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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is executive director of the International Energy Agency
Batteries are a crucial part of our everyday lives and our economies: they’re in everything from phones and watches to cars and factories. Their role is only set to get bigger, especially in the energy sector, as costs come down and demand rises.
But the world’s battery supply chains show a worrying dependency on one single country — China. History has shown that dependence on a single supplier for a major fuel or technology brings huge risks, as Europe found with Russia and gas to its great cost in 2022. Export controls Beijing announced earlier this month highlighted how it could turn this into a major pain point for industries such as AI data centres, electricity networks, defence technologies and high-tech manufacturing.
Most of the global demand for lithium-ion batteries comes from electric vehicles but another big chunk is for storing electricity in the power sector. Around 130 gigawatts of battery storage are in the pipeline to be added to electricity systems worldwide this year. That is substantially more than the highest amount of natural gas power added in a single year.
Batteries are also used in defence technologies like drones and satellites, in AI data centres to ensure uninterrupted electricity supplies and increasingly in the AI-enabled robots being used in logistics and manufacturing. They are quickly becoming one of the most important technologies of the 21st century.
Their rapid ascent is being driven by two key trends: lower costs and electricity expansion. Between 2010 and today, battery prices plunged more than 90 per cent. In parallel, demand for electricity outpaced overall energy demand growth.
As their importance grows, more attention is being paid to global manufacturing and supply chains. The International Energy Agency’s first golden rule for energy security is diversification. But when we look at batteries, China holds huge sway over all the steps in the manufacturing value chain of batteries used in virtually all electric vehicles and battery storage facilities.
China was an early adopter of battery technologies, but it was not the only one. In 2018, battery manufacturing technologies in the US and China were at a similar level, according to IEA analysis. Japan and South Korea were also competitive, while Europe was farther behind. Since then, however, the Chinese battery industry has expanded its position. By 2024, more than six times as many batteries had been produced in China than in the US. The battery manufacturing capacity in the Shanghai area alone exceeded that of the entire European continent.
China made key strategic decisions and investments during the past decade that enabled it to pull ahead. The size of its battery industry means it now benefits from huge economies of scale. Chinese companies have also become the main engine of innovation in the battery industry, from new chemistries to manufacturing advancements.
New IEA analysis shows that nearly all batteries used for power grids rely on China. China’s dominance of battery supply chains also extends to the critical minerals that go into them.
Such a high level of concentration creates considerable risks. And the importance of batteries across a wide range of sectors means these risks go beyond energy. There is a mismatch between many countries’ rising need for batteries and their readiness to ensure diversified supply chains.
To achieve this goal, countries need to co-operate to diversify all steps of the supply chain and boost innovation. This could include working with companies with deep battery expertise to establish the industry in more regions and build up local skills.
This challenge is broader than one industry — it is a matter of economic and national security.
