Competitive Market:

The battery industry is currently a hot topic, amid growing global climate challenges that require avoiding carbon emissions and accelerating energy transition to achieve ambitious climate objectives. The battery industry supports opportunities for global electrification and energy storage to flourish, where batteries would play the biggest role as the key component in many industries, such as electric vehicles and electronics. In this context, international competition within the industry is intensifying, with both manufacturers and producers in several countries seeking to increase their share of the battery market, despite China’s dominance over the industry, beginning with extracting the critical minerals used to manufacture batteries and continuing through the process of refining, processing, manufacturing, and production.

A 90% drop in the price of lithium-ion battery packs has contributed to the attractiveness of the battery industry over the last decade, which in turn has helped fuel the growth of the industry’s supply and demand such that investment in various applications that serve the industry has become economically feasible for many countries. As a result of this rapid growth, international competition within the industry has emerged in the form of increased sales, innovation of new production methods, and the adoption of stimulus policies whose goal, first and foremost, is to boost a country’s place in the global battery industry.

Competition Metrics

Several metrics point to the international competition within the battery industry, the most significant of which can be presented as follows:

1. Growing European interest in critical minerals as a basis for the manufacture of batteries: In 2021, European battery sales increased by 65%, and the continent boasted seven of the top ten countries in the battery industry in 2021, namely, Germany, France, the UK, Norway, Italy, Sweden, and Holland. Battery sales in Germany increased 72%, as it hosts some of the largest electric vehicle factories in Europe, and giant companies such as Tesla, Volkswagen, and Chinese battery giant CATL plan to operate huge factories there.

In the framework of Europe’s eagerness to boost its presence in the global battery industry, the EU recently passed the Net-Zero Industry Act and the European Critical Raw Materials Act, as a step in the right direction toward supporting Europe’s lithium-ion supply chain. Both laws aim to provide European companies access to battery minerals and remove barriers to the development of these resources and finished products in the EU, especially since the law includes several battery minerals on the list of critical raw materials, including lithium, cobalt, nickel, manganese, and natural graphite.

At another level, Europe is expected to expand into the lithium-ion battery market, given its increasing use and production of electric vehicles, consumer electronics, and energy storage systems, and European governments have adopted supportive policies, including tax exemptions for purchasers of electric cars. The increased demand for electric vehicles in turn supports increased demand for the lithium-ion batteries used in the manufacture of this type of vehicle.

2. China’s global dominance over the battery industry: China currently owns 77% of the global production capacity of lithium-ion batteries, followed by Poland and the US at 6%, while Europe, including non-EU member countries, accounts for 14% of the total share. This highlights China’s sweeping domination of the global battery industry. At the same time, China is also the biggest market for electric vehicles, with its sales of electric vehicles amounting to 52% of total global sales.

China also owns six of the world’s ten largest producers of batteries for electric vehicles. The country’s dominance does not end with the manufacture of batteries but extends to the industry’s entire supply chain, beginning with the extraction of the critical minerals used to manufacture batteries and ending with the production of electric vehicles. China’s rapid growth in this market may be due to government policies and incentives that pushed the country to achieve that position in the global battery industry.

3. American efforts to build new supply chains for the electric vehicle market: Although the US battery market is small compared to China’s, the market itself is continually growing. In 2022, 810,00 electric vehicles were sold in the US, compared to 488,000 in 2021.

The US is taking calculated steps to counter China’s control over the production of electric car batteries, especially given the current concerns about a global shortage of the key minerals used in manufacturing, as well as labor violations in African mines. Thus, on January 18th, the US signed a memorandum of understanding in which the US State Department pledged to help build a new supply chain for electric car batteries in Congo and Zambia. The MOU’s goal is to transform the two countries from mere mineral extraction sites into centers for processing, manufacturing, and assembling batteries so as to create a supply chain able to compete with China.

4. Increasing opportunities for Asia in battery market share: China, South Korea, and Japan make up the East Asian "Battery Triangle." Currently, China completely dominates the global output of LFP batteries, while Japanese and Korean companies lead the global production of NCM/NCA batteries.

Although the US and Europe are making efforts to increase their domestic battery production, Asian suppliers largely dominate the market. Chinese companies make up 56% of the electric car battery market, followed by Korean companies at 26%, and Japanese manufacturers at 10%. The attractiveness and competitiveness of the East Asian countries may be due to their being essentially a global manufacturing center for consumer electronics, such as computers and mobile phones, whose manufacture depends on lithium-ion batteries. Among the leading battery manufacturers with booming sales are Japan’s Panasonic and South Korea’s Samsung SDI and LG Energy Solution.

5. Taiwan’s attempts to strengthen its battery industry: Taiwan is trying to enhance its exploration, production, processing, and refining operations, particularly since it has spent years developing its lithium battery industry by amassing technical skills, manufacturing expertise, and a complete supply chain.

On March 10th, Taiwan established the first Li-ion Battery Industry Association in order to stimulate the state’s industry by promoting domestic usage of recycled materials and batteries and encouraging relevant industries to participate in the full flow of operations, thus creating a circular economy within a sustainable industry. The association intends to benefit from collaboration between industry, academia, and research institutes in order to achieve a sustainable industrial ecosystem that focuses on recycling resources, takes advantage of vertical links and horizontal integration, accelerates industry expansion, and raises the industry’s competitiveness.

Compelling Incentives

Many countries are trying to seize opportunities to establish their presence within the battery industry and increase their manufacturing and production share in the global battery market. The most significant reasons for this include the following:

1. Key and costly component of the electric vehicle industry: The electrification of the transport sector is a key component of the transition to clean energy; however, the battery typically accounts for about a third of the cost of electric vehicles, making it the most costly component in the manufacture of electric vehicles. Thus, increasing the ability of countries to control the supply of batteries to car manufacturers, shielding them from the high cost of buying the batteries needed in many industries, and increasing their revenues, especially since we are in the first decade of the era of the electric vehicle industry, supports their survival in the industry at this early and unstable stage.

2. Various pressures on supplies of critical minerals: Batteries require a combination of raw materials and critical minerals, but the various pressures on critical mineral supplies are a major impediment to the availability of sufficient supplies to assist in the production and manufacturing of batteries. Given the major importance of batteries as a key component in many industries, the incentives for countries to enhance their presence in the battery industry increase year by year. This supports the competitive trend within the battery industry, which is evident in countries’ ongoing efforts to increase their share of critical minerals so as to guarantee a complete supply chain that, first and foremost, serves their battery industry and also shields them from various pressures on mineral supplies, especially given China’s dominance over them.

3. Supporting element for energy transition: With the global push to eliminate carbon and the desire to achieve sustainability in order to accomplish energy transition and reliance on electric vehicles, the global demand for batteries is expected to continue to increase in the coming years. The production capacity of lithium batteries is expected to increase by a factor of eight by the year 2027. Batteries—along with other solutions, especially interconnections within the power system networks used to generate solar and wind energy—are an essential support for the electrification of the entire transport sector, and subsequently for energy transition and carbon removal. This motivates countries to compete for a privileged position within that industry.

4. Expected growth in the size of the lithium battery market: The battery energy market is seeing a major boom, with increasing global sales of electric vehicles. The world’s ten largest battery manufacturers account for more than 90% of the total installed battery capacity, calculated according to battery capacity. This indicates strong competitors within the industry, and countries interested in the industry are well aware of this.

The global lithium-ion battery market is projected to grow at an annual compound growth rate of 10.7% from 2023-2028. The global lithium-ion battery market is also expected to grow during that period due to increasing dependence on electric vehicles. The increase in electric vehicles and investments by manufacturing companies may also support greater production capacity in the industry, thus enhancing the market’s growth in coming years, which may prompt countries to increase their investments in this field as it is at once profitable, important, and urgent.

5. Growing sales of consumer electronics: The high level of income in many countries, the low cost of consumer electronic devices, and their easy availability throughout the world, lead to increased demand for consumer electronics with long-life batteries. Thus, incentivizing battery production is an urgent necessity in many countries, especially in light of the growing competition among consumer electronics manufacturers as more key players choose lithium batteries for their products.

Cooperative Space

In conclusion, the battery value chain has huge opportunities given its unprecedented growth, especially in light of the international competition within the industry. The global expansion of the industry has the potential to generate more than USD 400 billion in value chain revenues by the year 2030, which would create 18 million jobs along the entire value chain and eliminate the approximately 70 gigatons of CO2 that would result from cumulative land transportation emissions if such emissions were to continue until the year 2050. According to a McKinsey analysis, the global demand for lithium batteries is expected to rise over the next decade, along with an increase from 700 gigawatt hours in 2022, to 4.7 terawatt hours by the year 2030. This will contribute to a 30% increase in the industry’s annual growth from 2022 to 2030.

Nevertheless, challenges in the industry require interested countries to make rigorous efforts, promote partnerships between the public and private sectors, and find spaces for international cooperation in the battery industry, even if competition is necessary to establish presence. For example, a shortage of the manufacturing equipment, construction materials, and skilled labor needed to increase battery production causes major delays for many battery cell factories—a  situation that can be resolved, or at least mitigated, through vertical supply chain integration and long-term contracts.

Furthermore, the potential shortage of the critical minerals used in the battery industry is another challenge that requires both private manufacturers and governments to find solutions and mitigate effects by renewing their strategies and operations with an eye to economy, transparency, sustainability, and circularity. Manufacturers must build or re-establish a growth agenda for the battery industry based on economic feasibility to ensure its implementation and strive for ongoing innovation in productivity and decarbonization. At the same time, various partnerships must be established with battery manufacturing countries, and cooperation spaces must be created that help each active country be a pivotal part of the industry’s final supply chains.