China dominates the global supply chain for lithium-ion batteries. Now rival countries are scrambling for more control over “white oil.”
The industrial port of Kwinana on Australia’s western coast is a microcosm of the global energy industry. From 1955, it was home to one of the largest oil refineries in the region, owned by British Petroleum when it was still the Anglo-Persian Oil Company. It once provided 70 percent of Western Australia’s fuel supplies, and the metal husks of old tanks still dominate the shoreline, slowly turning to rust in the salt air.
The refinery shut down in March 2021, but it isn’t just oil below the region’s red soil: Australia is also home to almost half of the world’s lithium supply. The trucks and machinery are humming once again, but now they’re part of a race to secure the clean energy sources of the future—a race being dominated by China.
Over the past 30 years, lithium has become a prized resource. It’s a vital component of batteries—for the phone or laptop you’re reading this on, and for the electric vehicles that will soon rule the roads. But until recently, the lithium mined in Australia had to be refined and processed elsewhere. When it comes to processing lithium, China is in a league of its own. The superpower gobbled up about 40 percent of the 93,000 metric tons of raw lithium mined globally in 2021. Hundreds of so-called gigafactories across the country are churning out millions of EV batteries for both the domestic market and foreign carmakers like BMW, Volkswagen, and Tesla.
China’s share of the market for lithium-ion batteries could be as high as 80 percent, according to estimates from BloombergNEF. Six of the 10 biggest EV battery producers are based in China—one of them, CATL, makes three out of every ten EV batteries globally. That dominance extends through the supply chain. Chinese companies have signed preferential deals with lithium-rich nations and benefited from huge government investment in the complex steps between mining and manufacturing. That’s made the rest of the world nervous, and the United States and Europe are now scrambling to wean themselves off Chinese lithium before it’s too late.
An electric car battery has between 30 and 60 kilos of lithium. It’s estimated that by 2034, the US alone will need 500,000 metric tons of unrefined lithium a year for EV production. That’s more than the global supply in 2020. Some experts fear a repeat of the oil crisis sparked by Russia’s invasion of Ukraine, with geopolitical tension spilling over into a war of sanctions. Such a scenario could result in China shutting off its supply of batteries just as Western automakers need them to power the switch to EVs.
“If China decides to stick with the home market, lithium-ion batteries are going to be more expensive outside China,” says Andrew Barron, a professor of low carbon energy and the environment at Swansea University. That makes Western efforts to expand battery production capacity “more imperative than ever,” he says.
Those efforts are taking shape, albeit slowly. If everything goes to plan, there will be 13 new gigafactories in the United States by 2025, joined by an additional 35 in Europe by 2035. (That’s a big if, with many projects beset by logistical problems, protests, and NIMBYism, most notably Tesla’s controversial gigafactory near Berlin.)
But those gigafactories are going to need lithium—and lots of it. In March, US president Joe Biden announced plans to use the Defense Production Act to fund domestic mining of lithium and other critical battery materials under the auspices of national security. Across the Atlantic, the European Union is advancing legislation to try and create a green battery supply chain within Europe, with a focus on recycling lithium.
But there’s an important piece missing between mine and manufacturing. Turning lithium ore into the purer lithium carbonate or lithium hydroxide needed for batteries is an expensive and complex operation. It takes years to get a lithium processing plant or gigafactory off the ground, and it could take decades and an estimated $175 billion for the US to catch up to China. China controls at least two-thirds of the world’s lithium processing capacity, and it’s this more than anything that could give it a stranglehold on the battery market for years to come.
Without urgent investment in this middle step, lithium pulled from new mines in the US and Europe might still need to be shipped to Asia and back again to be refined before it can be used in electric cars—increasing emissions, compromising energy independence, and handing China a trump card.
On the surface Kwinana appears to be a step in the right direction. A new lithium processing plant has been built to the north of the old refinery, and in May it successfully turned a lithium ore called spodumene into battery-ready lithium hydroxide for the first time. But even that doesn’t give Australia the ability to refine and freely sell its own lithium. The plant is a joint venture, and its majority shareholder is Tianqi Lithium, a Chinese mining and manufacturing company that controls almost half of the world's lithium production.
In the global battery supply chain, China is everywhere. Tianqi Lithium also owns stakes in SQM, Chile’s biggest mining company, and Greenbushes, Australia’s biggest lithium mine. Both Tianqi Lithium and its domestic rival Ganfeng Lithium have signed deals across South America’s “lithium triangle,” a mineral-rich part of the Andes at the junction of Argentina, Bolivia, and Chile. It’s a similar story for other rare-earth materials needed for batteries: China controls 70 percent of the mining industry in the Democratic Republic of the Congo, home to almost all of the world’s cobalt, another critical component of lithium-ion batteries.
In addition to locking down global lithium supplies, China has also started to expand domestic production—it’s now the third biggest producer of lithium behind Australia and Chile, even though it holds less than 10 percent of the world’s supply.
This dominance didn’t happen overnight. In 2015, China made lithium a national priority as part of its “Made in 2025” industrial strategy. An estimated $60 billion in electric vehicle subsidies helped create a market and the battery supply chain to go with it. Battery companies have invested billions in domestic sources of lithium in a way that’s been impossible elsewhere in the world.
Lithium projects outside China have been at the mercy of the markets, slowing and expanding as the price of lithium ebbs and flows. But domestic investment has been almost constant. As a result, China is the only country that can take lithium from raw material through to finished batteries without having to rely on imported chemicals or components. That’s mostly due to a political environment that emphasizes reducing the cost of lithium rather than maximizing shareholder value.
But China isn’t producing nearly enough lithium to satisfy its domestic appetite—and besides, only about 10 percent of the material that goes into a battery is actually lithium. The country still relies on imports of cobalt, nickel, copper, and graphite, which ensures a degree of mutual cooperation for now. “It’s really an interwoven system,” says Lukasz Bednarski, a battery materials analyst and author of Lithium: The Global Race for Battery Dominance and the New Energy Revolution. “The Western world and China are sort of codependent.”
Neither side is interested in starting a trade war, which has resulted in a slightly uneasy standoff, Barron says. “If China decides not to export any electric vehicle batteries, countries in the West could decide not to export the nickel to China,” he says. “China doesn’t have the refineries to produce the highest purity nickel.”
The power balance might shift as both sides invest in energy independence. While the West races to build mines and factories, China is starting to exploit untapped sources of lithium in Xinjiang and the salt lakes of the Tibetan plateau. That might come with a human cost: a report by The New York Times found evidence of forced labor at mining operations in Xinjiang, which could be a potential flash point if sanctions designed to protect the Uyghur minority were to stop Western companies from importing chemicals mined in that region.
Ultimately, lithium isn’t fundamentally scarce. As prices rise, new technologies could become more economically viable—a way to extract lithium from seawater, for instance, or an entirely new type of battery chemistry that does away with the need for lithium altogether. In the short term, though, supply crunches could disrupt the switch to EVs. “There might be hiccups—years when the price of raw material skyrockets and there are temporary shortages on the market,” says Bednarski.
Chinese car manufacturers will have a huge advantage if that happens. Already, Chinese brands like Nio and Chinese-owned European brands like MG are launching EVs in the West that are the cheapest on the market. “Chinese-owned Western companies will have a massive advantage over their European or US competitors,” says Barron.
Once operational, the lithium plant in Kwinana will ship 24,000 tons of Australian lithium hydroxide a year. But that lithium, mined in Australia for batteries built in South Korea and Sweden and destined for EVs sold in Europe and the US, is reliant on China at every step of its journey. The shell of the old oil refinery still stands as a monument to the century-long scramble for fossil fuels that reshaped the world, but there’s a new race underway—and China is in the driving seat.
Keyword: The World Can’t Wean Itself Off Chinese Lithium