Although electric-vehicle (EV) sales have slowed from their peak, battery technology continues to evolve at a breakneck pace. Researchers are constantly experimenting with new chemistries and cell configurations to optimize battery range, charging speed, and vehicle cost—the factors that matter most to consumers. Many automotive OEMs, still convinced that the future is electric, have helped global battery demand rise. Simultaneously, many governments worldwide continue to offer incentives to encourage battery production as part of their efforts to combat climate change and give consumers greener transportation options.
Looking at the global picture, battery suppliers appear to be in a tough situation that could force them to reduce prices or cut their output. But a recent McKinsey analysis provides a more nuanced view of the market, showing that their prospects vary greatly by region. While some countries produce more batteries than they need, others rely on imports because domestic manufacturing cannot fulfill demand. The same pattern holds true for the upstream value chain, including raw materials.
Many industries can eliminate regional supply–demand imbalances through global trade, but the battery market’s unique features, including greater regulatory limitations, trade barriers, high shipping costs, and variations in upstream-material availability, complicate this strategy. While imports now address shortages, they may not be sufficient to fill the gap if demand grows. In consequence, some countries may continue to have a battery surplus while others may still experience shortages—and that means companies along the value chain will need region-specific strategies to capture opportunities. These strategies could become even more important if trade barriers intensify, further limiting imports and exports.
The global view: An unbalanced market in which supply exceeds demand
Before we examined regional trends for batteries, we first reviewed the global market to understand the overall dynamics. Our analysis relied on a bottom-up model that reviewed projected global battery supply in combination with major demand drivers, such as electric vehicles, energy storage applications, and consumer electronics. Note that all our analyses focus on batteries that rely on lithium-type chemistries, such as lithium iron phosphate (LFP) and lithium nickel manganese cobalt mixed oxide (NMC).
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