China leads global EV battery production but faces a crucial challenge

China leads the global lithium battery production, making about 80% of the batteries used in electric vehicles worldwide. Companies like CATL and BYD hold dominant market shares of 42.1% and 13.4%, respectively, according to SNE Research. This dominance is driven by China being the largest producer of lithium and rare earth elements, key raw materials for battery manufacturing. It also controls the processing of these materials and can produce at large scale and competitive prices.

However, a critical issue remains: both BYD and CATL have invested early in lithium iron phosphate (LFP) batteries, which are safer and more durable. Still, their heavy reliance on fossil fuels, especially natural gas, exposes a vulnerability in their supply chain.

The paradox of natural gas arises because battery factories require high temperatures for processes like electrode coating and solvent evaporation in large ovens. Currently, gas-fired boilers are the most efficient and cost-effective way to generate the necessary heat. Although CATL has increased its use of wind and solar energy, electricity alone cannot yet replace natural gas in these large-scale thermal processes.

The core problem is that natural gas provides a level of heat that is hard to match with industrial electric resistances. Many factories are built around gas pipelines and boilers, making a complete infrastructure overhaul necessary to switch away from natural gas. This dependency poses sustainability and security risks for battery production in China, especially amid geopolitical uncertainties affecting resource access.