Manufacturing & Gigafactories Developed 2023 · C9 4 min

Decoupling the Battery Industry from China: Building a Resilient Supply Chain

Building a resilient battery supply chain has moved to the top of the agenda for Western manufacturers as governments try to reduce reliance on Chinese imports. This case study places the reader in the role of a senior corporate strategy executive at EnergyCo, a European battery maker setting up its first gigafactory in Germany with an eye on both European and North American sales. The board wants to understand how emerging protectionist measures reshape the industry, and how EnergyCo should respond.

The Problem: How Deep Is the Dependence on China

Electric vehicles have become the mainstay of road transport decarbonisation, with global passenger EV penetration rising from under 1 percent to 14 percent in about six years, and China and Germany already past 25 percent. Batteries are the building block of that shift. Global battery manufacturing stood at roughly 1.6 TWh in 2022 and is expected to exceed 7 TWh by 2030, a 4.5-fold rise in eight years.

China sits at the centre. It accounts for around 77 percent of battery cell production, 70 percent of cathode output, and 93 percent of anode output. Existing project pipelines suggest its grip will hold, with an estimated 65 percent share of cell production by 2030, 78 percent of cathodes, and over 85 percent of anodes. In electric vehicles, BYD has closed much of the gap with Tesla in global sales while offering models at a fraction of the price. China is on track for around 8.5 million EV sales in 2023, up about 35 percent year on year, and its EV exports to the EU grew 112 percent year on year in the first half of 2023.

The Approach: Testing Whether Decoupling Is Possible

The board set four questions: how dependent global EV and battery manufacturing is on China, whether raw materials can be procured while excluding Chinese stakeholders, whether protectionist policy helps or hinders Western EV adoption, and how a European maker can benefit.

The analysis examines four critical materials: cobalt, nickel, lithium, and graphite. Cobalt illustrates Chinese-African integration. The Democratic Republic of Congo supplies over 60 percent of cobalt, and Chinese firms own major assets there, including the Tenke Fungurume mine under China Molybdenum. China controls around 44 percent of cobalt production and 77 percent of refining, though the sector carries documented ethical and environmental concerns. Nickel shows a different route: China mines little directly but has invested heavily in Indonesia, home to the world's largest reserves, where firms such as Tsingshan Group have become dominant processors. China consumes over half of global nickel. Graphite and rare earths show China as dominant in both extraction and processing.

Findings and Trade-Offs

The core finding is that full exclusion of Chinese stakeholders from raw material supply is extremely difficult in the near term. For most materials, China controls not just extraction but the processing and refining that determine price and availability, so a Western manufacturer faces a supply chain problem as much as a geopolitical one.

The Chinese advantage rests on sustained state support and a fiercely competitive home market. Between 2016 and 2022, an estimated 57 billion US dollars went to EV incentives, with around 15 billion in 2021 alone. Support has continued even for unprofitable firms; Nio reported a 835 million US dollar loss in the second quarter of 2023, equivalent to about 35,000 US dollars per car, yet has received repeated state-linked capital injections. At the same time, Chinese players are spending heavily on R&D and automation, so they compete on technology and cost together, not price alone.

What It Means for the Industry

For EnergyCo, protectionist measures such as the US Inflation Reduction Act and European localisation efforts create both a hurdle and an opening. They raise the cost and complexity of sourcing, but they also favour local cell production and can shield a European gigafactory serving Western demand. The strategic implication is that resilience comes from securing non-Chinese material streams where feasible, forming partnerships across the value chain, and positioning to benefit from local-content incentives rather than trying to match Chinese scale head-on.

The broader lesson is that decoupling is a gradual, partial process. Western manufacturers can reduce exposure and capture policy-driven demand, but a fully China-free battery supply chain is not achievable quickly given the concentration of processing and refining.

Key Takeaways

China holds about 77 percent of cell, 70 percent of cathode, and 93 percent of anode production, and its lead is set to persist to 2030.

Excluding Chinese stakeholders from raw materials is very hard because China dominates processing and refining, not only extraction.

Cobalt (DRC) and nickel (Indonesia) show China securing supply through overseas ownership and processing investment.

Chinese competitiveness rests on large subsidies (around 57 billion US dollars from 2016 to 2022) and heavy R&D spending.

Protectionist policy raises sourcing costs but can favour local gigafactories and reward local-content strategies.

EnergyCo's best position is securing non-Chinese material streams, partnering across the chain, and capturing policy incentives.

Decoupling is partial and gradual; a fully China-free battery supply chain is not achievable in the short term.