The world’s insatiable demand for batteries continues to shatter records, driven by plummeting prices due to reduced mineral costs and improved production efficiency, with China leading the charge. At the heart of the electric vehicle and renewable energy storage revolution, batteries have undergone significant transformations thanks to advances in materials chemistry, economies of scale, and manufacturing process enhancements. The shift towards more efficient technologies, such as lithium-iron-phosphate (LFP) batteries or solid-state batteries, is redefining the sector. However, the concentration of production in certain regions, like China, poses challenges for supply security and the competitiveness of other markets.
According to a report by the International Energy Agency (IEA), global battery demand surpassed one terawatt-hour (TWh) in 2024, largely driven by a 25% increase in electric vehicle sales, which reached 17 million units. Meanwhile, the average price of battery packs for electric cars dropped below $100 per kilowatt-hour, a crucial threshold for competing with internal combustion engine vehicles. One key factor in the cost reduction has been the decline in lithium prices, which have fallen over 85% since their peak in 2022. However, it’s not just the reduction in material costs that has driven this decrease, but also advancements in manufacturing. Global production capacity reached 3 TWh in 2024 and could triple in the next five years if all announced projects come to fruition.
The battery sector has transformed from a fragmented and regional market to a global industry. Competition is no longer based solely on technology, but on the ability to scale production, improve manufacturing efficiency, and quickly commercialize innovations. This has led to a consolidation process, with fewer players dominating the market and increasing pressure to geographically diversify supply chains.
China’s Dominance and the Path to Consolidation
China remains the world’s leading battery producer, with over 75% of batteries sold in 2024 manufactured in the country. Chinese prices fell by almost 30% that year, making electric cars in China cheaper than internal combustion engine models. China’s dominance can be attributed to four main factors: extensive manufacturing experience, vertical integration of its supply chain, a focus on more affordable LFP batteries, and fierce internal competition. Over 70% of all electric vehicle batteries produced to date have been made in China, enabling the rise of giants like CATL and BYD. These companies have optimized production and reduced costs faster than their rivals. Additionally, China’s battery ecosystem spans from mineral extraction to final electric vehicle production, facilitating innovation and cost control.
LFP batteries, initially considered less efficient than nickel-manganese-cobalt (NMC) batteries, have evolved to represent nearly half of the global electric vehicle market, thanks to their lower cost and durability. In parallel, competition among China’s nearly 100 manufacturers has forced a reduction in margins to maintain market share. However, this intense competition and thin margins could slow price decreases in the future. A reduction in the number of manufacturers in China seems inevitable, with some players gaining greater control over the market. Nonetheless, China is expected to remain the largest global producer in the medium term.
Europe’s Critical Moment in Battery Production
Outside of China, the European battery industry faces significant challenges. Production costs in Europe are 50% higher than in China, and the lack of a well-developed supply chain and specialized workers has hindered sector growth. The bankruptcy of Northvolt, Europe’s largest attempt at large-scale battery manufacturing, illustrates the difficulties in competing with Asian producers. To improve competitiveness, Europe needs to ensure sustained battery demand, allowing manufacturers to optimize processes and consolidate a strong industrial ecosystem. Clear policies that foster market growth and reduce investment risk will be crucial.
Korean manufacturers, who dominated 80% of Europe’s battery market in 2022, saw their share decrease to 60% in 2024 due to the entry of Chinese LFP batteries. In response, some Korean companies have started producing LFP batteries in Europe to directly compete with China. Furthermore, Chinese companies are expanding their presence in the continent, as exemplified by the partnership between Stellantis and CATL to manufacture LFP batteries in Europe.
The Global Race for Battery Production
Despite China’s dominance, other countries are expanding their production capacity. South Korea and Japan are key players in the industry, with significant investments in NMC batteries and overseas factories. South Korea leads international production with 400 GWh of capacity outside its territory, far surpassing Japan (60 GWh) and China (30 GWh). In the United States, battery manufacturing capacity has doubled since 2022, reaching 200 GWh in 2024, thanks to tax incentives. An additional 700 GWh is under construction. However, the country still relies on imports for critical materials like anodes and cathodes.
In Southeast Asia and Morocco, investment in batteries is on the rise. Indonesia, which produces half of the world’s extracted nickel, inaugurated its first battery factories in 2024. Morocco, with large phosphate reserves and a consolidated automotive industry, has attracted over $15 billion in investments for battery and component manufacturing since 2022.
Building a Battery Industry Involves Trade-Offs
Despite the rapid cost reduction and market expansion, the concentration of production in China has raised concerns about supply security. Recent Chinese restrictions on exporting key technologies for cathode and lithium production have heightened these fears. Diversifying global production requires significant investments and time to develop local supply chains. Sustained battery demand is essential to justify these investments, and the growth of the electric vehicle market will continue to be the primary driver.
Automation, digitalization, and innovation in manufacturing will be crucial for improving efficiency and reducing the cost gap with China. Strategic collaborations with established manufacturers can accelerate technology transfer and the construction of a competitive battery industry outside Asia. Ultimately, international cooperation will be key. Many individual markets are not large enough to justify massive investments in battery manufacturing, making it necessary to establish alliances with resource-rich countries like Australia, Indonesia, and nations in South America and Africa.
According to the IEA, the future of the battery industry will depend on countries’ ability to balance competitiveness, innovation, and supply chain security. In the coming months, the Agency will publish a special report on the automotive industry, including new analyses on the evolution of battery supply chains. For more information, visit the IEA’s commentary on the battery industry’s new phase.