Just two decades ago, in 2005, China’s electric vehicle (EV) battery industry was tiny, with only two manufacturers. Today, the country is a global powerhouse, producing over 75% of the world’s lithium-ion cells. This rapid rise has placed China at the center of the world’s transition to clean energy. So, how did this transformation happen?
The story begins with the 2008 Beijing Olympics. To showcase a “green and high-tech” image to the world, China deployed a fleet of about 50 electric buses to transport athletes and officials. This was the country’s first major step into creating a lithium-ion battery industry for vehicles, and it laid the foundation for the dominance that would follow. Developing the batteries for this global event was a huge challenge at the time, but it set in motion a national strategy that would change the automotive world forever.
Early Days and a National Vision
In the early 2000s, China’s lithium battery industry was almost nonexistent. Mo Ke, a researcher at a government-affiliated institute, recalls hosting the country’s first lithium battery conference in 2005. “All companies in the industry came, but there were only around 200 people in total,” he says. At that time, the companies that would become today’s giants, CATL and BYD, were just small players.
However, the Chinese government had a long-term plan. In 2006, it launched a 15-year science and technology strategy that identified “new-energy vehicles” (NEVs) as a priority. The goal was clear: to upgrade China’s manufacturing industry from one based on cheap labor to one that could compete on technology. Policymakers saw EVs as a unique opportunity for China’s auto industry to get ahead of Western countries, as it was a new field where everyone was starting from a similar position.
Following the successful use of e-buses at the Olympics, China launched a major plan in 2009 to revitalize its auto industry. This national plan guided local governments to build up supply chains and charging networks for NEVs. It also provided support for domestic companies to lead the research and development of EV-related technologies, especially batteries.
A Protected Market and Government Support
The years between 2012 and 2020 were crucial for China’s battery makers. The government introduced a roadmap for NEVs that set ambitious targets for the number of electric vehicles to be put on the road. It also established technical requirements for manufacturers to qualify for government support, pushing them to innovate and grow. In 2013, China began offering subsidies for EV purchases directly to consumers, which caused a massive increase in private EV ownership.
The scale of this government support was enormous. Over the next eight years, China would provide a total of 200 billion yuan (about $28 billion) in tax rebates for NEVs. This investment paid off almost immediately. The production and sales of NEVs in the country grew by more than 300% in both 2014 and 2015.
But perhaps the biggest boost came in 2015 when China introduced a rule that effectively created a protected domestic market for its battery companies. To qualify for consumer subsidies, EV makers were required to use batteries from a government-approved “white list” of suppliers. All 57 companies on this list were Chinese. This move forced both domestic and foreign automakers in China to switch to Chinese battery suppliers like CATL, which propelled it to become the world’s largest EV battery producer in 2017, a title it has held ever since.
The Secrets to China’s Manufacturing Success
Government policy was only one part of the story. Chinese companies also proved to be incredibly good at large-scale manufacturing and cost control, two essential skills in the battery industry. Top Chinese battery makers like CATL and BYD often use a “vertically integrated” business model. This means they own or have a stake in their suppliers, which helps them control costs and ensure a reliable supply of materials.
Their expertise in manufacturing is also a key advantage. Modern EV battery packs contain hundreds of individual cells, and each one must be nearly identical to ensure performance and safety. Achieving this requires highly automated factories with strict quality control. This is where companies like CATL excel. According to one journalist who has investigated the firm, “The secret to CATL’s success is that it can use less money to make better batteries while maintaining a huge manufacturing capacity.”
Constant innovation has also been crucial. For example, BYD’s “blade battery” was a major breakthrough. It used a cheaper chemistry that did not require cobalt, a mineral that China has to import. BYD was able to significantly improve the performance of this battery type, making it powerful, safe, and popular. This rapid technological progress is supported by a large pool of skilled engineers who have been trained through a targeted education system.
Can China’s Dominance Be Challenged?
Today, China controls nearly every stage of the battery supply chain. It has almost 85% of the world’s battery production capacity, compared to just 5% in North America and 7% in Europe. Most experts agree that it will be extremely difficult for other countries to challenge China’s lead in the current generation of battery technology.
“Some aspects that led to China’s leadership, such as the existence of industrial clusters and vertical integration of supply chains, will be difficult to replicate,” says Kate Logan, a director at the Asia Society Policy Institute. The massive scale of Chinese production also makes it very hard for competitors to catch up, not just in technology, but in commercial success.
However, some believe the door is not completely shut. China’s strength is in improving existing technologies and making them cheaper, but its weakness is in cutting-edge, foundational research. If other countries can take the lead in next-generation technologies, like solid-state batteries, they may still have a chance to compete. But even then, scaling up manufacturing to a competitive level will be a huge challenge. For now, China’s 20-year head start has created a dominant position in the global battery race that seems secure for the foreseeable future.
