A slump in battery infrastructure investments in mainland China is largely responsible for the global slowdown, as the Asian economic powerhouse navigates policy change, increased electric vehicle (EV) adoption, supply shortages, rising raw material costs and rapid capacity expansion, according to Rystad.  

A global leader in battery dynamics, China has maintained its position in lithium-ion (Li-ion) battery development, largely attributed to its early adoption of industrial-scale projects and rapid production growth to match its ambitious EV expansion plans.  

Production surged more than 40% in both 2021 and 2022, but the pace of growth slowed from 2022 onwards. With the nation achieving self-sufficiency in battery supply, China’s attention has turned strategically towards Europe and the US, where major manufacturers are progressing from planning to production, albeit still at a nascent stage of development, the research finds.  

In Europe, the interdependency of EVs on Li-ion battery production underscores the concern raised by investment declines this year. Rystad notes that this downturn is primarily driven by diminishing EV market demand, which in turn poses risks of project delays and cancellations in EV infrastructure. These challenges highlight broader issues in the EV sector, evident in the financial reports and stock prices of original equipment manufacturers globally, including Chinese manufacturers that are facing profitability issues. Furthermore, subsidies incentivise sector growth, yet high energy costs, labour expenses and bureaucratic hurdles impede progress for the industry at large, according to the analysts.

In contrast, the US has seen exponential growth in lithium demand amid increasing concerns over secure supply chains. Despite efforts to ramp up Li-ion battery production, both Europe and the US struggle with nascent industrial infrastructure. To mitigate reliance on Chinese supply chains for critical minerals, both Europe and the US are implementing policies to bolster energy security. Looking ahead, China’s stronghold in global battery investment and lithium trade appears secure due to its primary access to essential resources, the research finds.  

Duo Fu, Vice President, Battery Market Research, Rystad Energy, comments: ‘China’s dominance in battery investment and lithium trade seems unshakeable for the foreseeable future, given their control over key resources. However, building a battery factory from scratch takes years and navigating local regulations adds even more time. This means the market two years from now remains unpredictable. Collaboration across the entire supply chain is crucial for the industry’s health.’

Rystad’s research finds that China’s domestic industry is undergoing consolidation as it aims to offer higher-quality battery products in the form of diversified technological advancements.  

The Li-ion battery sector is witnessing a surge in innovative technologies focused on cost savings, enhanced energy density and improved safety measures. Amid these developments, the sector faces challenges of insufficient high-quality production capacity, although robust companies continue to expand.  

Reflecting these shifts, Chinese LIB company stocks peaked in early 2022 before gradually declining. The research finds that consequently, the enthusiasm for Li-ion battery investment has waned, ushering in a phase of stability as the sector matures.

Alternative battery technologies are gaining momentum, with cost-effective solutions such as lithium iron phosphate (LFP) batteries emerging as attractive options, Rystad notes. Tesla has announced a partnership with CATL to ramp up mass production of LFP batteries through a license royalty service, while Ford is reportedly exploring a similar strategy. Mercedes and Stellantis have paused their European EV battery factory projects to reconsider their approach, potentially shifting towards more affordable LFP cells. Additionally, three South Korean battery factories have outlined plans to increase LFP cell production capacity, according to the research.