EV Batteries – A Global Fight for Regional Sovereignty
Marc Amblard
Senior Advisor on the Mobility Revolution & Autotech | Based in San Francisco
It is evident that electrification is the long-term solution for mobility — even if the growth path will not be linear as we are currently observing. EVs play a significant role in addressing global warming and provide significant benefits to customers. Therefore, the EV battery supply chain must be massively developed in ways that safeguard the economic sovereignty of each region.
?China’s domination in the battery supply chain has been well documented. Chinese companies hold controlling interests in many critical mines around the world and they dominate the world in the processing of these minerals in China. They are also the clear leader in EV battery production with over 80% of global volumes in 2023.
?This economic powerhouse has also proven its industry can produce EVs with a massive cost advantage vs. its US and European counterparts. As analyzed in my recent article China's Global EV Ambitions — The West Must Act, China has started to leverage its large EV production overcapacity to gain significant market shares abroad, focusing on Europe. The same strategy can and will be applied to EV batteries, requiring a forceful reaction from Europe and the USA.
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?China’s Overcapacity is Leading to a Price War
China’s installed lithium-ion battery capacity amounted to 905 GWh at the end of 2023. This is enough to equip approximately 14 million battery EVs, i.e., 40% more than the volume sold in the world in 2023. By comparison, Europe and the USA trail far behind with around 50 GWh each.
?This leaves the global industry with significant overcapacity combined with a dangerous regional mismatch. Moreover, the problem will very likely amplify with planned cell production capacity expected to reach by the end of 2025 over five times the 1.5 TWh global demand for that year according to BNEF.
?China seems willing to repeat the tactic deployed with solar panels over a decade ago. EV battery overcapacity in China has already triggered a domestic price war. Reports indicate Chinese producers are pricing their LFP cells at an astonishing $47 per kWh. This will result in domestic consolidation as well as strong price pressure on global markets. Naturally, this can be a deterrent for investments in new capacity in Europe or the USA.
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?Europe and the USA Race to Gain Independence from China’s Domination
Growing trade tensions between the USA and Europe on one side and China on the other accelerate the deployment of measures intended to facilitate the installation of new battery capacity in the west. They include both sticks and carrots.
?In the past few weeks, the USA and Europe announced significant increases in tariffs applied to Chinese products. In the USA, the tariff rate will increase this year from 7.5% to 25% for lithium-ion EV batteries, and from 27.5% to 102.5% for EVs. Similarly, the EU announced a boost of its tariff rate from 10% to up to 48% on EVs, though no change so far for batteries.
?These tariffs join a set of incentives aimed at boosting local battery production. Under the USA’s IRA (section 45X), EV cells produced locally benefit from a subsidy of $35 per kWh. In addition, federal retail incentives for new EV depend on the origin of their battery cells and the components therein, with up to $7,500 per vehicle.
?Both the USA and Europe have created massive funds with tens of billions of dollars to foster the development of independent, regional battery supply chains from mineral mining to cell manufacturing.
The two regions are now even competing for gigafactory projects. This was best demonstrated with the back-and-forth movement by Sweden-based Northvolt which pitted Germany against the USA to maximize subsidies, eventually getting 900m€ from Germany.
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?A Fight for Regional Domination
China’s CATL and BYD FinDreams are currently #1 and #2 globally with respectively 37% and 16% market share in 2023. They are planning massive investments abroad to maintain their global leadership. For instance, CATL has established or announced cells production units in Germany, Thailand, Hungary, Indonesia, and Spain (with Stellantis), as well as licensing deals in the USA. The company just reshuffled its management team to accelerate its global deployment.
?Likewise, Chinese producer Gotion (8th largest global player) is planning to build new capacity in the USA and Morocco. The company is aiming for 300 GWh in total installed capacity by 2025, of which a third will be located outside China.
?Yet this deployment will be met with a fight with local producers. In Europe for instance, Chinese players face Sweden-based Northvolt and France-based Verkor which have respectively raised 14 b€ and close to 4 b€ as independent companies. ACC, the JV between Stellantis, Mercedes and TotalEnergies, should also be mentioned.
?Korean and Japanese battery makers represent another set of competitors. LG Energy Solutions, Panasonic, SK On and Samsung SDI ranked #3, 4, 5 and 7 globally in 2023 with 14%, 6%, 5% and 5% global market share respectively. These companies are building capacity around the globe, often in partnership their OEM, such as Panasonic with Tesla and GM, SK On with Ford, or Samsung SDI with Stellantis. However, Korean makers are late in the LFP segment.
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?Battery Tech Plays a Key Part in the Global Competition
China’s strategy is not only about dominating global production but also about leading in new cell technologies to sustain their domination.
?European and N. American OEMs are still overwhelmingly using nickel-manganese-cobalt cells in their EVs. NMC offers higher performance (e.g., energy density) but cost more than lithium phosphate iron (LFP) cells. The latter represented over 60% of installed capacity in China vs. less than 10% in Europe and the USA in 2023 according to the IEA.
?Chinese companies were first to produce LFP cells at scale. CATL and BYD now hold a quasi- monopoly whereas almost all OEMs want to deploy this chemistry. Note that the tech was first developed in the West where it was deemed to offer insufficient performance. Now, Europe and the USA are rushing to deploy LFP in order to reduce the cost of their EVs.
?Other next-gen chemistries seem to present a more balanced score card between the regions. This is the case for instance for sodium-ion cells which offer lower energy density but cost even less than LFP cells. At the 2023 Shanghai motor show, BYD presented a 30-kWh pack option using its own sodium-ion cells fitted on a Seagull, a small car starting around $10k — the pack has not been launched yet. For this technology, western companies do not seem as far behind as for LFP.
?In order for western OEMs to catch up / keep up on the tech side, they are investing in and partnering with startups. For instance, this is the case for Stellantis with Tiamat (sodium ion), LytEn (lithium sulfur), and Factorial (solid state).
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The on-shoring of cell production and development of independent supply chains represent strategic imperatives for Europe and the USA as mobility will be electric and trade tensions show no sign of easing.
?Yet, the fast technology shift from NMC to LFP — and eventually sodium-ion and solid state — along with fast dropping prices for Chinese cells and some jitter in EV demand growth led to the recent delay of several battery projects in Europe and the USA. All stakeholders must continue to plan for the long term while boosting their capacity to adjust plans in the near- to mid-term. Easier said than done with multi-billion dollar projects!
Marc Amblard / Founder & Managing Director, Orsay Consulting
Orsay Consulting is a boutique advisory firm based in Silicon Valley and focused on mobility and autotech. We provide global startup and tech scouting thanks to our proprietary repository(curated information on 4000+ companies across the globe incl. 90%+ startups), deep market insights, executive workshops, keynotes and strategic advisory services to corporate clients. We also advise several startups in the USA and Europe.
Previous articles published in Mobility Revolution since 2016:
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6 个月https://www.fiverr.com/s/6Y7j6KN
International Executive Manager - Industrial Projects /Transfers and Transformation/ Manufacturing Engineering / Production Launches / Automotive.
8 个月Love this
Senior Advisor bei Enzinc
8 个月Very good and profound insight Marc, like always ??
Consul général de France au Liban chez Ministère de l'Europe et des Affaires étrangères
8 个月Très intéressant et si utile pour notre avenir commun !
Great update on this "situation" we are in. The recommendations are absolutely sound, but this is something that was easy to see coming - once again. Growing up in the heart of the auto industry in the US (Detroit) should've taught everyone just how things will go when arrogance and myopic business goals are at the top of the business agenda. It is largely our own fault we're behind. Period. I personally saw this kind of cultural problem cycle for decades, creating devastating boom and bust cycles. Long-term planning is not exactly the West's forte, but it seems as if getting kicked in the teeth regularly is the only thing that moves us to act. It's a tiring ritual, and one that 100% tariffs won't fix.