Security concerns are causing EV manufacturers to decouple from Chinese battery makers.
The aggressive expansion of Chinese battery manufacturers has stoked security concerns among several Western countries. This is prompting supply chain players, including Taiwan's Chroma ATE, to strengthen their market presence outside China.
Writing in Foreign Policy, Craig Singleton, senior China fellow at the Foundation for Defense of Democracies, said a wanton embrace of Chinese batteries could expose the US and European nations to dangerous cyber threats. Singleton said this scenario would mirror the unchecked expansion of the Chinese technology giant Huawei, which facilitated China's access to crucial Western telecommunications networks.
Chroma Chairman Leo Huang said that China's rapid expansion in the battery industry is causing concerns, with electric vehicle batteries gradually becoming a national security issue for Western countries. He added that Japan and the US hope to achieve complete "localization" of batteries.
As a result, Chroma should focus on improving product performance and continue to develop and expand outside of China, said Huang. He added that Chroma has been working on market expansion outside of China since 2023, and this strategy will continue.
Other players in the electric vehicle battery supply chain have also indicated that from an international perspective, there is an increasing level of caution towards Chinese batteries. Some countries have even taken action.
South Korea takes the initiative
South Korea recently announced a new electric vehicle purchase subsidy plan for 2024. The plan significantly reduces subsidies for electric vehicles equipped with batteries from major Chinese manufacturers, such as lithium iron phosphate (LFP) batteries.
Although the development of new types of batteries, including solid-state batteries, continues, the mainstream batteries currently used in electric vehicles are primarily lithium iron phosphate and ternary batteries. While lithium iron phosphate batteries have relatively low energy density, they are also cheaper, making them the preferred choice for automakers.
To prevent further intrusion by Chinese manufacturers and potential erosion of the global market share of S. Korean battery industries, S. Korea has reduced subsidies for electric vehicles equipped with lithium iron phosphate batteries in its new subsidy program. This reduction will particularly affect vehicles produced in China, such as the Tesla Model Y, with subsidies decreasing by over 60%.
Additionally, subsidies for electric buses produced in China will also be reduced. Vehicles equipped with lithium iron phosphate batteries receive approximately KRW4.3 million (around US$3230) less in subsidies compared to 2023.
Industry players acknowledge that Chinese battery manufacturers dominate the global electric vehicle industry. However, as time progresses, countries are developing their own supply chains.
With government support and the emergence of promising startups investing in battery development, there is an influx of potential battery manufacturers entering the market. Therefore, positioning outside of China is expected to become a major trend.
