EV sales have been on a rise in 2021. This rise has been to an extent that EV sales had already surpassed the previous year’s overall sales by June 2021, as reported in an earlier article. While Europe and the US have seen accelerated growth in recent times, this growth has been overshadowed by China, which is the biggest driver for EV sales. The figure below shows a comparison of EV sales in China, Europe, and the USA in the quarters of 2021.
As Fig. 1 shows, China’s sales have outperformed US and Europe sales, even combined. Naturally, the question arises, why are EVs so popular in China? To understand this, we will need to analyze the policies in place and the current EV supply chain.
Policies: The Major Driving force behind China’s EV Dominance
In recent decades, China’s rapid economic growth has enabled more and more consumers to buy their own cars. The result has been improved mobility and the largest automotive market in the world—but also serious urban air pollution, high greenhouse gas emissions, and growing dependence on oil imports. To counteract these troubling trends, the Chinese government has imposed policies to encourage the adoption of plug-in electric vehicles (EVs). Since buying an EV costs more than buying a conventional internal combustion engine (ICE) vehicle, in 2009 the government began to provide generous subsidies for EV purchases. But the price differential and the number of buyers were both large, so paying for the subsidies became extremely costly for the government.
As a result, China’s policymakers planned to phase out the subsidies at the end of 2020 and instead impose a mandate on car manufacturers. Simply stated, the mandate requires that a certain percent of all vehicles sold by a manufacturer each year must be battery-powered. To avoid financial penalties, every year manufacturers must earn a stipulated number of points, which are awarded for each EV produced based on a complex formula that takes into account range, energy efficiency, performance, and more. The requirements get tougher over time, with a goal of having EVs make up 40% of all car sales by 2030.
These mandates have pushed carmakers to switch to EVs to meet the necessary requirements. However, to make this possible, there needs to be a strong, economical supply-chain and manufacturing eco-system to facilitate this transition.
Battery Manufacturing-The story of Megafactories
Battery megafactories are super-sized producers of lithium-ion battery cells, which will be the platform technology for all EVs, and China has taken the initiative to build battery capacity at speed and scale. Of the 181 battery megafactories (see fig. 2) in various stages of planning and construction globally, 88 are currently active, making cells for EVs . While there may be a ‘global battery arms race’, China has a more robust localized supply chain as compared to other countries.
China has surged ahead in 2020 by building even more lithium-ion battery megafactories and increasing future capacity, as depicted on the left side of figure 3. Of the total capacity of all of the lithium-ion battery plants that are expected to be commissioned by 2030, China is expected to account for 66.9% of the overall share, while the US is only forecasted to account for 11.9%.
The key battery raw materials of lithium, nickel, copper, cobalt, graphite, and manganese need to be mined from the ground. Out of these, China is geographically endowed with resources for Lithium, Battery-grade graphite and Copper , which is another factor in favor for China in this race. Please see figure 4 for details.
This has given China an edge not just in terms of meeting its local demand, but has also become the go-to location for other countries and manufacturers too, since the majority of them currently depend on Nickel Manganese Cobalt (NMC) battery chemistry. It should be added that Manganese is another raw material that is essential, of which China is only second to South Africa in terms of overall production.
With the increasing need to optimize costs due to the current rise costs of nickel and manganese (rare earth metals), there has been a shift globally with many leaning to switch to LFP (Lithium-iron Phosphate) due to its lower costs, and relatively higher abundance of the raw materials needed.
Chemically refining key raw materials into cathode- or anode-ready products is a critical step that is often overlooked when analyzing the battery supply chain. It is also often the biggest hurdle when bringing new supply on stream. Many of these raw materials are actually chemically refined and engineered products, with specific purities and particle size requirements that differ per end user. Lithium and graphite especially have challenges related to this step.
While China only domestically mines 22% of its battery raw materials, it domestically produces 66% of this chemical stage (see figure 5). China’s lack of domestic battery raw material production is compensated by mid-stream supply chain dominance. This is also a strategy to ensure strong battery cell and EV production share.
Based on our analysis above, it is clear that China has been able to dominate the global EV market not just by capitalizing on its geographical endowments, but also by creating a robust and economical supply chain around it. Most importantly, it has stitched all this together by formulating policies that have pushed manufacturers to sell more and more EV options, making it a financially viable proposition for customers as well as for manufacturers.
Did you know?
 SolarEdition, “Global EV Registrations in 2021 See Huge Jump Across, Surpass 2020 Registrations in H1“, written by Ayush Jadhav.
 Europe Sales data: https://www.acea.auto
 Sales data for USA and China: Electric Vehicle Sales Review Q4 2021 | PwC and Strategy&
 China’s transition to electric vehicles, MIT News- https://news.mit.edu/2021/chinas-transition-electric-vehicles-0429
 Oxford Energy, “The Global Battery Arms Race: Li-ion battery Gigafactories and their supply chains“.
 US Geological Survey 2021- Mineral Commodity Summaries 2021 (usgs.gov)