- China, with the help of government subsidies, has led the world in producing and selling EVs.
- Chinese companies have focused on reducing the cost of EV batteries over their performance.
There's been a clear winner in the global EV race so far: China.
The world's second-largest economy accounted for about 64% of total production volume in 2022, the World Economic Forum found, with government subsidies and tax breaks aiding production.
China is also one of the biggest producers of the LFP — lithium, iron, phosphate — batteries that many EVs run on. CATL is China's largest battery manufacturer, and helped it earn the top spot by ensuring its LFP batteries were as cheap as possible.
That approach is in contrast to car and battery makers in America and Europe, which "prioritized battery chemistry tied to performance, not affordability," Bill Russo, Chrysler's former China boss, told The Financial Times.
"What we've discovered in China is that electrification, and the democratization of the EV, prioritizes consumer affordability. By making it cheaper, China wins," he said.
Founded in 2011, CATL has zoomed past competitors from South Korea, the US, and Europe to take pole position, with its batteries now being found in about one in three EVs globally.
Even Ford announced plans to use CATL technology in a new $3.5 billion battery plant in Michigan.
Picking winners
But Ariel Cohen, a senior fellow at the Atlantic Council's Eurasia Center and a member of the Council of Foreign Relations, said there's been considerable pushback against the move.
He said that while he understood "the national security imperative" in the US, he was "very uncomfortable over the government playing favorites and picking winners."
Some members of Congress are concerned that the plant could leave Ford reliant on Chinese know-how — and send US tax subsidies to China. Last month, Ford paused construction of the facility amid the strike by the United Auto Workers union, though the union's president, Shawn Fain, said that decision was a "shameful, barely-veiled threat by Ford to cut jobs," Reuters reported.
Concern about using Chinese battery technology reflects wider global concern about China's domination of the EV-battery market, with governments starting to block Chinese investment into mines and factories.
In February, the Australian government blocked China's Yuxiao Fund from increasing its stake in the rare-earth miner Northern Minerals, a rare-earth producer, on national interest grounds, Reuters reported.
Australia is the world's biggest producer of lithium, a key material for EV batteries, and a major producer of other rare-earth materials. Jim Chalmers, the Treasurer of Australia, said at the time that Australia would now be more selective about who could invest in its minerals sector.
Cohen said India had also made moves to challenge China's influence and that he expected the country to "be much more proactive to defend their own industry and other players against Chinese competition."
In July, officials rejected plans by the Chinese automaker BYD to build a $1 billion factory in India.
China's "clear advantage" in the field also reflects its control over many of the supply chains needed to make batteries, Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies in Washington, DC, told Insider.
In a July report, Morgan Stanley said that "up to 90% of the EV battery supply chain relies on China, with the two largest Chinese battery companies controlling more than half of the global market."
The investment bank added that China dominated "labor and manufacturing infrastructure, as well as mining of critical materials required to make EVs."
"We're headed towards a world where governments are more and more concerned about globalization-integrated supply chains," Mazzocco said, adding this "wasn't a problem for the Chinese government" when it was setting up its supply chains.
Optimistic
China's supply-chain dominance allows it to make batteries more cheaply than rivals — less than $60 million per gigawatt hour of batteries produced, according to Bernstein analysts quoted by the FT, compared with $88 million for South Korean manufacturers, while Japan's Panasonic spends $103 million.
EV competitors are also looking for new technology to take on China — especially in light of slowing EV sales in September, which led to a drop in the prices of key materials used in batteries, such as lithium, nickel, and cobalt.
China's sluggish economy threatens to keep dampening consumer spending on new cars.
Meanwhile, Cohen said he's particularly "optimistic" about US innovation.
"The Biden administration is throwing tens of billions of dollars at this problem. It doesn't necessarily mean that people who are making these decisions are brilliant, but at least the money is there," he said.
Distorting the market
Europe has struggled to decide how to deal with imported Chinese EVs, but Cohen said it's now "shifting slowly in the direction" of America.
Last month, the European Union announced an investigation, with Ursula von der Leyen, the president of the European Commission, saying "global markets are now flooded with cheaper Chinese electric cars" sold at artificially low prices due to "huge state subsidies. This is distorting our market."
There have also been protests in Hungary, where CATL and Mercedes-Benz are planning a $7.9 billion battery plant that would produce enough power for a million cars, over the plant's environmental impact, Bloomberg reported. The country is already home to several car plants and battery factories as its government is aiming to make Hungary a big EV producer.
Cohen also said he thinks next year's US presidential election could affect Europe's stance. A return to the White House for Donald Trump could accelerate any EU action against China as the US would likely put "more pressure on Europe."
China may lead the world in the EV race — but those days could be numbered.