Battery technology

China was an early adopter of battery technology, but its dominance has only become apparent more recently. By 2024, China produced more than six times the number of batteries as the US.¹ This lead stems from strategic decisions and sustained investments over the past decade, which positioned China at the forefront of the industry. Today, it leverages massive economies of scale that are not only driving down costs but also allowing for accelerated innovation in new chemistries and advanced manufacturing techniques.

By way of background, the battery landscape today is defined by two primary lithium-ion battery chemistries: lithium iron phosphate (LFP) and nickel-manganese-cobalt oxides (NMC).

Historically, automakers in the West, including major US EV producers such as Tesla in its earlier models, gravitated towards NMC batteries. This was mainly due to their higher energy density and more resilient performance in low temperatures. This, in turn, allowed for longer driving ranges and better performance in cold weather conditions. 

However, NMC batteries have several structural disadvantages. For example, they rely on more expensive metals such as cobalt and nickel, making them more costly and more vulnerable to price volatility. This has become increasingly problematic given that battery prices overall have fallen by more than 90% over the last 15 years.² NMC batteries also present greater thermal management challenges, requiring more sophisticated cooling systems to prevent them from overheating.

In contrast, Chinese companies have invested heavily in developing and refining LFP technology. One of the key advantages of LFP batteries is cost – they are around 30% cheaper than NMCs.¹ This is because, in addition to minerals such as lithium carbonate, they use relatively cheaper materials such as iron and phosphate. LFP technology is also thermally more stable than NMC batteries, reducing the risk of fires and simplifying battery pack design. And the overall chemistry is more durable, with a longer cycle life that translates to better residual value for vehicles over time.

While early LFP batteries offered lower energy density than their NMC counterparts, continuous innovation and refinements have narrowed this gap. Indeed over time, the benefits of LFP technology over NMC are expected to widen.

These advances are already driving a broader shift in the industry. As automakers prioritize cost and safety alongside range, LFP is gradually gaining ground even in markets that previously favoured NMC. For example, more global automakers, including Tesla, are starting to adopt LFP batteries in their standard-range models.

As a result, while LFP technology has already become the standard in EVs in China, over time we expect it to also become dominant in other global markets. 

The increasing global adoption of LFP batteries has cemented the EV industry’s reliance on China’s battery supply chain. Across every stage of the production process, from upstream critical minerals to manufacturing finished battery cells, China has a dominant market position.

This concentration creates both opportunities and risks. While it enables economies of scale and rapid innovation, it also exposes the industry to potential supply disruptions and geopolitical concerns.

As such, the search for next generation batteries has been spurred by both economic and security considerations. While Chinese companies are looking for ways to drive down costs even further, other global companies want to reduce their reliance on Chinese supply chains. This focus is becoming more intense as LFP batteries approach their theoretical limits in terms of energy density and cost reduction.

One new technology gaining some attention is sodium-ion batteries. The Chinese company Contemporary Amperex Technology (CATL) has been at the forefront of the research effort. The main advantage is cost. The key ingredient, sodium carbonate, is one of the most abundant elements on Earth, and costs about 30% less than the lithium equivalents.³ However, there are certain technical limitations which mean sodium-ion batteries are currently seen as more suitable for low-cost EVs and grid storage. Of more interest longer-term, and a potential game-changer, is so-called solid-state technology. 

All lithium-ion batteries share the same basic anatomy, which is based on cathodes and anodes. An electrolyte facilitates the movement of lithium ions between them, generating power, while a separator prevents direct contact to avoid short circuits. In conventional batteries, like LFPs and NMCs, the electrolyte is a liquid organic solvent. This is flammable and presents safety risks from thermal runaway. It also diminishes performance under extreme temperatures.

Solid-state batteries are very different. Instead of a liquid electrolyte, they use solid materials such as sulfide, polymer, oxide or halide-based compound to transport ions. This eliminates the need for a separator, which saves space. As such it brings several potential transformative advantages:

Longer range: Solid-state batteries deliver potentially 2-3 times higher energy density than current lithium-ion batteries. This would enable EVs to achieve ranges exceeding 1,000 km on a single charge.

Faster charging: Solid-state batteries can potentially achieve much higher charging rates and therefore faster charging times.

Thermal stability: Without the volatile liquid component, solid-state batteries are inherently safer, eliminating the risk of fires or explosions.

Technology resilience across diverse climates: Solid-state batteries can operate across a broader temperature range, from -40°C to over 100°C, compared to LFP’s narrower -20°C to 55°C window. This could lead to more consistent performance in harsher climates where current batteries suffer significant capacity drops.

There are still significant uncertainties in the development of solid-state technology. This is partly related to the unproven technology, and partly to high costs. Solid state batteries will require significant upfront capex in new production lines as solid electrolyte manufacturing is much more complex than lithium-ion battery production.

Nonetheless, China has been an active player in the development of solid-state technology. As of May 2025, China accounted for over one-third of patent applications worldwide.⁴ And as is common with new technologies, the Chinese government has provided significant funding for solid-state research and development and is coordinating collaboration between research institutions and manufacturers.

Over time, the application of solid-state batteries is likely to extend beyond passenger EVs to other areas such as electric vertical take-off and landing (eVTOL) aircraft, a key component of China’s “low-altitude economy” initiative, as well as civil aviation, and long-range trucks, where energy density, stability and safety are critical.

However, achieving these performance gains requires more critical minerals. High-performance solid-state designs often rely on lithium metal anodes and high-nickel cathodes to maximize energy density and charging speed. Due to their more material-intensive design, solid-state batteries currently face cost-related challenges. Their path to commercialization will depend heavily on reducing manufacturing costs and developing reliable supply chains for these critical materials.

¹ “Global EV Outlook 2025”, IEA, 14 May, 2025 
² “Batteries and Secure Energy Transitions”, IEA, 24 Apr 2024. 
³ Jiangsu Highstar Battery Manufacutring Co Ltd, 20 Jun 2025.
⁴ Gelonghui Finance, 8 Sep 2025.

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