Key Takeaways
Chinese government licenses are now needed for the transfer of eight key technologies for manufacturing EV batteries outside of China.
China controls most of the world’s lithium processing, accounting for about 65% of the total capacity that is needed in the production of lithium-ion batteries.
Chinese companies account for about 70% of the global EV battery market.
CATL, the world’s largest EV battery manufacturer, supplies Tesla and Ford.
Chinese companies, CATL and BYD, are outpacing Western competitors in battery innovation.
China introduced new export restrictions on technologies needed for electric vehicle (EV) battery production, cementing its lead in the global EV battery supply chain. The Chinese Ministry of Commerce will now require export licenses for specific technologies used in producing battery-cathode materials and in refining or processing nonferrous metals, which are associated with raw materials in batteries. Government licenses are needed for the transfer of eight key technologies for manufacturing EV batteries outside of China. According to the New York Times, the restrictions are effective immediately and apply to any overseas transfer through trade, investment, or technological cooperation. The move materializes a threat made in the earlier stage of China’s trade war with the United States and strengthens China’s leverage in future negotiations, while securing continued dominance for China in the EV battery market.
China is the world’s leading manufacturer of EV batteries, and the new rules will strengthen its control over upstream components. Cathode materials are key to battery performance and cost, and China currently supplies a majority of these materials worldwide. With this move, China is making it more difficult for foreign companies to obtain Chinese technologies, ensuring other countries cannot easily catch up to its dominance in the area.
Foreign automakers will likely face delays or disruptions in accessing production technologies from China, forcing them to reassess their supply chains and increase investments in domestic or alternative sources for battery technology and raw materials. For example, according to Battery Technology, companies outside China are accelerating the development of advanced LMFP (lithium manganese iron phosphate) batteries and trying to secure high-purity raw materials from Europe and North America to establish more independent supply chains.
China controls most of the world’s lithium processing, accounting for about 65% of the total capacity that is needed in the production of lithium-ion batteries. Last year, Chinese companies accounted for about 70% of the global EV battery market. The world’s largest EV battery manufacturers are located in China. Contemporary Amperex Technology Ltd (CATL) is the largest and it supplies Tesla and Ford. BlueOval Battery Park, Ford Motor Company’s $3 billion factory in Michigan, is designed to manufacture EV batteries using technology from CATL.
The restrictions China implemented include three core technologies linked to battery-cathode production for lithium iron phosphate (LFP) batteries, a popular type of lithium-ion battery that is safer and cheaper than traditional nickel-cobalt-manganese chemistries. Another change is linked to five core technologies involving lithium extraction and processing, which is indispensable for most advanced batteries, including next-generation solid-state batteries.
Both BYD and CATL maintain a substantial lead in LFP battery technology. Although LFP batteries were initially invented in the United States nearly 30 years ago, over the past five years, Western companies have struggled to keep up with Chinese companies’ progress. According to Battery Technology, BYD and CATL have developed proprietary methods to increase the number of recharge cycles the batteries can withstand, pack more electricity into each battery, and mass-produce them efficiently.
For example, CATL recently announced its second-generation Shenxing battery, which can add 323 miles of range in just five minutes of charging, with a total range of 497 miles, and has a peak charging power of 1.3 megawatts. The CATL announcement came shortly after BYD announced its fast-charging technology with 249 miles of range in five minutes, which some believe is fast enough to make gasoline vehicles irrelevant.
These actions are on top of other actions that China has been taking to ensure its continued dominance of the EV industry. In 2023, China added export controls on rare-earth-related technologies, including extraction and separation. Since April, China has tightened export restrictions even more on rare earths, so that U.S. and European automakers have been dealing with potential production stoppages due to rare-earth magnet shortages, which are needed in EV motors. The new restrictions suggest China has no intention of easing its technological protectionism.
Analysis
Increased Chinese protectionism regarding key inputs needed for EVs and other technologies raises questions about the U.S. EV industry’s future. If EV demand exists, whether due to consumer preferences or government mandates, it is likely that the U.S. companies will attempt to onshore or reshore these battery production processes. This phenomenon has occurred in China in response to U.S. restrictions on semiconductors, which caused China to prioritize self-sufficiency through subsidies, similarly to what the Biden administration attempted with EVs. However, while semiconductors are essential to many commercially-proven technologies, EVs are unproven on the market without subsidies. And, as we explained in When Government Chooses Your Car, market-driven demand for EVs has been driven primarily by government policy. Thus, with the Inflation Reduction Act’s EV subsidies largely being removed by the One Big Beautiful Bill Act, China’s export restrictions will likely further incentivize U.S. automakers to forgo producing EVs.
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