The adoption of electric vehicles (EVs) is growing rapidly worldwide, driven by concerns over climate change and the desire for more sustainable transportation options. The EV battery market is also expanding, as the demand for high-performance, long-lasting, and safe batteries for EVs continues to increase. The leading countries in the EV battery market include, China, South Korea, and Japan, to name a few.
Despite being home to one of the largest electric vehicles (EV) manufacturers, Tesla, the United States is far behind other countries, especially China, in this rally to capitalize on the massive opportunity presented by this growing market. Tesla only gets 31.6% of its EV sales from the US, with the rest coming from Europe and China. Legacy car companies have been slow to embrace EVs and are now trying to catch up. The US is estimated to be 10 years behind in EV battery production due to increased labor costs and time required to set up new mines for raw materials. This leads to companies like Tesla relying on Chinese battery makers. The government is also trying to close the gap and reduce dependence on China with tax incentives for EVs manufactured in the US. The Biden administration’s Inflation Reduction Act (IRA) requires EVs to have 50% of their battery component from the US and be assembled in the US to receive a full tax credit of $7,500. Critics doubt the bill will improve the US battery manufacturing position, as China already controls a large portion of the raw materials. Therefore, they have a massive advantage when it comes to the cost of manufacturing the batteries. This has led to EV companies in the US to purchase batteries from China to cut down on their total costs.
Let’s dive into few key reasons that make China a dominant player in the market:
Batteries are a crucial component of electric vehicles (EVs) and account for a significant portion of their overall value, ranging from 30-40%. The cost of manufacturing these batteries is dependent on the availability of critical minerals and metals such as lithium, cobalt, nickel, and graphite. These minerals are used in the cathode and anode of the battery, with lithium being used in the cathode and graphite in the anode. The addition of nickel can increase the energy density and storage capacity of the battery, resulting in a longer range for the EV before needing another charge. Cobalt is also used to cool the lithium cathode and prevent overheating or combustion, which helps to extend the life of the lithium-ion battery to a maximum of eight to ten years.
China is a major player in the EV battery production market, accounting for 70% of global production capacity for cathodes and 85% for anodes. With over half of the lithium, cobalt, and graphite processing and refining capacity, China produces more than 75% of lithium-ion batteries. Europe and the United States have been China’s primary competitors in the EV battery processing business, but China still holds a significant market share. Europe has a slight edge in cobalt processing, accounting for around 20% of global cobalt processing. The United States holds a relatively small share of the EV battery market, accounting for only 7% of global EV battery production and 10% of global electric vehicle manufacturing.
Korea and Japan also have a notable presence in the downstream raw material processing for EV batteries. Korea accounts for about 15% of global cathode production, while Japan is responsible for approximately 14% of cathode material production and 11% of anode material production. Both countries are also manufacturers of other battery components such as separators.
The key minerals for battery production primarily come from countries like Australia, Congo, Chile, and other Latin American countries. The United States and Europe are also making efforts to establish their own domestic battery processing units. However, it is expected that China will continue to dominate the EV battery production market at least until 2030. The increasing demand for EVs and the need for more cost-effective and efficient production methods will continue to drive the development and advancement of battery technology.
China’s EV battery market saw a tremendous increase in demand in 2021, with almost 200 gigawatt-hours (GWh) of battery demand, a 140% increase from the previous year. This surge in demand was met by a sufficient amount of battery factory capacity. China also accounted for around half of the global EV market and saw 3.3 million vehicles sold, surpassing the number of EVs sold in the rest of the world. The EV market in the US and Europe also experienced robust growth in the past year. The following snapshot illustrates how China’s EV demand is driving domestic battery production.
The cathode chemistry of a battery determines its performance and the demand for raw materials. In the electric vehicle sector, there are three main categories of cathode chemistry: Lithium nickel manganese cobalt oxide (NMC), Lithium nickel cobalt aluminium oxide (NCA), and Lithium iron phosphate (LFP). NMC and NCA cathodes have become increasingly popular in recent years due to their higher energy density, which is primarily attributed to their higher nickel content. However, these cathodes require more complex production processes. LFP cathodes, on the other hand, are a cheaper alternative that have a more stable chemistry and are less prone to catching fire, resulting in a longer battery life. However, LFP cathodes have lower energy density compared to high-nickel cathodes.
Recent advancements in technology have enabled battery manufacturers to improve the energy density of LFP cathodes beyond their original limits, resulting in a resurgence of LFP cathodes in the past couple of years. NMC and NCA cathodes, which used to occupy 75% of the total cathode market, are now shedding market share to LFP cathodes. The demand for these cathodes has primarily come from China, where they are an attractive option for medium and heavy-duty vehicle applications. The stable battery chemistry of LFP cathodes makes them suitable for vehicles that require frequent charging and intense usage. Additionally, the phasing out of subsidies that favored high-nickel compositions has also fueled the demand for LFP cathodes. As a result, China’s share of global EV battery supply using LFP cathodes has more than doubled since 2020, and it is expected to continue to increase due to rising domestic demand for EVs. As a pioneer in LFP based battery manufacturing, China is well-positioned to cater to any potential future demand from other countries.
Note- All data points in the article have been sourced from a study by IEA on the Global Supply Chain of EV Batteries and Road Traffic Technology.
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