EV batteries: Can the West catch up with China?

The Shanghai Auto Show is opening its doors to car enthusiasts all over the world on Tuesday, after it was canceled last year due to China's strict zero-COVID curbs.   

A slew of Chinese and foreign automakers taking part in the event are girding to impress the visitors by unveiling their latest models and technologies, particularly electric vehicles (EVs).

Chinese firms, including BYD, Geely and Nio, will display a bevy of electric vehicles, with which they aim to cement their already formidable position in the world's largest auto and EV market.

It shows how EVs have come to steal the show in the global auto scene amid carmakers' ambitious e-mobility plans and support from governments worldwide against the backdrop of growing concerns over climate change.

The Biden administration in the United States, for instance, is proposing new rules to cut pollution from automobiles, which would require as many as two-thirds of new vehicles sold in the United States to be electric by 2032.

That would be a nearly tenfold increase over current electric vehicle sales.

The EU, meanwhile, aims to speed up the switch to EVs by effectively banning the sale of new petrol and diesel cars in the bloc from 2035.

Demand for EV batteries to skyrocket

News agency Reuters estimates that the world's top automakers are planning to invest nearly $1.2 trillion (€1.08 trillion) in EVs and batteries through 2030.

And according to the International Energy Agency, the share of battery-powered cars in total auto sales worldwide will jump from about 10% in 2021 to more than 60% by 2030.

All these tens of millions of vehicles will need plenty of batteries — the single most-expensive component in an electric vehicle, accounting for about 30-40% of its cost. 

Given the anticipated surge in demand, governments and companies are racing to secure adequate supplies.  

But there's one country that's clearly in the lead when it comes to battery tech: China.

The Asian giant dominates battery production, accounting for almost 75% of global manufacturing capacity, according to BloombergNEF.

Chinese firms also control various stages of the supply chain — from mining and refining to final assembly.

China's dominance of the sector stems from the fact that the Chinese government has prioritized electric vehicle technology for years, spending billions of dollars in government subsidies and tax breaks to support the sector.

It has also promoted the setting up of EV infrastructure and encouraged people to buy EVs instead of combustion-engine cars.

"Beijing has signaled early on that electric vehicles will be a strategic national priority, inducing Chinese firms to invest in mining, raw material refining and battery technologies," said Gregor Sebastian, a researcher on China's industrial policy at the Berlin-based Mercator Institute for China Studies (MERICS).

"As China is by far the world's biggest car market this is a huge incentive for Chinese firms to enter the sector. In addition, China's strong manufacturing base and efficient logistical system have allowed firms to quickly scale up production."

No green transition without Chinese batteries?

Many Western automakers like Tesla and General Motors currently rely on Chinese firms like Contemporary Amperex Technology Co., (CATL) — the world's biggest producer of EV batteries — for their battery needs.

Ford Motors recently announced that it's licensing CATL's lithium-iron-phosphate technology for use in a new battery plant it will set up in the US state of Michigan.

The deals show that foreign automakers who want to ditch their gas-guzzling internal combustion engines for electric ones won't be able to do it without turning to Chinese-made batteries.

But they have also drawn criticism from some in the West.

US Senator Marco Rubio, for instance, urged the Biden administration to review Ford's licensing tie-up with CATL. 

"EV batteries have already become a point of geopolitical tension between China and the West," said Tu Le, managing director of Sino Auto Insights, a business consulting firm that specializes in transportation.

He pointed out that the Biden administration, with the Inflation Reduction Act (IRA), is trying to take Chinese battery cells out of US EV manufacturing supply chains for vehicles manufactured in North America.

The IRA funnels some $370 billion into subsidies for energy transition, including tax breaks for US-made EVs and batteries.

To be eligible for the incentives, companies must source a certain percentage of the components and minerals for EV batteries from the US or its free trade partners.

Tu remains skeptical that Washington's efforts will succeed. 

"No matter how much the US government tries to eliminate China from US supply chains, automakers that are manufacturing in the US will still need supply from Chinese battery cell manufacturers, likely from China, if they are to reach any of the pricing and production targets through 2030," he said.

How does EU fare in battery tech?

The EU has also been pushing for a domestic EV battery industry for years. In 2017, the bloc launched the European Battery Alliance to kick-start local production. The goal was to get European suppliers to meet 90% of the region's battery needs by 2030.

"European countries like Germany have important technologies for certain parts of the EV battery tech value chain, for instance in recycling, and have been at the forefront of trialing new battery chemistries like sodium-ion batteries," said Sebastian.

But he stressed that Europe's battery industry lacks scale and faces difficulties to bridge the gap from initial development to widespread commercialization. "In certain parts of the value chain, like the refining of raw materials, Europe is almost entirely dependent on East Asian firms."

Companies like Volkswagen (VW) have plans to invest in mines to secure raw materials for battery making.

As part of its €180 billion ($199.8 billion) five-year spending plan, VW has allocated up to €15 billion for its three announced battery plants and some raw material sourcing.

Some EU countries like Hungary, meanwhile, have been wooing foreign manufacturers, including Chinese ones, to set up battery plants.

"European firms can catch up, but it will be an uphill battle," said Sebastian. 

"The EV battery industry remains in flux. European firms' best bet to overtake China would be on new, upcoming technologies like solid-state batteries that are not yet dominated by any firm."

Edited by: Uwe Hessler