Why China Is Winning The EV War

In 2024, Ford Motors scaled back production of their F-150 Lightning, the electric version of their popular pickup truck. Sales had plummeted, partly due to its higher cost compared to the gas-powered model. This issue extends beyond Ford, as the average price of a new electric vehicle (EV) in the US sits around $55,000, posing a significant barrier to widespread consumer adoption at a critical juncture for climate goals.

Approximately 40% of an EV's production cost is attributed to the battery. To address this, Ford explored establishing a new battery plant in Virginia or Michigan in 2023 to lower costs. However, plans encountered opposition, particularly in Virginia, due to concerns over ties to CATL, a Chinese company based in Fujian Province—the world's largest battery manufacturer. Despite Ford's assurances that the plant would be a wholly owned subsidiary, political sensitivities led them to seek alternative locations.

This situation underscores broader tensions in the US-China trade relationship, exacerbated by China's rapid growth in the electric vehicle market. Chinese EV sales now account for over half of global EV sales, driven significantly by advancements in EV battery technology.

Chinese dominance in EV batteries stems from substantial government support over the past two decades. Originally motivated by energy independence and urban air pollution challenges, China implemented robust policies supporting "new energy vehicles." These included subsidies, cheap land leases, state-backed loans, and mandates for local governments to electrify public transport fleets.

Consumer incentives, such as subsidies and preferential policies (e.g., parking discounts, traffic benefits), further boosted EV adoption. Stricter standards for battery technology incentivized local innovation, leading to explosive growth in EV sales.

China's control over the EV battery supply chain is pivotal. Chinese companies secured significant global supplies of key battery minerals through investments in mines worldwide. Moreover, China dominates the refining and manufacturing stages of battery production, producing a majority of battery components and assembling them into battery cells.

The Biden administration's regulations, limiting the share of Chinese-sourced components in EV batteries eligible for tax credits, underscore the strategic importance of battery supply chain security. However, Chinese firms continue to innovate, particularly with lithium iron phosphate (LFP) batteries, which eliminate the need for expensive minerals like nickel and cobalt. CATL and BYD have made significant strides with LFP technology, enhancing range and charging efficiency.

Despite geopolitical concerns and competitive challenges, Chinese battery manufacturers are expanding globally. CATL has established facilities in Germany and plans further expansion into Hungary, targeting the European market. Ford's decision to locate its CATL battery plant in Marshall, Michigan, has sparked congressional scrutiny but signifies a significant step toward integrating LFP battery production in the US.

The dilemma highlights the global nature of the battery industry and raises questions about fair competition, environmental impacts, and human rights considerations within China's supply chain. In response, the US is ramping up efforts to develop a domestic battery industry, aiming to meet future demand and reduce dependence on foreign supply.

As the world races to transition from fossil fuels to electric vehicles, balancing economic imperatives with strategic autonomy remains a pressing challenge for US policymakers and automakers alike. The path forward hinges on navigating these complexities while accelerating the adoption of affordable, sustainable transportation solutions.