Where are your lithium-ion batteries sourced?

China has dominated battery manufacturing, but ethical concerns about the country’s lithium mines mean pressure is mounting on energy storage companies and electric vehicle manufacturers to source their batteries elsewhere


June 16, 2023

  • China’s position a leading battery maker under threat due to ESG-related concerns
  • Goldman Sachs has said US and Europe can cuts its dependence on Chinese batteries
  • Battery manufacturing could surge in US, Germany, Hungary, Sweden, Poland and Canada

On the face of it, manufacturing, and indeed driving, electric cars as well as developing renewable energy projects might sound like vital parts of the strategy for protecting the environment, and indeed they often are. But, given that lithium-ion batteries power electric cars and are often used to store the energy produced by wind and solar projects, it is important for the energy storage and electric vehicle industries to give careful consideration to where exactly in the world the lithium-ion batteries they use are sourced from.

At present, the vast majority of lithium-ion batteries used in the world are made in China. Data shows that, in 2022, China had 893GWh of battery cell manufacturing capacity, representing a massive 77 per cent of the world’s total capacity. To put this in context, the country with the second biggest share was Poland, which had 73GWh of capacity, representing a measly 6 per cent of the world’s total.



Predictions for 2027 battery cell manufacturing capacity

Market observers predict that, by 2027, while China’s dominance of the battery cell manufacturing industry will have eroded slightly, it will still be producing the lion’s share – it is expected that, four years from now, China will have 6,197GWh of capacity, or 69 per cent of the world’s total capacity.


But the signs are that, from China’s perspective, this is an overly optimistic projection, especially considering that the Chinese battery manufacturing industry is beginning to encounter some significant headwinds. Earlier this year, it was reported that lithium-ore processing operations in Yichun in China’s Jiangxi province had been shut down due to a government investigation into infringements of environmental laws, including alleged incidents of pollution.

The impact of the shutdown on the Chinese lithium mining industry was significant. It is estimated that Yichun is responsible for around 10 per cent of the world’s lithium supply – as a result, the closure of mines due to the investigation was expected to cut the global supply of lithium by as much as 13 per cent in the month of February. It would be foolish to rule out further shutdowns in future – China’s president has said that the country must speed up green initiatives to “ensure the ecology and the environment are fundamentally improved by 2035”. Consequently, it seems highly likely that the lithium mining industry could face further scrutiny and closures as the Chinese government seeks to clean up its environmental reputation.

Sharp-eyed energy market observers will know that China’s lithium-ion production has long been tainted. While China scores highly in terms of access to the raw materials needed to manufacture batteries, as well as battery manufacturing facilities and levels of demand – indeed, it ranks first in each of these categories according to BloombergNEF –  the country scores alarming poorly when it comes to the ESG [environmental, social and governance] aspects of battery manufacturing [see chart below].

Source: BloombergNEF

The inexorable rise of China’s battery manufacturing industry is not assured. Questions about the ethics of using lithium-ion batteries manufactured in China for electric vehicles have been raised in the past and there is no sign of such controversy going away soon. For example, a report published in 2021 highlighted a number of ethical concerns with the manufacturing of electric vehicles.

It’s also worth considering that, while China may have the upper hand in terms of battery cell manufacturing capacity, when it comes to reserves of critical battery materials, the picture looks different. China only produced 14 per cent of the world’s lithium (around 19,000 tonnes) in 2022, trailing Australia (which produced 61,000 tonnes, or just under 46.9 per cent of the global total) and Chile (which produced 39,000 tonnes, or 30 per cent of the global total). Meanwhile, China is heavily reliant on imports of cobalt for its battery manufacturing industry. In 2021, China was the biggest importer of cobalt in the world – the country was responsible for 77 per cent of the world’s imports.

World’s leading lithium producers (Source:

Given China’s reliance on imported material for its battery manufacturing industry, China would have to give serious consideration to any plan to restrict, or end, the export of batteries to other nations. There have been suggestions that China could take the step of imposing a lithium battery export ban and while this could be possible in theory – and there have been instances of China placing export restrictions on critical minerals such as lithium and cobalt in the past – it’s hard to envisage a complete ban not putting China’s own battery industry’s supply chain at significant risk.

It seems certain that China’s dominance of lithium-ion battery manufacturing will be eroded, perhaps significantly, in the coming years. Indeed, last year Goldman Sachs forecast that the US and Europe could cut its dependence on China for electric vehicles batteries with more than $164.2 billion of capital expenditure by 2030. Specifically, this would involve the creation of a self-sufficient supply chain by investing $78.2 billion in batteries, $60.4 billion in components, $13.5 billion in the mining of lithium, nickel and cobalt, and $12.1 billion on the refining of such materials.

US, Germany & Canada set to increase share of battery manufacturing

Which other countries could see an explosion in battery manufacturing capacity as the world seeks to ends its reliance on Chinese batteries? In addition to the US, the countries to watch are Germany, Hungary, Sweden, Poland and Canada. For example, lithium-ion battery cell manufacturer Northvolt – which has operations in Sweden, Germany, Poland and Norway – completed a $1.1 billion capital raise last year, while Hungary has been tipped to become Europe’s leading battery producer with predictions that the world’s top battery makers will invest $13 billion in gigafactories in the country. Meanwhile, in April this year, the Canadian government, in partnership with Volkswagen, outlined plans for a $14.8 billion battery gigafactory in St Thomas, Ontario.

China is undoubtedly the world leader in battery manufacturing at present. But ESG-related concerns surrounding its lithium mining industry mean purchasing batteries from the country could cause reputational damage for vehicle manufacturers and energy storage companies, with the result that these sectors will be increasingly under pressure to source their batteries from elsewhere.

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