Why China Dominates the Battery Cell Industry

China manufactures the large majority of the world’s lithium-ion cells, and its two largest producers alone account for a substantial share of global output. Every other country combined — Korea, Japan, the United States, Europe, India — makes up the remainder.

This is usually explained as cheap labour. That explanation is wrong, and getting it wrong leads to bad strategy. Cell manufacturing is highly automated; labour is a small share of cost. The real advantages are structural, and they took two decades to build.

The decisive move was not building cell factories. It was taking control of the middle of the supply chain — refining raw materials into battery-grade chemicals, and converting those into cathode and anode materials.

Mining is globally distributed. Refining is not. A country can hold the ore and still depend entirely on someone else to turn it into something a battery can use. That is the position most of the world is in, and it is covered in detail in our piece on why refining is the real chokepoint.

The largest Chinese producers are not cell companies. They hold interests spanning mining stakes abroad, refining, cathode and anode production, separators, electrolyte, cells, packs, and increasingly recycling that feeds material back to the start.

A competitor that buys cathode on the open market is negotiating against a firm that makes its own. That is not a cost gap that better factory management closes.

Battery costs follow a learning curve: each doubling of cumulative production drives a predictable percentage cost reduction. This is not a metaphor, it is an observed relationship, and it means the party that produced the most units has structurally lower costs than a newer entrant with identical technology.

A new entrant is therefore not competing against today’s Chinese cost base. They are competing against it after their competitor has moved further down the curve during the three years it takes to build the plant.

Gigafactories in China have been built and commissioned in a fraction of the time typical elsewhere, with land, power and permits arranged as a matter of industrial policy rather than negotiated project by project. Capital has been available at low cost and with tolerance for years of losses to secure position.

Where a Western or Indian project spends two years on permits and power connections, the equivalent Chinese project is already producing and moving down its learning curve.

New cell lines produce poor yields at first. Absorbing that early output requires a large, tolerant domestic market — which China had, through sustained domestic EV adoption and grid storage deployment.

A country building cells for export alone has no equivalent shock absorber for the ramp-up period, which is precisely when costs are worst.

Cell production requires highly specialised machinery: coaters, calenders, winders, stackers, formation and ageing equipment. A large share of that equipment is Chinese-made.

This is a quiet but serious dependency. A country can build a gigafactory anywhere in the world and still be buying the machines, the process know-how and the commissioning engineers from the incumbent.

• •Cell pricing and availability are exposed to policy decisions, not only market demand
• •Second-sourcing matters more here than in most component categories
• •Claims of “made in India” batteries usually mean pack assembly here with imported cells — worth asking which is meant
• •The gap is closable at the pack and BMS layer far sooner than at the cell layer

For what closing it would actually involve, see our assessment of India’s position.