It is becoming increasingly difficult for Chinese lithium battery manufacturers to navigate the constant changes to US tariff policy made by US President Donald Trump. These policy shifts are also complicating component procurement for American energy storage system (ESS) vendors as well.
Leading Chinese lithium battery maker Contemporary Amperex Technology (CATL) has filed complaints against US ESS provider Powin in both the US and Hong Kong for non-payment of battery orders. CATL has initiated arbitration proceedings against Powin in a Hong Kong court and is seeking an asset-freezing order in the US.
Market analysts estimate that the lawsuit may put a stranglehold on Powin's capital turnover and affect ESS projects it has won, which will likely benefit its competitors, including other top five ESS providers, Tesla Energy Operations, and Fluence Energy.
Supply chain sources pointed out that Trump's plan to impose an additional 10% tariff on Chinese products on top of the existing 3.4% basic tariff, coupled with an additional 25% tariff on ESS in 2026, for a cumulative 38.4%, will have two major effects.
Energy storage installations to surge
If the cumulative tariff reaches 38.4% in 2026, the costs for related companies will increase by 50%. As such, industry experts generally expect a surge in energy storage installations in the US in 2025.
In addition to the energy demand from electric vehicles (EV), the rapid growth of AI data centers requires abundant electricity and stable power grids, highlighting the role of energy storage. A high proportion of ESS uses lithium iron phosphate (LFP), and the cost competitiveness driven by the economies of scale of Chinese LFP manufacturers makes it difficult for ESS vendors to resist.
Measures had already been taken to gradually block Chinese-made lithium batteries and accelerate local manufacturing in the US under former President Joe Biden's Inflation Reduction Act (IRA). However, the progress and cost competitiveness fell short of expectations, putting American ESS providers in a difficult position regarding component procurement.
The hidden obstacles of Trump's tariff strategy
The tariff will also result in more hidden obstacles, mainly because Trump's tariff strategy is difficult to predict. Trump plans to impose an additional 10% tariff on Chinese imports, which would increase the total additional tariff on China to 20% since he took office in January 2025, citing drugs as the main reason.
Trump is also likely to impose a targeted tariff on Chinese lithium batteries, especially since they have a high market share globally and in the US.
Chinese manufacturers have previously used "origin washing" in response to tariffs. Trump's 25% tariff on Mexico and Canada is said to go ahead on March 4, 2025. Mexico is considering imposing a 25% tariff on goods imported from China in response to Trump's requests. Foreign media reported that additional sectoral tariffs might be imposed on April 2. Details from the White House have been vague.
Some US systems manufacturers have privately revealed they are waiting to see what happens before rushing installations. With so many variables in the general environment, estimating construction costs is difficult, making it hard for businesses to calculate the return on investment (ROI) of a system. The larger the scale, the harder it is to judge, making them more cautious about taking on new system projects.
Even if they were to put a rush on importing Chinese lithium batteries, a sudden policy change could cause all the products to be held up at customs, putting tremendous financial pressure on both Chinese manufacturers and American ESS providers. This situation is often seen in the export of Chinese solar modules.
Chinese optimistic about ESS demand
Excluding the aforementioned risks, Chinese energy storage companies are optimistic about demand in 2025.
According to Chinese media analysis, there are four main demand drivers. First is China's "full electric market entry" policy, which promotes marketization and increases energy storage demand. The second is the surge in installations triggered by the IRA and pre-tariff incentives. The third is Europe's energy security, which aims for renewable energy to account for 45% of its energy portfolio by 2030, driving energy storage demand. Lastly, Saudi Arabia's Vision 2030 will accelerate the replacement of fossil fuels, which is expected to create gigawatt-level energy storage demand.
While the uncertainty of US tariffs has impacted export costs, and with Europe requiring an increase in the local production rate (for example, 60% of energy storage must be manufactured locally), Chinese manufacturers are being forced to reconfigure their supply chains to meet regulations. Investing in local production and increasing cooperation with local manufacturers will lead to higher costs.
Article edited by Jerry Chen
