The global battery manufacturing industry is undergoing a significant transformation as nations strive to secure their positions in the burgeoning electric vehicle (EV) market. In North America, major automakers and battery technology companies are making substantial investments to expand battery manufacturing and EV production. Despite these efforts and supportive policies like the U.S. Inflation Reduction Act (IRA), China's dominance in battery manufacturing is projected to persist.
North America's battery production is booming, with automakers like BMW, Ford, GM, Hyundai, Tesla, and Volkswagen leading the charge. BMW is investing $1.7 billion in South Carolina for EV production and battery facilities, partnering with AESC on a cell plant. Ford's joint venture with SK On, BlueOval SK, is building three battery plants in Kentucky and Tennessee and developing an LFP plant in Michigan using CATL's technology. GM, alongside LG Energy Solutions, is establishing three U.S. battery plants, collaborating with Samsung SDI on another, and working with SolidEnergy Systems on high-capacity batteries. Hyundai, with SK On and LG Energy Solution, is constructing battery plants in Georgia to support 300,000 EVs annually. Tesla is expanding its Nevada Gigafactory and adding a 4680 cell factory to supply batteries for 1.5 million vehicles. Volkswagen's PowerCo SE is setting up battery factories in North America, including Canada. Battery tech companies are scaling up too: AESC is building three U.S. facilities; LG Energy Solution is massively expanding in Michigan and Arizona; Northvolt is opening its first North American gigafactory; and Panasonic is investing $4 billion in a Kansas factory and expanding in Nevada.
China's Unmatched Lead in Battery Manufacturing
Despite these significant investments, the United States faces an uphill battle in challenging China's entrenched position in battery manufacturing. In 2022, China accounted for approximately 77% of the global battery cell manufacturing capacity, with around 893 gigawatt-hours (GWh). The U.S., by contrast, held about 6% of the capacity, totaling 70 GWh.
Projections for 2027 indicate that China's battery manufacturing capacity will reach 6,197 GWh, maintaining a dominant 69% share globally. The U.S. is expected to increase its capacity to 908 GWh, which would represent about 10% of the global total. Even with the IRA's incentives aimed at boosting domestic production, the U.S. is unlikely to close the gap significantly within this timeframe.
China's dominance stems from its early and comprehensive investment across the entire battery supply chain. The country not only manufactures batteries but also leads in producing key battery components such as anodes and cathodes and processes critical minerals like lithium, cobalt, and graphite. This vertical integration allows China to achieve economies of scale and lower production costs, making it challenging for other countries to compete.
Global Overcapacity and Market Challenges
The global battery industry is currently facing an oversupply in manufacturing capacity. BloombergNEF estimates that while lithium-ion battery demand was around 950 GWh last year, the global manufacturing capacity was close to 2,600 GWh. By 2025, announced manufacturing capacity could reach 7.9 terawatt-hours (TWh), far exceeding the projected demand of 1.6 TWh.
This oversupply is leading to falling battery prices and increased competition. Established Chinese manufacturers like CATL and BYD continue to innovate and reduce costs. CATL, for example, expects to sell battery cells at less than $60 per kilowatt-hour this year. Such competitive pricing makes it difficult for new entrants, including those in the U.S., to gain market share even with government incentives.
The overcapacity issue is compounded by the fact that battery manufacturing is more straightforward to scale up compared to the mining and processing of essential raw materials. As a result, while battery production capacity is increasing rapidly, the supply of critical minerals may not keep pace, potentially leading to future supply chain bottlenecks.
Implications for the United States
The United States' efforts to onshore the lithium-ion battery supply chain face significant challenges. The current global oversupply means that U.S. manufacturers must compete with established players who have lower production costs due to scale and supply chain control. Even with the IRA's support, the high costs of domestic labor, materials, and the complexities of establishing a vertically integrated supply chain present obstacles.
To enhance its competitiveness, the U.S. would need to invest heavily not just in manufacturing facilities but also in the entire supply chain, including mining, processing, and component production. According to estimates, the U.S. and Europe would each need to invest over $80 billion to establish fully localized supply chains capable of meeting domestic battery demand by 2030.