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Chinese battery companies, which have experienced rapid growth based on their massive domestic market, are now facing an oversupply situation, with warehouses filling up. This year, battery production is expected to be twice the demand. Concerns are arising that, similar to the past, Chinese companies may resort to pushing excess inventory into the global market at lower prices, disrupting the global industrial ecosystem. This has previously damaged industries like steel and solar power, affecting both foreign competitors and domestic companies. There are worries that a similar scenario could unfold in the battery industry. The “K-battery” industry in South Korea is also expected to be affected.

◇Chinese Battery Production to Exceed Double the Demand this Year

According to market research firm CRU Group, China’s battery production capacity is projected to reach 1,500 gigawatt-hours (GWh) this year. This capacity is enough to supply approximately 22 million electric vehicles, more than double the demand for Chinese-made batteries this year (636 GWh). As of May this year, accumulated inventory of electric vehicle batteries reached a record high of 253 GWh. There are also forecasts suggesting that by 2027, battery production could be four times the demand. The oversupply situation appears to be inevitable. Hua Rong Zhu, Chairman of Chang’an Automobile, one of China’s top five automakers, stated in June at the China Auto Forum, “By 2025, China’s demand for electric vehicle batteries will be between 1,000 to 1,200 GWh, but the industry’s expansion plans for production capacity are up to 4,800 GWh, making the oversupply issue serious.”

Experts attribute China’s battery oversupply to a combination of factors, including a slowdown in the growth rate of electric vehicle sales, aggressive expansion of production capacity by Chinese companies aiming to secure government subsidies, and regulations such as the United States’ Inflation Reduction Act (IRA) aimed at excluding China from the battery supply chain.

The Chinese government previously supported domestic companies by applying subsidies only to electric vehicles equipped with domestically produced batteries. However, with the impending discontinuation of these subsidies this year, there was a significant increase in production investments last year. It’s estimated that in China, there are currently over 89,000 battery-related businesses, and more than half of them, around 58,000, are believed to have entered the industry within the past year and a half.

◇Possibilities of Offensive Dumping as in Steel and Solar Power

According to the Financial Times (FT) of the United Kingdom, China has been constructing battery factories far exceeding domestic demand and the government has provided substantial subsidies. The industry is growing increasingly concerned that the oversupply situation witnessed in other industries such as steel, aluminum, and solar power may be repeated in the battery sector.

China, before batteries, poured subsidies into emerging industries based on its massive domestic market, nurtured domestic companies, and when the domestic market became saturated, they exported excess inventory at low prices to dominate the global market. This process led to trade disputes. From 2007 to 2011, the surge in low-cost exports of Chinese-made solar cells and modules led China to capture over half of the U.S. market, prompting the Obama administration to impose anti-dumping tariffs on Chinese products. In 2015, a flood of low-priced Chinese steel products into the global market, surpassing 100 million tons in exports, resulted in the U.S. imposing a 522 percent anti-dumping tariff on Chinese cold-rolled steel, effectively pushing Chinese products out of the market.

A similar atmosphere is now being detected in the battery industry. According to SNE Research, as of July this year, the market share of the three major domestic battery companies—LG Energy Solution, SK On, and Samsung SDI—stood at 23.5 percent, a 1.7 percentage point decrease compared to the same period last year. While the battery usage of these three companies increased by 16 percent to 53 percent, the growing penetration of Chinese companies into non-Chinese markets has eroded their market share. In contrast, Chinese company CATL’s battery usage grew by 54.3 percent during the same period, achieving a market share of over 30 percent by 36.6, the only one to do so.

◇Reduced Domestic Investment and Expansion into Non-U.S. Markets

Chinese companies have already begun to explore strategies to deal with the anticipated oversupply. Facing difficulties entering the North American market due to the U.S. IRA regulations, Chinese companies are expanding their overseas production lines in countries such as Mexico, Hungary, and Thailand. They are focusing on new markets outside of the saturated domestic market and the regulated North American market.

Internally, they are also considering price reductions and production cutbacks. CATL, for example, plans to supply batteries to certain companies at a 15 percent lower price starting in the third quarter of this year. They have attached a condition that these companies must source 80 percent of their battery purchases from CATL over the next three years. Some companies are also undergoing restructuring, which includes reducing investment and significant layoffs.

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