In 2024, electric car sales worldwide surged by 25%, reaching 17 million units, pushing annual battery demand beyond the 1 TWh mark for the first time, according to the International Energy Agency (IEA). At the same time, the cost of electric vehicle (EV) battery packs dropped below $100/kWh, making electric cars increasingly cost-competitive with traditional combustion-engine vehicles.

Battery Price Drivers

A significant factor behind declining battery prices is the sharp drop in the cost of key raw materials, particularly lithium, which has fallen by over 85% since its peak in 2022. However, advances within the battery sector itself are also playing a crucial role. Years of investment have expanded global battery manufacturing capacity to 3 TWh in 2024, with projections indicating that the capacity could triple over the next five years if all planned projects are completed. This expansion will likely foster economies of scale, streamline production and accelerate battery technology standardization.

China’s Dominance

China continues to lead battery production, comprising over 75% of the global supply. In 2024, the country’s battery prices declined more rapidly than anywhere else, dropping by nearly 30%. Chinese batteries were 30% cheaper than their European counterparts and 20% less expensive than those produced in North America, contributing to EV affordability in the country compared to conventional cars.

The competitive advantage of Chinese battery manufacturers is rooted in multiple factors. Manufacturing expertise plays a key role, with over 70% of all EV batteries produced in China, leading to unparalleled industry know-how. Companies like CATL and BYD have leveraged this expertise to scale production rapidly and improve efficiency. Additionally, supply chain integration has been a major advantage. Chinese firms benefit from a deeply interconnected battery ecosystem encompassing everything from mineral extraction to battery production. This integration, combined with access to minerals at below-market prices, has helped reduce costs further.

Another crucial factor has been the focus on lithium-iron-phosphate (LFP) batteries. Initially considered less viable for EVs due to their lower energy density, LFP batteries dominate nearly half the global market, these batteries are about 30% cheaper than their lithium nickel cobalt manganese oxide counterparts while still providing competitive driving ranges. Intense market competition has also pushed prices lower. With nearly 100 battery producers competing for market share, fierce price competition has reduced profit margins, driving costs down even more.

However, this rapid price decline may slow in the coming years. The Industry is expected to consolidate with intensifying competition and shrinking profit margins, with fewer dominant players gaining pricing power. Despite these shifts, China is expected to maintain its leading role in global battery production for the foreseeable future.

Challenges for Europe

China’s battery industry dominance poses significant challenges for European manufacturers. Higher production costs—approximately 50% above those in China—coupled with weaker supply chain integration and a skilled labor shortage have led many European battery firms to scale back or abandon expansion plans. The collapse of Northvolt, Europe’s largest homegrown battery investment, underscores the difficulty of competing with well-established Asian manufacturers.

IEA noted that Europe must prioritize strong domestic demand to build a more competitive battery sector. Clear government policies that signal stable EV adoption and mitigate investment risks will be crucial. Efforts are underway to produce more cost-effective LFP batteries in Europe. Korean manufacturers—who have historically dominated the region—are now investing in local LFP production to better compete with Chinese suppliers. Additionally, partnerships such as the Stellantis-CATL joint venture could accelerate LFP battery adoption, strengthen Europe’s battery ecosystem, and reduce the cost disparity with China.

Battery Production Expansion

Despite China’s current dominance, battery production is expanding in other regions. South Korea and Japan remain major global players, with expertise in lithium nickel cobalt manganese oxide battery technology and significant overseas investments. Korean companies, in particular, lead in international manufacturing capacity, operating nearly 400 GWh of facilities abroad, far exceeding Japan’s 60 GWh and China’s 30 GWh. These manufacturers are also investing in next-generation technologies such as solid-state batteries.

Battery manufacturing in the U.S. has doubled its capacity since 2022 to over 200 GWh in 2024. Tax incentives for domestic production have spurred further investments, with nearly 700 GWh of new capacity currently under development. However, supply chain challenges persist, as domestic production of key components like anodes and cathodes remains limited.

Meanwhile, Southeast Asia and Morocco are emerging as important battery production hubs. Indonesia, which holds half of the world’s nickel reserves, launched its first EV battery and graphite anode manufacturing plants in 2024. With the world’s largest phosphate reserves, Morocco is leveraging its existing automotive industry and free trade agreements with the EU and the U.S. to attract over $15 billion in battery-related investments.

Supply Chain Security and Diversification

As battery supply chains become more concentrated, governments are increasingly concerned about supply security. China’s recent proposal to limit battery cathode and lithium processing technology exports has heightened these worries. While diversifying supply chains is a strategic priority, achieving this requires significant investment, expertise, and time.

IEA noted that countries must ensure sufficient demand to foster a more resilient global battery market. Sustained EV adoption is critical to supporting domestic battery production and attracting investment. Additionally, leveraging automation and innovation can help new entrants improve efficiency and remain competitive. Encouraging strategic partnerships through joint ventures and technology licensing agreements with established battery producers can help accelerate expertise development and reduce production costs. Promoting international collaboration will also be essential.

Many individual markets lack the scale to justify large battery investments, so cooperation with other EV-producing nations and resource-rich countries—including those in South America and Africa and countries such as Australia and Indonesia—will be vital to securing essential materials and expanding production capacity.

BloombergNEF recently reported that lithium-ion battery pack prices dropped 20% from 2023 to a record low of $115/kWh, the most significant annual decline since 2017. Prices of Li-ion battery packs dropped by 14% to $139/kWh in 2023 due to falling raw material and component prices.