The global battery boom is running hot. Battery production for EVs and energy storage has surged so far ahead that supply now outstrips demand by a factor of three. Chinese manufacturers are fueling much of this overcapacity and aren’t tapping the brakes anytime soon, even as demand slows.
Welcome to the Friday edition of Critical Materials, your daily round-up of news shaping up the world of electric cars and technology.
Also on my lidar today: Japanese automakers have started passing the cost of U.S. tariffs onto American consumers. And the European Union and the U.S. are trying to become friends again, with reduced tariffs expected for cars exported from both regions.
30%: Global Battery Production Keeps Skyrocketing
About five years ago, there was no such thing as “too many batteries.” Now the world’s battery production capacity is badly out of sync with demand. Chinese manufacturers are part of the story, but so is the deliberate throttling of EV sales in North America after favorable policies were rolled back.
Here are some numbers. The global EV battery production capacity is expected to hit 3,930 gigawatt hours this year, while demand is forecast at just 1,161 GWh, according to S&P Mobility data cited by Nikkei. And that figure doesn’t even include under-construction Chinese plants, whose capacity remains undisclosed.
The production surge is led by Contemporary Amperex Technology Limited (CATL), the world’s biggest battery maker, followed by BYD, the largest EV and plug-in hybrid manufacturer, according to Korea’s SNE Research. Japanese and Korean players that once dominated lithium-ion cell production are losing their global share.
An EV battery has anodes, cathodes, separators and electrolytes. The anode stores ions when charging; the cathode receives them when discharging and dictates much of the battery’s performance, capacity, voltage, density and lifespan. Separators keep the two apart (No touching!), while electrolytes shuttle ions between them.
Photo by: CATL
Believe it or not, but each requires its own suppliers and facilities. Much of the recent capacity boom has come from scaling production of these materials, too. Some giants, like CATL, BYD and LG Energy Solution, are vertically integrating to make more of these components in-house. But most still rely on specialized suppliers for each of these materials.
Now due to the overcapacity, battery makers are delaying or shelving projects. Panasonic won’t reach peak output at its new Kansas plant until 2027, Nikkei reported. Weakening demand from Tesla, Panasonic’s main customer, is part of the reason. Although the refreshed Model Ys have flooded New York City streets—I see them everywhere, everyday—nationwide sales have been slow so far this year. And LGES last year slowed down the construction of its battery plant in Michigan.
Longer term, though, overcapacity could choke off raw material extraction, slowing the supply chain just as EV demand is projected to surge again after 2030.
60%: Japanese Automakers Pass Tariff Costs To Consumers
Photo by: Suvrat Kothari
The initial response from many foreign automakers to the Trump administration’s tariffs was to wait and watch, hold prices steady and absorb the added costs. But no business can shoulder those expenses indefinitely. That breaking point has now arrived.
Here’s what Nikkei reported on Thursday:
Japanese automakers first responded by lowering export prices to keep U.S. retail prices steady. The fall in average prices also was influenced by a shift in the product mix—fewer expensive large vehicles and a higher share of small and midsize cars.
But there were doubts about the sustainability of this approach. Automakers cannot keep swallowing tariff costs without hurting their profitability.
Now, more automakers are passing on some of the tariff cost to retail prices. Toyota Motor raised prices in the U.S. in July. The average increase for Toyota-brand models was $270, less than the full cost of the tariff.
The tariff on Japanese auto imports has been cut from 27.5% to 15%, though it’s still unclear when the lower rate will actually take effect. Once it does, automakers will be hoping for some consistency after what has been a turbulent year.
90%: Lower U.S. Tariffs On European Carmakers Are Coming
Photo by: BMW
The current 27.5% tariff on European car imports is hitting automakers hard and threatening to push up prices for U.S. buyers. But Washington and Brussels are now working on a deal to reduce that rate to 15%, mirroring the proposed cut on Japanese imports.
In return, the EU would drop its own tariffs on certain U.S. industrial goods and grant “preferential market access” to a wide range of American seafood and agricultural exports. Both sides aim to have the new rates take effect by August 1, according to Reuters.
Even at 15%, the tariffs would still cost automakers billions, but the cut would soften the blow. The stakes are particularly high in the luxury segment, where brands such as BMW, Mercedes-Benz, Volvo and Audi ship the bulk of their U.S.-bound vehicles directly from Europe.
100%: What Happens During Battery Oversupply?
Tesla Megapack energy storage system
We’re already seeing this play out in the U.S. Demand is expected to slow after the end of the federal tax credits, but battery production won’t slow with the switch of a flip.
LG Energy Solution, for example, is shifting its focus towards making lithium-iron phosphate (LFP) batteries domestically for grid-scale utility storage. These massive packs—often sized in megawatt-hours—are meant to support transmission grids and AI data centers.
But with oversupply hitting the market, questions remain: Will the excess simply sit in factories or warehouses? How will unsold batteries age over time? And what capacity fade concerns need to be addressed as these overproduced batteries sit idle?
Have a tip? Contact the author: suvrat.kothari@insideevs.com
