Why China is winning the EV war

Ford Motors reduced manufacture of their popular electric pickup vehicle, the F-150 Lightning, in 2024. The Lightning's sales have completely collapsed, partly due to its higher price compared to its gas-powered equivalent. This issue affects more than just Ford. While EV adoption is essential for achieving our climate targets, most US customers find electric cars difficult to convince, with the average cost of a new EV in the US being approximately $55,000. Batteries account for about 40% of the total cost of manufacturing an electric vehicle.

According to reports in 2023, Ford was considering locations in Virginia or Michigan for a new battery plant that would help reduce company expenses. There's a catch, though. It would employ battery technology from this corporation, which is headquartered in the Chinese province of Fujian. That business is the biggest battery manufacturer globally, CATL. The governor of Virginia decided to veto the proposed battery plant because of its ties to China, stating that the Chinese Communist Party influences, if not controls, the state. The governor also put Ford's CEO on the defensive, saying, "Look, this plant is a wholly owned subsidiary of Ford," and told the company to find another location.

The US and China's wider trade spat, sparked by China's remarkable surge in the electric vehicle market, entangled this battery plant. They have introduced stylish and reasonably priced electric cars to the market in a few of years, accounting for more than half of all EV sales worldwide. The electric car battery is essential to this increase. This is the area of the EV where China has truly taken over the world market. So how did Chinese businesses produce the best EV battery in the world? And without it, are US automakers able to produce a cheap electric vehicle?

China's companies were able to develop their EV battery primarily because of substantial government support. About 20 years ago, China was on its way to becoming the world's largest oil importer, so transitioning to electric vehicles would enhance its energy independence. Additionally, China was grappling with increasing air pollution in its cities, partly due to car emissions. The head of the Ministry of Science and Technology was a strong advocate of electric vehicles because he believed that Chinese companies would never be able to compete in internal combustion engine technology. That’s how you get this package of policies that really supported what the Chinese government defined as “new energy vehicles.”

Car companies receive a subsidy for each car sold and also benefit from discounted land leases and loans from state-owned banks. An estimated $29 billion in subsidies, research spending, and tax breaks was provided by the Chinese government to the electric vehicle industry from 2009 to 2022. Additionally, local governments contracted Chinese companies to electrify their bus and taxi fleets, providing an instant market starting around 2009.

BYD pioneered the electrification of Shenzhen's 16,000 buses, establishing itself as the world's largest EV company. To incentivize consumers, governments offered generous subsidies and additional perks, such as charging discounts, favorable parking, and exemptions from traffic congestion policies. Additionally, EVs are easily identifiable by their distinct license plate color, signaling their eligibility for special treatment. However, early EV batteries were not very efficient, prompting the Chinese government to implement stricter battery standards required to qualify for incentives.

The sale of electric vehicles (EVs) to consumers surged in China, prompting the government to take significant measures to safeguard its own battery industry. For foreign automakers such as GM and Tesla to market their EVs in China, the government mandated that their vehicles must be equipped with batteries manufactured in China in order to be eligible for consumer subsidies. Although China's central government phased out consumer subsidies in 2022, the demand for EVs had already been established. By 2024, more than half of the new car sales in China were electric, marking a significant milestone as it indicates a preference for EVs over traditional gasoline-powered cars by the majority of the population. The second way Chinese battery companies became so dominant is through the supply chain for the battery components. The type of battery that typically goes into electric vehicles is called a lithium-ion battery.

The battery cell consists of four primary components: the cathode, anode, electrolyte solution, and separator. Typically, the cathode contains nickel, cobalt, and manganese, while the anode is composed of graphite, and the electrolyte primarily comprises lithium salts. In recent years, Chinese firms have been acquiring ownership interests in mines worldwide where these minerals are found, enabling them to exert influence over production and consequently, pricing. Consequently, Chinese companies now have significant control over a substantial portion of the world's supply of the minerals essential for battery production. However, China's true dominance lies in its control of the supply chain post-mining. No matter who mines the minerals, China refines a vast majority of them. This is the step where factories grind down raw mined materials and extract the desired mineral from it.

The refining process is highly polluting, which is why there is minimal refining activity in developed nations. The majority of EV battery components, including the cathode, anode, electrolyte, and separator, are manufactured in Chinese plants, which then assemble them to create the battery cell. This is due to China's well-established battery manufacturing for electronics, with companies like BYD being prime examples as they initially focused on electronic batteries in the 90s before transitioning to EV batteries. Historically, the US has not been a major player in lithium-ion battery manufacturing, as this role was previously held by Japan and Korea. China has now surpassed both countries in this industry.

The battery supply chain in China is so extensive that, following the implementation of a rule by the Biden administration stipulating that no more than half of the components or minerals in batteries can be of Chinese origin to be eligible for tax credits, an estimated 20% of electric vehicle models met the criteria. Chinese companies' dominant position in the market has enabled them to take the lead in battery innovation worldwide. Over the last two years, Chinese companies have discovered ways to eliminate the use of the two most expensive battery minerals, nickel and cobalt.

Innovations in battery technology, specifically lithium iron phosphate (LFP), enabled this advancement. CATL unveiled an LFP battery in 2023 capable of powering a car for 370 miles after just a ten-minute charge, while BYD also introduced their own variation known as the blade battery. This unique battery is designed to be thin and elongated, allowing for a higher battery density within the same space. Consequently, vehicles of the same size can achieve greater travel distances.

LFP batteries now make up a significant portion of all EV batteries, with the majority being manufactured in China. However, this is expected to change as CATL has established battery plants in Germany and has plans to construct one in Hungary to cater to the European auto market. Interestingly, Ford has found a location for its CATL battery plant in the town of Marshall, Michigan, sparking a congressional inquiry. Should the plan come to fruition, it will mark the first LFP plant in the US. These developments have made it almost impossible to avoid Chinese EV batteries in the global shift towards electric vehicles. It seems there was no viable alternative, as LFP technology has been very well developed. The battery business is a global business. And, this was, there were no alternatives.

Concerns have been raised about whether China's government support for the EV industry creates unfair global competition, as well as issues related to human rights and the environment in the country's battery supply chain. In response, the US is allocating government support to strengthen its own battery industry. According to Bloomberg, meeting domestic demand by 2030 could cost the US $82 billion. While this may be achievable in the future, it does not address the current urgent need to transition to electric vehicles and provide affordable options for consumers, especially as US automakers are facing challenges. Therefore, we must weigh our desire to distance ourselves from China against our goal of transitioning to electric vehicles.