Chinese Battery Factories Close to Reaching Production Capacity

Chinese battery factories are expected to reach a production capacity of 1,500GWh this year. This excess capacity could power 22 million electric vehicles, more than double the anticipated demand of 636GWh, according to data from research firm CRU Group. Excess production is projected to outstrip domestic demand by four times in 2027 which, according to Verkor Founder Olivier Dufour, highlights the substantial state subsidies and bank loans expected to support the international expansion of Chinese manufacturers.

Just like in other industries like steel, aluminum and solar panels, battery manufacturers are following a pattern of benefitting from subsidies to control a significant portion of the global market. Their primary interest remains the elimination of global competition, added Dufour.

The surge in battery production has also raised concerns for Chinese leader Xi Jinping. In March, he issued a warning about the dangers of over-expansion and the possibility of a boom-and-bust cycle, which has been observed in certain rapidly growing Chinese sectors, like real estate and solar energy.

Despite bans and restrictions on their technology, Chinese battery manufacturers, including CATL, the global leader with a 37 percent market share, intend to expand into the US and Europe. In February, CATL signed an agreement with Ford to license its technology for use in the automaker's Michigan plant. Meanwhile, AESC will play a pivotal role in Tata's battery factory in the UK.

While there are obstacles to flooding the global market with battery exports, Chinese manufacturers might seek to establish local production centers to go around export restrictions, according to a report by the Financial Times. Chinese automotive entrepreneurs have shown interest in investing in Mexico as part of the nearshoring phenomenon. Mexico received US$13.4 billion worth of foreign investment in 1Q23 thanks to the nearshoring boom, which is equivalent to more than 70% of the total investments captured in 2022. Moreover, between January and September 2022, Chinese investments in Mexico represented 40% of the nearshoring demand, according to MBN.

In addition to these battery industry developments, China plans to modernize its manufacturing sector by 2025. The government has laid out guidelines for a tailored technological innovation system to address industry-specific challenges and expand technology use.

By 2027, companies aim to have a state-of-the-art innovation system in place, guiding them in research, development and efficient supply chain management. This strategy aims to make China self-reliant in technology and strengthen its manufacturing industry.