Strategic risks across the battery supply chain are becoming more pronounced as batteries play a more central role in energy systems and the wider economy, according to a commentary from the International Energy Agency (IEA). However, developments in technology, along with sound economic fundamentals, could help address these risks and diversify the supply chain the commentary says.
The IEA explains that currently, production capacity and technical expertise for essential components in the manufacture of batteries, such as active materials and their precursors, remain heavily concentrated in China. Korea and Japan are the only other countries with notable midstream battery industries. In addition, nearly all batteries used for power grids rely on China for at least one step in their supply chain, while over 70% of all electric vehicles produced outside China rely on batteries or components from this country.
With this structural imbalance is unlikely to change in the near term, the IEA’s analysis says that a substantial increase in investment, and stronger international cooperation across the battery value chain is required.
Technology and innovation around sodium-ion batteries, which are seeing growing investment, could create opportunities for more geographically diverse supply chains. However, currently nearly all installed and announced sodium-ion battery manufacturing capacity is located in China, the IEA says.
Indeed, in a separate analysis, the IEA says that while the production of sodium-ion batteries in 2025 was less than 1% of that of lithium-ion, recent technological advances could see this change. The IEA cites, CATL, the world’s largest battery manufacturer, which released its second-generation sodium-ion batteries and has confirmed plans for their commercial scale deployment.
As well as supporting a more diversified supply chain, sodium-ion batteries also exhibit advantages over lithium-ion, having ‘significantly better low-temperature performance.’ In addition, as sodium-ion batteries do not require the use of lithium, their production is not impacted by the price swings that lithium has seen in recent years, the IEA adds.
But the IEA cautions that while sodium-ion batteries are often highlighted as a way to reduce reliance on critical minerals and diversify battery supply chains, this is only partially accurate. “While sodium-ion batteries do not require lithium and graphite, the chemistries closest to commercial deployment rely on other critical minerals such as nickel and manganese, the processing of which remains highly concentrated geographically.”
But even with improved technologies the IEA adds that the cost of producing batteries in Europe or the US is significantly higher than in China. The commentary asserts that diversifying the battery supply chain “will need to be underpinned by sound economic fundamentals to succeed.” However, cost competitiveness remains a key challenge. “Even with public support measures excluded, production costs in Europe and the US are still as much as 50% higher than in China, complicating efforts to establish a competitive midstream industry,” the analysis says.
The European Union and the US rely heavily on imports for most of their battery components which come mainly from China. ‘The lack of investment in midstream supply chains in these markets poses a growing risk to global supply security,” the commentary says.
Highlighting the “exceptional pace of growth,” for battery energy storage, the commentary notes that global installation of storage capacity has increased ‘more than 20-fold’ over the past five years. “This growth has been driven by falling battery prices, abundant supply and relatively short project time leads,” the IEA adds.
Again, the battery energy storage sector relies on China, with more than 90% of battery storage applications relying on lithium iron phosphate (LFP) batteries that are almost exclusively supplied from the country. And while Korean producers are also investing in scale up LFP battery production that can offer an alternative, these companies face “intense competition from established lower-cost Chinese producers in a oversupplied market,” the IEA concludes.
Further reading:
- Why the US wants to remake the critical minerals supply chain
- Gigafactories: Why new investment critical is for the UK's industrial future
- Battery energy storage system project kicks off £1 billion investment by Masdar
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