The global battery market is advancing rapidly as demand rises sharply and prices continue to decline. In 2024, as electric car sales rose by 25% to 17 million, annual battery demand surpassed 1 terawatt-hour (TWh) - a historic milestone. At the same time, the average price of a battery pack for a battery electric car dropped below USD 100 per kilowatt-hour, commonly thought of as a key threshold for competing on cost with conventional models.
Cheaper battery minerals have been an important driver. Lithium prices, in particular, have dropped by more than 85% from their peak in 2022. However, rapid advancements in the battery industry itself are also supporting price declines. After years of investments, global battery manufacturing capacity reached 3 TWh in 2024, and the next five years could see another tripling of production capacity if all announced projects are built.
These trends point to a battery industry entering a new phase of its development. While markets used to be regionalised and small, they are now global and very large, and a range of technological approaches is giving way to standardisation. Looking ahead, economies of scale, partnerships along the supply chain, manufacturing efficiency, and the capacity to bring innovations swiftly to market will be crucial to compete. This will likely result in greater consolidation across the sector, which is simultaneously being reshaped by government-driven efforts to geographically diversify battery supply chains.
China is set to remain the top producer, but consolidation could transform the market
Today, China produces over three-quarters of batteries sold globally, and in 2024 average prices dropped faster there than anywhere else in the world, falling by nearly 30%. Batteries in China were reported to be cheaper than in Europe and North America by over 30% and 20%, respectively. Declining battery prices in recent years are a major reason why many electric vehicles (EVs) in China are now cheaper than their conventional counterparts.
The price advantage of Chinese producers can be ascribed to four main factors:
- Over 70% of all EV batteries ever manufactured were produced in China, creating extensive manufacturing know-how. This has supported the rise of giant manufacturers such as CATL and BYD, which have centralised expertise in the battery sector and driven innovation. These companies have scaled up production faster and more efficiently than competitors and, crucially, achieved higher manufacturing yields.
- Supply chain integration, as the result of acquisitions by a single company as well as close cooperation among leading firms, has also supported faster innovation and a decline in manufacturing costs, with the latter additionally reported to be supported by access to below-market prices for critical minerals. The Chinese battery ecosystem covers all steps of the supply chain, from mineral mining and refining to the production of battery manufacturing equipment, precursors and other components, as well as the final production of batteries and EVs.
- Chinese producers have prioritised lithium-iron phosphate (LFP), a cheaper battery chemistry. Initially thought to be unsuitable for electric cars due to their lower energy density, years of research and development by Chinese producers have honed LFP batteries, which now cover nearly half the global EV market after more than tripling their share within the past five years. Today, they are about 30% less expensive than their main competitor, lithium nickel cobalt manganese oxide (NMC) batteries, while still offering competitive ranges for EVs.
- Fierce domestic competition has shaped the Chinese battery market, which is home to almost 100 producers. To maintain or gain market share, these firms have been cutting their profit margins to sell batteries at lower prices.
However, price declines could slow in the near future. Amid tough competition and shrinking margins, the number of companies producing batteries in China is likely to fall, and certain producers will acquire greater influence and pricing power. Even so, China is expected to remain the largest battery manufacturer by some distance in the medium-term.
