London and Seoul /
China builds battery plants at a level far above what is needed to meet domestic demand for electric cars and grid energy storage, underscoring the huge state subsidies and unchecked bank lending that are expected to underpin the international expansion of the Chinese manufacturers.
Production capacity at China’s battery factories is expected to reach 1,500 gigawatt hours (GWh) this year — enough for 22 million electric vehicles — more than double demand levels, forecast at 636 GWh, according to with data from the research firm CRU Group.
Battery makers are following a pattern shown in other industries such as steel, aluminum and solar panels, executives warned, where Chinese companies benefit from subsidies to control a huge share of the global market and eliminate international competition.
“We are worried,” he said. Olivier Dufour, Co-founder of Verkor, a French battery startup backed by Renault. “What I see there is very similar to what I knew from aluminum. It is more than worrying,” added the former executive of the Rio Tinto mining company.
China’s regions are competing with each other to take advantage of government subsidies and become epicenters of battery production in anticipation of rising future demand, risking overproduction.
The battery production rush is worrying Chinese leader Xi Jinping, who in March warned of the risk of over-expansion and the potential for a boom-and-bust cycle, which has occurred in some fast-growing Chinese industries, including them real estate and solar energy.
sam adam, head of battery materials at CRU, said China’s 550 GWh battery production last year surpassed the 450 that went into final products. “Many manufacturers overproduce and build up their inventories,” he warned.
Based on announcements to build battery plants, by 2027 excess capacity will rise to nearly four times what the country needs, its data shows, and twice the volume of what China’s entire car fleet would need to go electric by 2030.
According to a senior executive of the Western auto industry in China, the expansion plans of the manufacturers are “totally unrealistic” and occur despite hopes of consolidation of the sector. Now, as overcapacity problems worsen, there is a risk that more companies will turn to export, in line with the solar energy industry, and exacerbate geopolitical tensions between China and the West.
In a presentation to European Union officials seen by the Financial Times, Verkor warned that a supply deficit of 500 GWh in Europe in 2030 “can be offset” by 1,100 GWh of excess capacity in China.
Patrick Andreasson, vice president of strategy and sustainability at Northvolt, a Swedish battery manufacturer, warned that the European grid energy storage sector is more vulnerable to Chinese exports. “A large import of low-cost Chinese batteries will undermine” Europe’s sustainability ambitions and “will be seen as a strategic mistake,” he said.
Although China is likely to face obstacles to flooding the global market with battery exports, its manufacturers are being pushed to set up shop locally thanks to protectionist policies and incentives from Washington and Brussels.
Despite bans and restrictions imposed on their technology, Chinese battery makers, including CATL, a world leader with a 37 percent global market share, plan to expand to USA and Europe.
CATL signed an agreement with Ford in February to license its technology and use it at the automaker’s plant in Michigan, while AESC will play a key role in Tata’s battery factory in the United Kingdom.
Some argue that fears of overcapacity are overblown, as batteries are set to play a key role in China as a backup to electricity from renewables.
With information from: Gloria Li in Hong Kong