The battery problem that is drowning Europe

China produces 80% of all batteries in the world, with far more supply than demand, complicating Europe's efforts to have its own industry. In a context in which promising new technologies are emerging, China's dominance of the market is becoming increasingly evident.

The global battery market is currently not facing manufacturing problems or a shortage of materials, but rather a brutal oversupply or, if you will, a lack of sufficient demand to sell all the surplus production, although it continues to grow year after year. China controls 80% of all global battery production, with a surplus of almost 50%. If we add to this the fact that Europe considers battery manufacturing to be strategic and wants to have a local industry, as well as the US and India, among others, the situation is alarming for everyone and the imposition of tariffs does not seem to be the solution.

The 2024 edition of the San Francisco-based Volta Foundation’s detailed annual report, with input from thousands of contributors, highlights the complexity of the situation with all kinds of data, while destroying many simplistic myths about the industry. The problem with battery manufacturing is not technological or a lack of materials to produce them, but essentially financial: excess supply leads to a sharp drop in the prices of batteries and raw materials used, with the considerable increase in demand in recent years not being enough to reduce, or even stop, the excess. In fact, the price of lithium has fallen by 90% from its 2022 peak, causing the shares of mining companies in the sector to drop worldwide, a situation that has been further aggravated by the recent reopening of a Chinese CATL refinery after five months of shutdown.

Europe and the US do not want the same thing to happen as in the photovoltaic panel market, as before in the LED lighting system market, which has ended up being totally controlled by China. But this is a difficult wish to fulfil because China has become in just a few years a true world power in battery production throughout its value chain: from the extraction and refining of raw materials to the conversion into highly efficient batteries and the sale to a huge domestic market. And, to top it off, only two companies control 55% of world production, the Chinese CATL and BYD. The third is the South Korean LG, with 11%, and there are many behind them, many also Chinese. A full-fledged oligopoly blessed by the Chinese government.

The emergence of LFP batteries

In this context, lithium iron phosphate (LFP) battery technology is rapidly gaining ground. These batteries, despite having a shorter range than traditional nickel-manganese-cobalt (NMC) batteries, offer significant advantages: they are 20% cheaper to manufacture, last up to three times longer and are safer in the event of a fire. CATL, the Chinese giant, has already managed to develop LFP batteries with a range of more than 900 kilometres, thus overcoming one of the main limitations of this technology.

In Europe, manufacturers such as Ford have started to incorporate LFP batteries in some of their models, but they are faced with the difficulty that almost all production is controlled by Chinese companies. Trade restrictions and tariffs further complicate the situation, as they make the import of these batteries less competitive.

Current market situation

Battery production in 2024 is expected to have a storage capacity of 1.46 TWh, equivalent to 25 million cars with the most common 60 kWh battery, up from just 1.05 TWh in 2023. Battery prices fell 20% in 2024 from the previous year to $115 per kWh.

Electric car sales also soared, up 25% to 17.7 million cars, with 14% more fully electric vehicles and 50% more plug-in vehicles. Penetration of all types of electric cars is also the highest in the world in China, accounting for 45% of new car sales. It should be said that we are talking mainly about cars because these are the devices that consume the majority of the world's battery production: they exist in many other places, from domestic energy storage to electronic cigarettes, not to mention mobile phones. But according to the Volta Foundation's report cited above, 80% of the capacity ends up on wheels.

Outlook for Europe

Europe's production capacity was once 1.5 TWh but the failure of many planned investments left the current planned capacity at 0.47 TWh. In Spain, its capacity is about 170 GWh. Sales of electric cars in Europe fell by 1% in 2024 to 17% penetration, mainly because European manufacturers have focused on high-end models. More affordable electric models are now planned to go on sale, but in a market so controlled by China, and with its new technological advances, the future of the European battery industry remains uncertain.

European challenges and opportunities

The current situation presents a crucial crossroads for Europe. On the one hand, the Chinese industry continues to innovate and accumulate patents in crucial technologies such as LFP batteries and new methods to extend the useful life of batteries, such as the recent injection technology developed by Fudan University, which allows the duration of lithium-ion batteries to be multiplied by six. On the other hand, the European Union maintains its strategic commitment to developing its own battery industry, aware that it is essential for the energy transition and the competitiveness of the automotive sector.

An added drawback for Europe and the United States is the relatively small size of their automotive markets compared to the Chinese one. In addition, growth in these markets only seems viable with small and affordable cars, as demonstrated by the strategy of the Chinese manufacturer BYD, who has announced that it will include advanced driving assistance functions as standard in all its models, even the cheapest ones, when other manufacturers charge for them as extras. This type of aggressive pricing and equipment strategies makes competition even more difficult for European manufacturers.

Experts say the key could be technological collaboration with other regions, such as South Korea or the United States, as well as specialisation in specific market segments where Europe can bring added value. The battery recycling and maintenance industry, for example, could be a field in which Europe develops its own niche market.