China is becoming the world’s battery factory

Business & Technology

Computers, phones, cars, ships, and even planes: batteries are essential for the technologies of tomorrow, and China looks set to dominate the industry from mining to manufacturing.

Illustration by Alex Santafé.

If great power competition were a fencing bout, then state-of-the art technologies are like sabers: dominance over critical components in portable electronics and computing has so far granted the United States an edge in the engagement. But a riposte is coming from the East.

As governments, automakers, and investors flock to electric vehicles in anticipation of a greener future, they are being acquainted with a new Asian proprietor. In 2019, Chinese companies accounted for more than 80% of the world’s output of battery raw materials. Among the battery plants to be created in the next eight years, 101 out of 136 will be based in China.

When it comes to batteries, China’s presence is felt at every step of the supply chain. At the top is the collection of raw materials such as lithium, graphite, and cobalt. Two Chinese companies, Ganfeng and Tianqi Lithium, make up the largest share of the lithium market at 26%. China produces 64% of the world’s graphite, and captures 80% of the world’s cobalt refining industry. At the second stage, battery manufacturing, the results are the same. Two leading Chinese giants, Contemporary Amperex Technology (CATL) and Build Your Dreams (BYD), control 32% of the market.

The race to dominate the batteries of the future

CATL and BYD are not just manufacturers, either; they are also increasingly innovators. Last fall, CATL’s chairman Zēng Yùqún曾毓群 told Bloomberg that it had developed a battery pack that could last more than a million miles. “These companies were really the first in the world to launch such technologies, and now companies like Volkswagen are following in their footsteps,” James Frith, head of energy storage at BloombergNEF, told me in an email. Chinese companies are not just the manufacturing technologies like they were in the early 2000s. When it comes to the battery, they are now on the cutting-edge.

China is not alone in aggressively pursuing battery technologies. Bold proposals such as the United States’ $2 trillion dollar “clean energy” plan are supercharging demand, triggering a surge of global investment in batteries redolent of the oil rush of the 19th century. “You basically need on the order of roughly 10 terawatt hours a year of battery production to transition the global fleet of vehicles to electric,” said Elon Musk, in a presentation last September. “So, it’s a lot of batteries.”

But the U.S. is lagging far behind. Unlike the EU, which has funneled billions of euros in subsidies for home-grown battery start-ups, the U.S.’s battery capacity grows at a slower pace relative to the rest of the world. As a result, the U.S. share of global lithium-ion cell production are projected to shrink in the coming years while the EU has been catching up. “What we have seen over the last two years is a complete turnaround in Europe” said Frith. “Based on current announcements, BloombergNEF now expects Europe to account for 30% of global cell manufacturing capacity by 2030, and China just 50%. Today China accounts for 82% of production and Europe just 7%.”

Batteries have also become a hot topic recently for another reason: battery technologies are on the verge of a major breakthrough, and whoever can offer the best performing battery at the cheapest price has much to gain in the age of EVs. They may very well be the next Steve Jobs.

The state of the art is the solid-state battery, a denser, more efficient version of the lithium-ion — the most popular type in usage today. QuantumScape, a U.S. start-up founded in 2010 with backing from Volkswagen and Bill Gates, is currently a market leader in the development of solid-states. The company claims that its proprietary version can charge twice as fast, hold more power, and last longer than lithium-ion predecessors. Though QuantumScape has yet to produce a full battery, the company, which IPO’d last September, is now valued at $20 billion and is set to begin production in 2025.

Scale + Belt and Road

So far, production poses the biggest challenge for next generation batteries. Mass producing batteries is “the hardest thing in the world,” said Musk, on a recent conference call to analysts. “Prototypes are easy. Scaling production is very hard.”

Yet if any country can do it, it will be China. “If you’re a global auto industry, you need China in order to scale your business,” Bill Russo, founder and CEO of the Shanghai-based advisory firm Automobility Ltd., told me. As QuantumScape and other battery companies begin mass production in other words, they are likely in store for long negotiations with Chinese suppliers. “It doesn’t matter where you invented it. It matters where you commercialize it. And that you commercialize it at a much greater scale. You’re going to get more innovation because the market’s bigger,” said Russo.

China’s control of one of the most important technologies of the coming decade was not a matter of luck either. Very little of the battery raw materials China controls today are found domestically — China had to seek them out abroad. Russo, who has been studying China’s ascent in the EV market for decades, saw it as the result of a state who could plan for the long haul, in close coordination with Chinese enterprises. “Where are those resources for lithium coming from? Latin America and Australia. Where are those resources for rare earth elements coming from? The nickel cobalt? Africa. Guess where China is building infrastructure around the world today?”