China’s lithium-ion battery manufacturing capacity could support global electric vehicle production of nearly 50% of annual global passenger vehicle sales by 2025

China’s Ministry of Industry and Information Technology reported lithium-ion battery production of 580 gigawatt-hours (GWh) for the calendar year to October 2022 (c.80% of global supply), implying full year production is likely to have more than doubled since 2021.

Looking at lead indicators, China’s lithium-ion battery manufacturing capacity continues to grow rapidly and is presently estimated at c.900GWh/year (+c.80% YoY). A recent report by a newspaper run by China’s State Council estimated that capacity will reach as high as 3,000GWh/year by 2025 or 3x the forecast demand from China’s domestic electric vehicle manufacturers at that time, implying roughly two-thirds of the batteries under this scenario could be exported. This volume of lithium-ion batteries would support global electric vehicle production of nearly 40 million electric vehicles per year (assuming 80kWh batteries) or nearly 50% of annual global passenger vehicle sales.

For some time, we have forecast electric vehicle penetration to reach 40-50% by 2030. These data points not only increase our conviction in this forecast but also indicate that there is a plausible scenario for these significant levels of penetration to be achieved far sooner, which the majority of investors are not positioned for.