their components. In such cases, closer collaboration with EV and battery manufacturers may be necessary, in addition to cooperation with resource-rich countries such as those in South America and Africa, Australia and Indonesia. |
