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    Analysis

    Can battery supply chains diversify away from China?

    China holds over 80% of global battery manufacturing capacity, and Chinese producers supplied almost 75% of electric-car batteries in 2025.[1][2] The US and EU are using tariffs, tax-credit rules and recycling mandates to build alternatives, while China has shown it can restrict exports. Whether diversification can happen at competitive cost is the central open question.[3][4][5][6]

    Editor reviewedStrict sourcingUpdated Batteries and energy storageEnergy and climateTech policy
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    The starting point

    China holds over 80% of global battery manufacturing capacity, against 6-7% each for the EU and the US. Capacity in Europe and the US grew about 50% year on year, roughly twice China’s rate.[1] Chinese producers supplied almost 75% of electric-car batteries deployed in 2025, and CATL alone had a 39.2% share.[2][7] Chinese packs were 30% cheaper than North American packs and 35% cheaper than European ones.[8] Upstream, China accounted for over three quarters of the growth in refined supply of key energy minerals other than nickel. It also hosts over 85% of battery recycling capacity.[9][10]

    Leverage on both sides

    On 9 October 2025 China announced export controls on lithium-ion cells of 300 Wh/kg and above, cathode materials and precursors, graphite anodes, and related equipment and technology, due to take effect on 8 November.[5] On 7 November 2025 it suspended them until 10 November 2026, after US-China talks in which the US also paused its export “Affiliates Rule”. The legal framework for the controls remains intact.[11][12] The number of mineral tariff codes under Chinese export controls has tripled since 2023. The IEA puts the downstream production at risk from full graphite controls at over 300 billion dollars a year.[13][14] In late September 2026 the US and China extended their truce to 10 January 2027. China’s statement did not explicitly confirm a new end date for its suspended controls.[15]

    Western policy tools

    US Section 301 tariffs on Chinese lithium-ion EV batteries rose to 25% in 2024. Tariffs on non-EV lithium-ion batteries and natural graphite rose to 25% from 1 January 2026.[3] The One Big Beautiful Bill Act of July 2025 added prohibited-foreign-entity rules to the main clean-energy tax credits.[16] Storage projects that start construction in 2026 must source at least 55% of direct costs from non-prohibited entities, rising to 75% by 2030.[4] In the EU, from 2031 certain batteries must contain minimum shares of recycled cobalt, lithium and nickel.[17]

    Diversification is happening, but mostly at the cell stage. In 2025 over 50 GWh of battery capacity at companies including LG Energy Solution and Ford was switched to LFP production, largely for storage, yet LFP cathode and precursor production is still almost entirely in China.[18] Chinese firms are also building abroad: CATL began trial production in Debrecen, Hungary, in September 2026, at a plant planned for 100 GWh.[19]

    What the evidence suggests

    The facts point in two directions. Capacity outside China is growing faster than inside it, and US rules now link subsidies directly to non-Chinese content. Both create real pressure to diversify. But the starting gap is very large. China’s share of capacity is more than ten times that of the US or the EU. Its cost advantage of roughly a third is a hurdle that tariffs offset only partly, and new projects elsewhere tend to cost more. The upstream picture is more concentrated still, especially for graphite and recycling. Short of a sharp policy break, the most likely path is slow erosion of China’s share rather than a rapid shift.

    The October-November 2025 episode showed that both sides treat battery inputs as bargaining chips. Controls were announced and then suspended within a month, as part of a wider trade deal. That suggests the threat of restriction may shape investment as much as actual restrictions do. The same deal paused the US “Affiliates Rule”, which extends Entity List restrictions to companies at least 50% owned by listed parties, so battery controls and US export restrictions are now bargained over together.[12][20] For the chip side of that bargain, see the US AI chip export controls tracker and the AI chip supply concentration analysis, which looks at a similar dependence on a few suppliers.

    What may happen next

    The key near-term date was 10 November 2026, when China’s suspension was due to expire. The truce behind it now runs to 10 January 2027, but China has not explicitly confirmed that its suspension follows.[15] Extension, lapse into force, or renegotiation are all plausible, and we cannot assign reliable odds. Through 2027, expect more announcements of non-Chinese capacity and more joint ventures and licensing structures designed around the US prohibited-foreign-entity rules. Expect too that Chinese manufacturers will keep the largest global market share. Treat any forecast of rapid diversification with caution unless cost gaps narrow.

    Competing views

    Concentration persists

    China's lead in capacity, cost and refining is so large that diversification will stay marginal for years; batteries made in China are about 30-35% cheaper.[1][8][9][10]

    Policy is forcing a shift

    Tariffs, prohibited-foreign-entity tax rules and EU recycled-content mandates are steadily raising the share of non-Chinese supply, and capacity outside China is growing faster.[3][4][17][1]

    Managed interdependence

    Both sides have leverage and have pulled back from the brink; the suspension of export controls shows the trade will be bargained over rather than cut off.[11][12][14]

    Questions readers ask

    How dominant is China in batteries?

    China holds over 80% of global battery manufacturing capacity, while the EU and US each hold 6-7%. Chinese producers supplied almost 75% of electric-car batteries deployed in 2025.[1][2]

    Did China restrict battery exports?

    It announced controls on high-energy cells, cathode materials, graphite anodes and related technology in October 2025, then suspended them on 7 November 2025 until 10 November 2026.[5][11]

    What has the US done?

    It raised Section 301 tariffs on Chinese non-EV lithium-ion batteries and natural graphite to 25% from January 2026, and its 2025 tax law requires storage projects starting in 2026 to source at least 55% of costs from non-prohibited entities.[3][4]

    Why not just build more plants elsewhere?

    New projects in geographically diverse regions often cost more than incumbent suppliers, and Chinese pack prices are about 30-35% below North American and European ones.[6][8]

    Sources

    Each numbered claim is a statement we checked against the sources listed with it. Status shows how well established it is.

    1. [1]

      China holds over 80% of global battery manufacturing capacity, while the EU and the US each hold 6-7%, although capacity in Europe and the US grew about 50% year on year against China's 25%. confirmedas of 2026-10-10

    2. [2]

      Chinese producers supplied almost 75% of the batteries deployed in electric cars worldwide in 2025. confirmedas of 2026-10-10

    3. [3]

      Under Section 301 tariff increases finalised in September 2024, US tariffs on Chinese lithium-ion EV batteries rose to 25% in 2024, and tariffs on non-EV lithium-ion batteries and natural graphite rose to 25% from 1 January 2026. confirmedas of 2024-09-24

    4. [4]

      For energy storage projects starting construction in 2026, at least 55% of direct costs must come from non-prohibited foreign entities, a threshold that rises to 75% by 2030. confirmedas of 2026-07-16

    5. [5]

      On 9 October 2025 China announced export controls, due to take effect on 8 November 2025, on high-energy lithium-ion cells (300 Wh/kg and above), cathode materials and precursors, graphite anode materials, and related equipment and technology. confirmedas of 2025-10-14

    6. [6]

      New mineral projects in geographically diverse regions often cost more than incumbent suppliers, which complicates investment decisions. confirmedas of 2026-10-10

    7. [7]

      According to SNE Research, CATL's share of global EV battery installations rose from 38.0% in 2024 to 39.2% in 2025, on 464.7 gigawatt-hours. confirmedas of 2026-02-04

    8. [8]

      The IEA reports average battery prices declined 8% in 2025, with pack prices in China 30% lower than in North America and 35% lower than in Europe. confirmedas of 2026-10-10

    9. [9]

      The IEA says China accounted for over three quarters of the growth in refined supply of key energy minerals other than nickel. confirmedas of 2026-10-10

    10. [10]

      Nearly all batteries deployed in EVs and stationary storage in recent years are still in use, and China hosts over 85% of global battery recycling capacity. confirmedas of 2026-10-10

    11. [11]

      On 7 November 2025 China suspended the October 2025 battery and graphite anode export controls, together with related rare-earth measures, until 10 November 2026. confirmedas of 2025-11-13

    12. [12]

      Legal analysts note that although enforcement of China's battery export controls is on hold, the legal framework remains in place, and the US paused its own export "Affiliates Rule" until 9 November 2026 in the same deal. confirmedas of 2025-11-13

    13. [13]

      The number of mineral tariff codes subject to Chinese export controls has tripled since 2023. confirmedas of 2026-10-10

    14. [14]

      The IEA estimates that full export controls on graphite would put over 300 billion US dollars a year of downstream production at risk. confirmedas of 2026-10-10

    15. [15]

      In late September 2026 the US and China extended their trade truce, due to end on 10 November 2026, to 10 January 2027; China's Commerce Ministry statement did not explicitly say whether its suspended export controls would follow the new date. confirmedas of 2026-09-28

    16. [16]

      The One Big Beautiful Bill Act, enacted on 4 July 2025, added prohibited foreign entity rules that restrict access to the 48E investment, 45Y production and 45X manufacturing tax credits, including for battery storage. confirmedas of 2026-07-16

    17. [17]

      From 2031 the EU Batteries Regulation requires minimum recycled content in certain batteries of 16% cobalt, 6% lithium and 6% nickel, rising for 2036. confirmedas of 2026-10-10

    18. [18]

      In 2025 over 50 GWh of battery manufacturing capacity at companies including LG Energy Solution and Ford was switched to LFP, largely for stationary storage, but LFP cathode and precursor production remains almost entirely in China. confirmedas of 2026-10-10

    19. [19]

      On 22 September 2026 CATL began trial production on the first two cell lines of its factory in Debrecen, Hungary, which it says will be its largest manufacturing base outside China at 100 GWh once complete; it gave no date for series production. confirmedas of 2026-09-22

    20. [20]

      A BIS interim final rule effective September 29, 2025 made any entity at least 50% owned by Entity List parties automatically subject to Entity List restrictions. confirmedas of 2025-09-30

    Revision history (2)
    1. Added the US-China truce extension to 10 January 2027, the 2025 US switch of capacity to LFP, CATL's Hungary trial production, and links to the parallel AI chip export-control pages.
    2. Page created.

    Created Oct 10, 2026. Last reviewed by an editor on Oct 10, 2026. Next scheduled review: Jan 10, 2027.

    Cite this page

    "Can battery supply chains diversify away from China?." ContentLora, updated Oct 11, 2026. https://contentlora.com/analysis/battery-supply-chain-debate

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