Dominating EVs Globally: How China is crushing the US in battery tech despite the Tech War

In recent years, the relationship between the United States and China has become a complicated struggle between economic interdependence and deep-rooted mistrust. While diplomats are striving to maintain global stability and keep the flow of money between the two countries ongoing, a prominent aspect of this relationship is a competition for dominance in the technology that will shape the 21st century.

In this battle, there is one area where the United States has fallen significantly behind – batteries, specifically, batteries for EVs. China’s state-supported enterprises, often referred to as China Inc., have gained a dominant position in all aspects of battery development for electric vehicles, ranging from the extraction and refining of raw materials to battery manufacturing, because of which China is winning the EV race.

Lack of a domestic battery supply will hurt the US in the long run
Tu Le, the founder of consultancy firm Sino Auto Insights, highlighted the risk that the United States might lack a domestic battery industry and become perpetually dependent on China for battery production. Without affordable batteries to power fleets of electric vehicles, companies like GM and Ford face the possibility of losing their international status and becoming regional players.

Also read: China is leading global EV race says International Energy Agency, has highest number of EV adopters

Until US automakers can establish a domestic battery supply or secure partnerships with friendly nations, they will rely on maintaining positive relations with Beijing. This partnership is increasingly tense, even when geopolitical concerns are set aside. In the past four decades, China relied on foreign automakers to assist in developing its own car industry through joint ventures.

However, with China’s domestic electric vehicle market flourishing, the dynamics have shifted. Beijing is now promoting its own products, while foreign automakers, who already depend on China Inc.’s batteries to produce more electric vehicles, are losing market share.

The victor in the battery competition will not only control the electric vehicle market but also create numerous job opportunities, shape the future of transportation, and influence the West’s ability to transition to greener forms of energy.

How China laid the groundwork for its dominance of battery tech
China has been actively working towards dominating the battery industry since 2015 when the Chinese Communist Party initiated the National Key Research and Development Program New Energy Vehicle Key Special Implementation Plan. This plan aimed to secure a stronghold on key materials like lithium, cobalt, and nickel, invest in their extraction, and establish battery manufacturing facilities.

The strategy began with the fundamental level of battery production, focusing on the acquisition of raw materials such as cobalt, lithium, manganese, and nickel. Although most of these minerals are located outside China in countries like Chile, Australia, Bolivia, and the Democratic Republic of Congo, China Inc. has managed to negotiate ownership stakes and partnerships with mines worldwide.

From 2018 to mid-2021, China Inc. invested approximately $4.3 billion in lithium mines internationally. Once extracted, these minerals are sent to Chinese-owned refineries for processing and transformation into usable metals. By 2019, Chinese companies accounted for 80% of the world’s battery material output. This level of dominance would not have been possible without Beijing’s willingness to pay any price and endure potential losses in order to build the industry.

While other countries may attempt to support competing suppliers and companies in the mineral and component sectors, China’s approach of heavily investing in multiple companies and allowing competition to determine the dominant players gives them an advantage.

Previously, the Chinese value chain ended after the refined materials were shipped to the US or Europe for battery production. However, Beijing now aims to perform this work within China. China’s strategy involves providing financial support to companies willing to venture into technology development and allowing them to compete until a few emerge as the dominant players.

The clear leader in China’s battery manufacturing battle is Contemporary Amperex Technology Co. Limited (CATL). Initially known as Amperex Technology Limited and founded in Hong Kong in 1999, CATL became a battery supplier for major companies like Apple and Samsung by utilizing patented technology licensed from Bell Labs in the US.

As of 2022, CATL controlled around 32 per cent of the global market share for EV batteries and approximately half of China’s domestic market. With 13 factories worldwide, CATL supplies batteries to companies like Tesla, Toyota, and Daimler. Ford recently announced plans to build a $3.5 billion battery plant in Michigan using technology licensed from CATL.

Another major player in China’s battery industry is BYD. Within China, BYD is a leading car manufacturer that produces its own batteries. Thanks to the strong domestic demand, BYD has captured just over 13 per cent of the global market share for electric-vehicle batteries.

Owning its battery supply chain allows BYD to manufacture cars at lower costs. Their BYD Song Plus, the best-selling car in China during the first quarter of this year, is available in both electric and combustion-engine versions and is priced under $30,000.

Where does the US stand?
As Chinese companies continue to dominate the battery industry, the United States is determined to prevent a reversal of roles, where it becomes reliant on China for high-value batteries.

Also read: Tesla wreaks havoc in China’s EV market with new price war, gives 50% discount on all cars

To achieve this, the US needs to invest in every aspect of the battery value chain, starting with its abundant resources of lithium, also known as “white gold.” Currently, the US only has one operational lithium mine in Nevada, and concerns about environmental impact have limited US lithium production to just 1 per cent of the global supply.

To increase lithium output, companies are rushing to extract lithium from deposits in California’s Salton Sea region. Geologists estimate that the region could provide enough lithium to support the production of 7.5 million car batteries annually. US companies like BHE Renewables and EnergySource Minerals, with backing from Warren Buffett’s Berkshire Hathaway, are working on developing technologies to extract lithium using clean energy and minimizing environmental damage.

President Joe Biden’s 2022 Inflation Reduction Act has allocated $200 million, through the Department of Defense, to establish a complete American supply chain for rare-earth metals, including lithium and nickel, which are essential for domestic battery efforts.

Furthermore, the US lacks manufacturing capacity further down the battery value chain. Currently, there are only two lithium hydroxide processing plants in the US, which produce a more concentrated form of the metal used in batteries. Tesla recently began construction on a third facility in Texas.

The Inflation Reduction Act sets a target of refining enough lithium domestically to supply 2 million electric vehicles annually. The Biden administration plans to achieve this through a combination of incentives and requirements. The law offers subsidies to companies that invest in the refining process, while also setting strict criteria for the domestic sourcing of an electric vehicle battery’s components to be considered domestically produced and avoid tariffs.

However, the implementation of these plans and incentives will take time. EnergySource Minerals, for instance, has stated that its mine could be operational by 2025.

The US is a long way from independence
Until the US and its allies can provide an alternative supply of electric batteries, automakers are heavily reliant on China Inc., especially as they accelerate their electric vehicle (EV) ambitions.

Also read: Hundreds protest against Tesla for selling China-made models cheaper

Currently, the US lacks a major player in the battery cell industry. Profitable battery production by US manufacturers is not expected until at least 2030, according to Tu Le from Sino Auto Insights. This reality means that companies like GM and Ford cannot build affordable EVs that will contribute significantly to their bottom line without relying on batteries from Chinese manufacturers like BYD and CATL.

In the case of Tesla, Elon Musk has set an ambitious goal of manufacturing 20 million cars annually by 2030. To put this into perspective, Toyota, the world’s largest carmaker, sold slightly over 10 million cars last year, while Tesla sold just over 1 million.

To achieve Musk’s target, Tesla not only needs continued demand from Chinese consumers but also relies on China’s cost-effective batteries and manufacturing infrastructure. These factors are essential for producing affordable cars that can be sold in other markets, such as Latin America, Southeast Asia, and India.

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