In the coming years, the battery sector is expected to become central to global competition over value chains. This sector has long been a focus of significant government investments by major powers, particularly China. Although Europe has lagged behind in this competition, it has initiated measures to boost local production capacities, facing strong competition from the United States and China. China, in particular, dominates many rare earth elements and critical materials needed for battery production, granting it a central role in global competition.
The importance of the battery sector in Europe is growing with the global shift towards electric vehicles (EVs) for environmental preservation. In November 2023, Renault announced it would launch Ampere, a fully electric vehicle company, as the European Union issued a ban on selling gasoline and diesel vehicles by 2035.
In this context, a study from the Le Grand Continent Center highlights the scale of the battery sector and global battery producers, the main powers dominating this sector, and Europe’s strategic dependence on China in this industry, while proposing potential solutions to mitigate this reliance.
Batteries and Environmental Suitability:
Batteries are devices used to store and release electricity on demand. They operate by converting chemical energy into electrical energy through a process called “electrochemistry.” A battery contains an electrochemical cell with two electrical poles, anode and cathode, separated by an electrolyte solution. When the battery is charged or discharged, electrons move through the electrolyte from the positive to the negative pole, creating an electrical current that can power devices.
Batteries have been used for years in consumer electronics, especially in phones and computers, with lead-acid and lithium-ion batteries being prominent. However, the rapid growth of electric vehicles from around 120,000 vehicles in 2010 to over 10 million in 2022 has significantly increased demand for batteries. Today, the transportation sector represents about three-quarters of the demand for lithium-ion batteries and over 40% of total demand.
The battery industry is material-intensive, particularly with metals, compared to traditional internal combustion engines. Extracting these metals can cause environmental damage, such as deforestation, water resource usage, or carbon emissions. For example, extracting one ton of lithium results in 15 tons of CO2 emissions. The amount of emissions depends on the materials used, their origin, and the energy sources employed. Generally, electric vehicles have significant potential to reduce greenhouse gas emissions when paired with a low-carbon electricity sector, making them more environmentally friendly compared to internal combustion engine vehicles.
Battery Sector Size:
Annual battery sales reached approximately $116 billion in 2022, with half of this related to the transportation sector. This sector is experiencing substantial growth, and traditional lead-acid battery technology can no longer keep up with rapid developments due to its weight and energy density, which is 2 to 5 times less than that of lithium-ion batteries. Consequently, lithium-ion batteries have gained prominence in the battery industry, especially as they align with current trends toward “electrification” of the mobility sector.
Bloomberg NEF estimates that new electric vehicle sales will reach 40 million units by 2030. Additionally, electricity storage capacity has seen rapid developments in recent years, coinciding with the expansion of renewable energy projects and the rise of the global electric vehicle industry. This will lead to a massive increase in the battery production market, with McKinsey predicting that lithium-ion battery production will reach nearly 4,700 gigawatt-hours by 2030, compared to less than 500 in 2021, representing a nine-fold increase.
Major Producers:
American companies have long dominated the battery industry, including Clarios, Enersys, and Exide, along with the Japanese company GS Yuasa. However, recent years have seen significant developments in this sector, particularly with the expansion of lithium-ion battery usage, opening the field to many new entrants. Among lead-acid battery manufacturers, Panasonic of Japan has emerged as a major player in electric vehicle batteries. In the more dynamic sector of electric vehicle batteries, Asian industries, especially China, dominate, with China accounting for two-thirds of global production. Korean companies LG, SK, and Samsung represent about 25%, while Panasonic holds 10%.
CATL, founded in 2011 and based in Ningde, China, is a leader in lithium-ion battery production, holding nearly 35% of global production. Conversely, the South Korean giant LG started producing lithium-ion batteries in 1998 and currently supplies batteries to Tesla, General Motors, and Volkswagen. LG Chemicals, which became an independent entity in 2020 and was listed on the Seoul Stock Exchange in January 2022, is a strong player in China, accounting for more than half of Beijing’s battery production in 2019.
On the other hand, BYD, founded in 1995 in Shenzhen, China, initially specialized in mobile phone batteries before diversifying into cars by acquiring Qinchuan Machinery Works in 2002, which later became BYD Auto in 2003. The company shifted towards producing electric vehicles and ranked second worldwide in electric vehicle sales in 2022, after Tesla.
China: The Battery Giant
China’s industrial policy, which has led to the rise and growth of its battery industry, is described as “directed Darwinism.” This reflects the mindset of Chinese political leaders who, in just ten years, have created a highly efficient automotive industry, making it a global leader in electric vehicles. This success is attributed to several factors, including China’s recognition of its lag behind European counterparts in combustion engines. Consequently, in the late 1990s, China shifted focus towards electric vehicle production. Over 80% of electric vehicle battery components are manufactured in China, supported by supply chains that facilitate the mining and processing of essential metals like lithium, cobalt, manganese, and rare earth elements within the country, as well as government subsidies. For example, between 2009 and 2022, the Chinese government granted over 200 billion Chinese Yuan (29 billion USD) in subsidies.
In 2015, the electric vehicle market saw a new development with the Chinese government’s “Made in China 2025” plan. A committee was formed to draft future national regulations aimed at advancing China’s electric vehicle industry. The committee, led by the Ministry of Industry and Information Technology, decided that only battery models fully manufactured by domestic companies would qualify for government support. The main goal was to increase the efficiency of produced vehicles and highlight Chinese brands capable of global competition.
Europe’s Efforts to Reduce Dependence:
Europe currently represents 7% of the global battery production capacity, making it the second-largest producer after China (76%), and on par with the United States. In 2022, Europe’s lithium-ion battery production capacity was 70 gigawatt-hours, expected to reach 520 gigawatt-hours by 2025 and 1200 gigawatt-hours by 2030, particularly in Germany, Sweden, Hungary, France, and Italy.
A report by the European Court of Auditors highlighted key challenges in developing this production capacity. Europe still relies heavily on global sources for critical materials needed for battery production. Consequently, the risk for European countries is that their electric vehicle development will be driven by the import of Chinese batteries. Europe’s reliance on importing raw materials remains high, averaging 78% for cobalt, lithium, nickel, manganese, and graphite. Similarly, for refined materials, European countries import 29% of their refined nickel from Russia and 18% from Finland.
The European Union has set a goal to achieve carbon neutrality by 2055. To this end, it has issued a series of proposals collected under the “Fit for 55” package, aiming to amend European legislation to align with this goal. In June 2022, the EU Council adopted a target to gradually reduce CO2 emissions from the transport sector by banning the sale of new gasoline and diesel vehicles by 2035.
New U.S. Policy:
Before the U.S. Inflation Reduction Act (IRA) of 2021, the United States had been funding battery research since at least 2012 through several programs, notably the Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (STTR) program. These programs aimed to enable the commercialization of battery technologies developed in the U.S.
The IRA represents a significant shift in U.S. industrial battery policy, aiming to reduce dependence on global sources for batteries. Its goal is to strengthen the battery value chains within the U.S. by offering a $7,500 tax credit for domestically manufactured electric vehicles, provided at least 80% of the value of the critical minerals is American by 2027 and 100% by 2029. The IRA is expected to reduce the average cost of battery production in the U.S. by one-third, to $110 per kWh, compared to $111 in China and $178 in the EU.
Recycling Solutions:
The battery industry’s heavy reliance on critical minerals has increased their economic and strategic importance due to the growing global demand compared to available supplies. Literature has begun proposing “battery recycling” as a possible solution to address mineral dependency. Batteries can either be repurposed for different uses, such as energy storage, or recycled.
The majority of recycling operations are conducted in China, primarily because most European and U.S. countries export their batteries to Asian countries rather than recycling them. Recycling is more attractive in China due to the presence of battery manufacturers who stimulate demand for the materials needed to produce batteries.
Globally, estimates from the International Council on Clean Transportation (ICCT) suggest that recycling 50% of batteries could lead to a 28% reduction in global demand for four key materials: nickel, manganese, lithium, and cobalt.
In conclusion, a major question remains about the potential formation of an “economic cartel” for critical battery materials, akin to OPEC. However, economic analysis of cartels is unclear regarding the effects of various factors such as the number of producers, product concentration or homogeneity, and the ability to build and sustain these groups. Studies show that one significant threat to the existence of such cartels is the rapid growth in demand, which can increase uncertainty about quantities sold and encourage competitors to enter the market. As a result, rising nickel prices could allow higher-cost production countries to enter the market and diversify supply sources for countries without reserves, making agreement difficult and stimulating the search for alternatives and investment in recycled units.
Source: François Citton, “Les batteries: comprendre un secteur clef en 10 points et 8 graphiques inédits”, Le Grand Continent, November 2023.
