Global battery industry enters new phase, says IEA

From pv magazine Brazil

The battery industry is entering a new phase of its development, with the global market expanding and technologies gradually standardizing, the International Energy Agency (IEA) says. This is likely to result in further consolidation across the industry, which is simultaneously being reshaped by government-led efforts to geographically diversify battery supply chains, IEA experts say.

The global battery market is growing rapidly as demand rises sharply and prices continue to fall. By 2024, with electric car sales rising 25% to 17 million, annual battery demand will surpass 1 terawatt-hour (TWh) — a historic milestone. At the same time, the average price of a battery for a pure electric car has fallen below $100 per kilowatt-hour, a threshold considered a key threshold for competing on cost with conventional models.

In addition to electric vehicle (EV) demand, cheaper minerals have been a major factor in this cost decline, with lithium prices down more than 85% from their peak in 2022. Advances in the battery industry are also supporting this downward price trend. Global battery manufacturing capacity reached 3 TWh in 2024 and could triple in the next five years if all announced projects are built.

The success story of the Chinese market and the slowdown in price declines

China currently produces more than three-quarters of the batteries sold globally, and in 2024, average prices in the country fell by almost 30%, faster than anywhere else in the world. Batteries in China are 30% cheaper than in Europe and 20% cheaper than in North America. Many EVs in China are now cheaper than their conventional counterparts.

One of the factors that has driven this competitiveness has been production volume. More than 70% of all EV batteries ever manufactured have been produced in China, with the rise of giant manufacturers such as CATL and BYD, which have centralized expertise in the sector and driven innovation. The country also has a highly integrated supply chain, including access to below-market prices for critical minerals.

Chinese producers’ focus on lithium iron phosphate (LFP), a cheaper battery chemistry, is another factor in the cost decline. LFP batteries now account for almost half of the global EV market and are about 30% cheaper than their main competitor, lithium nickel cobalt manganese oxide (NMC) batteries, which used to dominate the market.

To remain competitive in the Chinese market, which boasts nearly 100 producers, companies have been cutting their profit margins to sell batteries at lower prices.

However, price declines may slow in the near future. Amid fierce competition and declining margins, the number of companies producing batteries in China is likely to decline, and certain producers will gain greater influence and pricing power. Even so, China is expected to remain the largest battery manufacturer by some distance in the medium term.

Expanding battery production beyond China

Korea and Japan are already major players in the global battery industry, with major manufacturers and suppliers specializing primarily in NMC batteries. Both countries have limited domestic production but are home to established manufacturers with significant overseas investments. Korean companies lead in overseas manufacturing capacity, with nearly 400 gigawatt-hours (GWh), far surpassing Japan’s 60 GWh and China’s 30 GWh. As their overseas investments grow in key automotive markets, a key question is to what extent they will adopt cheaper LFP designs. These producers also have strong histories of innovation and are among those racing to develop new technologies such as solid-state batteries.

In the United States, battery manufacturing capacity has doubled since 2022 following the implementation of tax credits for producers, reaching over 200 GWh by 2024. Almost 700 GWh of additional manufacturing capacity is under construction. About 40% of existing capacity is operated or developed by established battery manufacturers in close collaboration with automakers. However, the manufacturing of battery components has progressed more slowly, and most of the demand for anodes and cathodes is still met by imports. Demand for batteries for stationary applications has increased by over 60% per year over the past two years, opening up a demand stream beyond EVs, albeit smaller in volume.

Meanwhile, Southeast Asia and Morocco are emerging as potential production hubs for batteries and their components. In Indonesia, the source of half of the world’s nickel, the first electric vehicle battery and graphite anode plants will begin production in 2024. Morocco, meanwhile, has the world’s largest reserves of phosphate, a key mineral for LFP batteries, as well as an established automotive manufacturing industry and free trade agreements with the European Union and the United States. These factors have contributed to more than $15 billion in announced investments in battery and component manufacturing in 2022.

Strategies to develop new production capacity

Despite rapidly falling battery prices and continued innovation, the degree of concentration in battery supply chains has raised security concerns among governments in recent years. Announcements such as China’s recently proposed export restrictions on battery cathode and lithium processing technologies have heightened attention on this issue.

In the IEA’s view, efforts to expand production in new markets and reduce the cost gap with China require sufficient and sustained demand for batteries. Electric vehicle sales — which currently account for 85% of the battery market — are the only driver that can create sufficient volume.

Collaboration with established battery producers, through joint ventures or technology licensing agreements, can reduce the time and investment required to produce batteries onshore and develop domestic supply chains.

Another important lever is international collaboration. Many individual markets may not be large enough to justify the necessary investments in battery manufacturing and components and may therefore require closer collaboration with other EV and battery markets, as well as cooperation with resource-rich countries such as those in South America and Africa, Australia and Indonesia, to make the case.

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