Who will challenge China’s battery dominance?

·  China has 79% share of global lithium-ion battery manufacturing capacity

·  But Germany set to overtake US as country with second-biggest share of market

·  However, Inflation Reduction Act could jeopardise battery manufacturing in Europe

China is the currently the overwhelmingly dominant force in battery manufacturing.

The country’s share of global lithium-ion battery manufacturing capacity stood at 79 per cent in 2021. No country gets even close to competing – to put it into perspective, the country with the second-biggest share of global lithium-ion battery manufacturing, the US, has a measly 6.2 per cent of the market. For the record, the countries with the biggest shares of global lithium-ion battery manufacturing capacity in 2021 were as follows:

1. China – 79%

2. US – 6.2%

3. Hungary – 4%

4. Poland – 3.1%

5. South Korea – 2.5%

6. Japan – 2.4%

7. Germany – 1.6%

8. Sweden – 0.6%

9. UK – 0.3%

10. Australia – 0.1%

But China’s stranglehold on the industry is becoming a growing concern for the energy storage and electric vehicle industries. This is largely part due to the fact that the global Covid-19 pandemic resulted in China imposing some of the strictest and longest lockdowns in the world, the result of which was that supply chains were severely disrupted. At the height of the pandemic, it was estimated that the battery supply chain would require at least six months to ramp production up to pre-Covid-19 levels.

Such was the extent of the disruption that the global energy storage and electric vehicle industries were spooked. Consequently, the push to develop battery manufacturing capacity in countries other than China has gathered pace, and this is not confined to lithium-ion battery manufacturing given there are concerns about China not only being the country with the fourth largest lithium reserves (2 million metric tonnes), but also having substantial interests in lithium mines in Australia, which is the country with the second largest lithium reserves (3.8 million metric tonnes). In an effort to level the battery manufacturing playing field, recent developments have included BHE Renewables, LLC, a Berkshire Hathaway Energy business, selecting Our Next Energy (ONE) earlier this month to build a factory in Jackson County, West Virginia that will build utility-scale battery storage systems using “Michigan-made” lithium iron phosphate battery cells. Also, this month Graphene Manufacturing Group (GMG) received regulatory and local authority approvals for the commercial scale manufacturing of batteries at its existing Richlands site in Brisbane, Australia, with a view to targeting the energy storage market.

Elsewhere, last month Germany-headquartered organic flow battery manufacturer CMBlu Energy said it was fully committed to establishing a US manufacturing presence. Yet it should be pointed out that establishing a manufacturing base can be difficult in some parts of the world. For example, last month energy storage company Fluence said that it would “localize” its technology in India by the end of 2024, but conceded that establishing battery manufacturing in the country would be challenging. The company admitted that it did not foresee having manufacturing facilities in India until 2025 at the earliest and, consequently it would rely on overseas battery suppliers – mostly in China – for the time being.

However, it is Germany that is expected to soon have the second-biggest share of global lithium-ion battery manufacturing. In 2021, while China sold the most electric vehicles – a total of more than 3.5 million, which equated to a 52 per cent share of the global market – it was Germany that sold the second highest amount, a total of 696,000, which was higher than the total number of sales in the US, which stood at 631,000.

Given Germany’s thriving electric vehicle market, the establishment of a reliable battery supply chain is a key priority. In an effort to tackle this problem, scientists at the Karlsruhe Institute of Technology (KIT) have been working on developing a process that would facilitate economically viable lithium mining within Germany’s borders rather than relying on imports from the major lithium-producing countries such as Australia, Chile, China and Argentina.

The KIT scientists believe they have potentially solved the problem and have secured patent protection for a process that would involve extracting lithium using a minimally invasive process from the deep waters in geothermal plants of the Upper Rhine Trench. The process consists of lithium ions first being filtered out of thermal water and then being further concentrated until lithium can be precipitated as a salt. KIT says that, compared to traditional methods of lithium production from South American salt lakes and Australian solid rock, for example, its method has significant advantages. These advantages include the fact that the existing infrastructure of geothermal plants, through which up to two billion litres of thermal water flow every year, can be used, and – in contrast to classic mining – hardly any overburden is produced and the land consumption is minimal.

There have been reservations expressed about Germany’s ability to establish itself as a lithium-ion battery manufacturing powerhouse that could potentially be second only to China in the next two years. One analysis has claimed that more than two-thirds (68 per cent) of lithium-ion battery production planned for Europe is at risk of being delayed, scaled down or cancelled. This is due to the fact that subsidies being offered in the US – as a result of the Inflation Reduction Act – mean that lithium-ion battery facilities such as Tesla’s in Berlin and Northvolt’s in northern Germany are “among the projects that stand to lose the greatest volumes of their slated capacity as the companies weigh up investing in the US instead”, according to analysis by clean transport campaign group Transport & Environment.

However, last week, US President Joe Biden and President of the European Commission Ursula von der Leyen highlighted the issue of disruptions to transatlantic investment flows and pledged to “coordinate our [the US and EU’s] respective incentive programs so that they are mutually reinforcing”. Yet, what this amounts to in practice – and whether any such initiatives have teeth – remains to be seen. 

Yet there is confidence that Germany will substantially increase its share of global lithium-ion battery manufacturing capacity by 2025. Indeed, the expectation is that, in two years’ time, Germany will take over from the US as the country with the second-biggest share of such capacity. China’s share of the market is expected to drop by almost 14 percentage points from 2021 to 2025, with Poland expected to be a big winner as it increases its share of the market from 3.1 per cent to 4.8 per cent. The US’ share is expected to only increase slightly – from 6.2 per cent to 6.3 per cent, while Hungary’s share will grow from 3.2 per cent to 4 per cent. South Korea and Japan will remain major players, though both will see their market share approximately halve. Once you take those seven countries out of the equation, the “rest of the world” will also see its share of global lithium-ion battery manufacturing capacity increase substantially from 2021 to 2025, growing from 1.2 per cent to 6.8 per cent.