Electric vehicles are now in higher demand, which in turn is increasing the demand for batteries. Global electric vehicle sales are estimated to reach 17 million units by 2024, resulting in the first annual demand for batteries crossing 1 terawatt hour (TWh). This signifies an increasingly urgent search for clean energy among the masses but also shows a vast demand for cutting-edge energy storage technology.
The reduction of battery costs, however, is the most worrying aspect. The average price of electric vehicle batteries has now plunged below $100 per kilowatt hour, symbolizing a turning point for contesting conventional fossil fuel cars. What accounts for its low cost? Three principal reasons:
China has always been ahead in battery production with over 75% market share globally, with industry giants like CATL and BYD dominating. What allows China such exuberance?
The economies of scale: with tons of batteries being produced in China, the price goes down naturally.
Supply chain optimization: China has a complete battery production supply chain, from raw materials to finished products.
Focus on LFP batteries: These are cheap and safe and now account for roughly half of the electric vehicle battery business in the world.
In a cutthroat market, the lower pricing of batteries from China has been one of its larger causes. By 2024, the cost of the battery was reduced by an average of nearly 30 percent, the fastest in the world. Thus, Chinese batteries are now about 30 percent less expensive than in Europe and 20 percent less cheap than in North America. But, the spare profits have lived on the razor's edge with little left over. Consolidation in the industry is upon us, with only the fittest able to survive.
Supply Chain Diversification: A Global Work-in-Progress
While China still maintains first place globally, everyone is busy diversifying their supply chains and lowering their dependence on China. For instance:
South Korea and Japan: These two countries have, for a long time, been leaders in battery technology with unique expertise in the production of NMC batteries, but are now accelerating their global outreach.
The U.S.: Its battery production capacity since 2022 has increased twofold, reaching 200 gigawatt hours by 2024, and another 700 gigawatt hours are in development.
Southeast Asia and Africa: Batteries with central processing facilities are emerging in Indonesia and Morocco, as both countries are endowed with numerous mineral resources.
The government and business too are doing their utmost to reduce dependence on a single country:
With advanced battery producers as partners, joint ventures are being created to foster technological and manufacturing advances.
Domestic battery manufacturing, human resource development, and infrastructure investments will be implemented.
Collaborating with nations rich in materials necessary for battery manufacturing will provide stable sourcing of key resources.
The battery industry is changing: new entrants are being seen as competition in an increasingly tougher market.
The battery industry is changing at warp speed and technological innovation, cost decline, and supply chain expansion really shape the entire industry's future. While China may remain a leader in the foreseeable future, new entrants are continually springing up and foreign competition is set to become tougher.
Battery technology that is next in line for prime time: solid-state batteries, for example, having higher energy density but lower charge times.
Sourcing sustainably and ethically: sourcing of materials for the batteries will gain increasing importance with rising demand.
Cost reduction: batteries will be cheaper, and electric vehicles will be more common.
The battery sector is transitioning to an entirely new paradigm with spurred developments and growth in the coming years. Declining costs, increased capacities, and diversification of supply chains are remodeling the future of the energy storage market. Despite being referred to as number one in the industry, there is now a growing trend towards more diversified global battery production, establishing itself as the bedrock of sustainable development for the batteries market in the near future.
