Racing for the Future: Navigating China’s Dominance in the Global Battery Supply Chain

Oct 22

Executive Summary

The global battery market, particularly in the electric vehicle (EV) sector, is dominated by China, which controls a vast majority of the supply chain, from the extraction of key minerals like lithium, cobalt, and nickel to the refining and production of lithium-ion batteries. This dominance creates significant economic, strategic, and national security risks for the United States and its allies, who rely heavily on Chinese imports for battery production. To address these risks, the U.S. must accelerate the development and commercialization of next-generation battery technologies, diversify its supply chain through partnerships with countries like South Korea, and implement strategic policies to reduce dependency on Chinese-controlled materials and manufacturing processes.

Analysis

China’s Control Over the Battery Supply Chain

China’s dominance in the battery market has been built over decades of strategic investments in both the extraction of raw materials and the development of manufacturing capacities. Today, China controls over 70% of the global lithium-ion battery market and holds the lion’s share of the supply chain for critical battery materials such as lithium, cobalt, and nickel. In 2022, China was responsible for refining 94% of the world’s lithium hydroxide, 76% of battery cells, 65% of anodes, and 53% of cathodes, making it nearly impossible for any country to compete in battery production without engaging with Chinese companies. This supply chain dominance is particularly concerning because batteries are a cornerstone of modern technologies, including electric vehicles, renewable energy storage, and even military applications.

The centralization of these critical resources and technologies in China has allowed the country to build economies of scale and exert influence over both suppliers and consumers globally. Chinese battery manufacturers, such as CATL and BYD, are global leaders in the production of lithium-ion batteries, not only for EVs but also for energy storage solutions, which are essential for renewable energy grids. Chinese companies’ ability to produce battery components at lower costs, coupled with government subsidies, has undercut global competition, making it difficult for U.S. firms to compete without significant government intervention.

National Security Implications

The U.S. Department of Defense has raised alarms about the national security risks posed by U.S. reliance on Chinese battery imports. Batteries are critical for military applications, including powering drones, submarines, communication devices, and electric vehicles used by the armed forces. A disruption in the supply of batteries, whether due to geopolitical tensions or economic pressure from China, could severely impact U.S. military readiness and operations. As China has demonstrated its willingness to leverage control over critical materials for political gain—such as in the 2010 rare earths dispute with Japan—there is a clear and present risk that China could use its dominance in the battery supply chain to exert influence over the U.S. and its allies.

In addition, China’s dominance poses risks to U.S. efforts to transition to renewable energy and electrify transportation. As electric vehicles and battery storage systems become more prevalent in the U.S. energy grid, the country’s reliance on Chinese imports for key components could expose it to vulnerabilities in supply, pricing, and technology access. A disruption in battery imports could stall the transition to clean energy, delay the widespread adoption of EVs, and create economic instability in the renewable energy market.

U.S. Policy Response and the Need for Next-Generation Technologies

In response to these risks, the U.S. has implemented several policies aimed at bolstering domestic battery production and reducing dependence on Chinese imports. The Inflation Reduction Act, which offers significant tax credits for U.S. battery manufacturing, has spurred a wave of investment in lithium-ion battery production within the U.S. However, these efforts are largely focused on current-generation technologies, where China’s lead is so significant that it will be difficult, if not impossible, for the U.S. to catch up in the near term.

To truly challenge China’s dominance, the U.S. must focus on leapfrogging current technologies and investing in next-generation batteries, such as solid-state batteries, which promise superior performance, faster charging, and increased safety. Solid-state batteries, which use a solid electrolyte instead of the liquid used in lithium-ion batteries, offer several key advantages, including the potential for longer-lasting energy storage, lower risk of fire, and faster charging times. This technology, while still in the development phase, represents a significant opportunity for the U.S. to regain a competitive edge in the global battery market.

Several U.S. companies, including QuantumScape and Solid Power, are making strides in the development of solid-state batteries, and their success could enable the U.S. to build a competitive advantage in this emerging field. However, these companies face challenges in scaling up production and bringing these technologies to market. To support these efforts, the U.S. government must increase funding for research and development, provide incentives for scaling up production, and create protected markets for early-stage technologies to gain a foothold.

The Role of International Partnerships

Given the complexity and scale of the battery supply chain, the U.S. cannot address these challenges alone. International partnerships, particularly with countries like South Korea, which is home to several of the world’s largest battery manufacturers, will be essential in building a resilient and diversified battery supply chain. South Korea’s battery manufacturers, such as LG Energy Solution and Samsung SDI, have been leaders in lithium-ion battery production and are making significant investments in next-generation technologies.

The U.S. and South Korea have a strong history of cooperation in the battery sector, but there is room for further collaboration. Joint ventures and trade agreements between U.S. and South Korean companies can help accelerate the development of new technologies and secure access to critical minerals. Additionally, “friendshoring” efforts—partnering with trusted allies to source materials and build supply chains—can reduce the U.S.’s reliance on Chinese imports while strengthening alliances with key partners.

The U.S. must also expand its partnerships with other countries rich in critical minerals, such as Australia and Canada, to secure reliable sources of lithium, nickel, cobalt, and other essential materials. By investing in mining and refining capabilities in these allied nations, the U.S. can reduce its dependence on Chinese-controlled resources and build a more secure supply chain for the future.

Final Thoughts

The global race for battery dominance is not just an economic competition but a strategic one, with far-reaching implications for national security, energy independence, and technological leadership. As China continues to exert control over the lithium-ion battery supply chain, the U.S. faces a critical juncture: either continue to rely on Chinese imports or take bold steps to develop next-generation technologies and secure its own supply chain through international partnerships. The path forward requires a coordinated effort across government, industry, and allies to ensure that the U.S. remains competitive in this vital sector.