In the Chinese county of Fuding, the world’s largest battery maker CATL is building its most ambitious gigafactory to date. The vast battery plant has a planned annual production capacity of 120 gigawatt hours (GWh) — enough to power around 1.2 million electric vehicles (EVs) when fully utilised.
By comparison, the plant is more than three times the size of Tesla and Panasonic’s flagship Gigafactory 1 in the US state of Nevada. The scale and pace at which CATL, as well as other foreign and domestic players, are building battery production capacity in China is unmatched.
Benchmark Mineral Intelligence (BMI), a specialist information provider for the EV supply chain, estimates that China is on course to have 3733GWh of lithium-ion battery cell capacity by 2031, more than double the total capacity (1721GWh) expected in the rest of the world.
“China is way ahead of the rest of the world in terms of battery capacity and continues to grow exponentially compared to its counterparts in North America and Europe,” says Hanisha Tirumalasetty, an analyst at BMI.
Across China, 125 battery gigafactories are already active — more than ten times the combined number in Europe and North America, according to BMI figures. China also has more than double the number of plants in planning or construction, spread across several provinces.
China is just too big of a market to decide not to consider it in your global operations
In line with China’s well established position as a global production hub across virtually every industry, the country is home to factories producing batteries for everything from EVs and electric scooters to consumer electronics and toys.
“There is no option for suppliers to not invest in China,” says Matteo Fini, who leads the automotive supply chain team at IHS Markit, a business intelligence provider. “China is just too big of a market to decide not to consider it in your global operations.”
The country’s dominant position in batteries, as well as the minerals needed to build their underlying components, makes it very unlikely for any other country or region to overtake it as the leading global production hub.
But as other locations reliant on the traditional automotive sector develop their own supply chains in the EV transition, they are looking at China’s rise for the recipe to success.
China’s path to become a leader in EV batteries was guided by a mix of early and effective industrial policy, and generous financial backing for producers. Back in 2015, the government announced the ‘Made in China 2025’ initiative as part of its five-year plan, making the EV sector a strategic priority.
“The Chinese government has backed the battery industry through policy and financial support for far longer than any other region,” says Caspar Rawles, the chief data officer of BMI, adding that almost every Chinese provincial government is aiming to be part of the battery supply chain.
“Essentially, it is easier to get hold of capital and build plants in China [than elsewhere],” he says. This includes subsidies, access to free land and guarantees of electricity to power battery facilities, which has been a key sticking point for many to get off the ground.
Domestic champions have emerged within this supportive environment, including battery makers like CATL and Gotion, as well pure-electric start-ups such as Nio and global automotive giants such as Geely.
One of the most prominent Chinese companies is BYD, a global manufacturer of batteries and new energy vehicles (NEVs) based in Shenzhen. It has nine production bases across China, as well as factories in other countries including the US, Canada, Hungary and India.
Mia Gu, a spokesperson for BYD, tells fDi that China’s success as an EV production hub and market is based on a range of coordinated policies and innovation, citing the city of Shenzhen as an example.
“Shenzhen has developed positive policies for NEVs and is leading the world in the electrification of buses and taxis,” she adds, noting that BYD supplied the majority of the city’s nearly 16,000 electric buses and 22,000 electric taxis. From its home in Guangdong province, as well as production bases in cities like Xi’an and Taiyuan, BYD delivered 740,000 vehicles in 2021 — more than 80% of which were NEVs, making it the leading producer in China.
“Compared with other provinces, Guangdong has unique advantages for the development of NEVs,” says Ms Gu, adding that these include a traditional automotive industry cluster and several supportive policies.
While domestic battery champions including CATL and EVE Energy account for a large share of the planned battery capacity, many foreign companies have some of their most significant global operations in China.
Between 2017 and 2021, China attracted more than $31bn worth of announced foreign direct investment into EV-related activities, according to greenfield investment tracker fDi Markets. This is more than double the total ($15.4bn) recorded in the US and three times as much as Germany ($10.8bn).
Much of this foreign capital has come from the battery arms of South Korea’s domestic family-owned conglomerates, also known as chaebols, which have large factories active or under construction in China.
Samsung SDI has two major factories for cylindrical batteries in the cities of Tianjin and Xi’an. Meanwhile, its counterpart LG Energy Solutions (LGES) has two major battery plants in Nanjing, which are expected to have a capacity of 144GWh by 2031.
“The reason we have our plant in Nanjing is largely because the region is concentrated with a number of Chinese automakers, making it all the more appropriate for LGES to be situated there,” company officials told fDi.
A lot of the cobalt mines in the Democratic Republic of Congo are partially owned, or operated by Chinese investors
They added that the company expects its “manufacturing capacity will surge in the near future” with a rise in demand for EV batteries, mainly from automakers including start-ups in China. A key factor for choosing to have one of its major global manufacturing sites located in China is that LGES believes “staying close to our suppliers is a key factor in securing a stable supply chain”, they added.
China has a dominant position in the underlying battery supply chain. This includes a variety of different types of minerals required to produce different EV battery technologies, such as lithium-iron-phosphate and nickel-cobalt-manganese.
Deep supply chain
While China is not home to significant deposits of crucial battery minerals, such as lithium, cobalt and nickel, Chinese companies have invested heavily in mines around the world.
“A lot of the cobalt mines in the Democratic Republic of Congo are partially owned, or operated by Chinese investors or producers themselves. So they have this integrated supply chain,” says Edison Luo, the vice president of Energy Metals at Rystad.
The same is true of the processing of these battery minerals. In 2021, China accounted for 65% of global battery-grade lithium metal processing capacity, and is expected to hold onto 56.5% of that market share by 2025, according to Rystad Energy, a consultancy.
“China has a very dominant position in the midstream processing and smelting of metals,” says Mr Luo, noting that battery makers are unlikely to be able to operate without the supply of Chinese materials. As access to battery-grade metals is critical to the viability of manufacturing operations, the position of Chinese companies across the supply chain, including chemicals and precursors, makes the market indispensable.
For European battery makers, this makes their presence in China crucial to their success. Germany-based Svolt recently announced plans to invest €2.9bn into a battery plant and research and development facility in Chengdu. This will play a “critical strategic role” in their global capacity planning, says Maxim Hantsch-Kramskoj, vice president of sales and marketing at Svolt Europe.
The expertise gained by Svolt in China will also be used to set up another plant in Saarland, Germany. “Svolt will bring in experts from the plant in Jintan, where production has already been underway since 2020. Their expertise and know-how will help to set up the two sites more quickly, use the latest technologies and production processes, and accelerate the start of production,” says Mr Hantsch-Kramskoj.
This exporting of expertise around EV battery manufacturing from China is likely to be key for Chinese companies too. Back in September 2021, the World Economic Forum added CATL’s battery plant in Ningde to its ‘Global Lighthouse Network’ of world leading manufacturing sites, making it the first battery plant to join the list.
A spokesperson from CATL tells fDi that the battery maker “will replicate our experience of the ‘lighthouse factory’ to our new production facilities to sharpen our competitive edge and further boost the development of the industry”. China’s role as a production hub for EVs, batteries and their components is set to be a driving force behind electrifying the world.
*This article has been amended to reflect that BYD has nine production bases in China