China’s battery giants have pulled the plug on South Korea’s dominance in powering electric vehicles. South Korea’s three top EV battery makers — LG Energy Solution, SK On, and Samsung SDI — are operating their factories at half capacity, while Chinese rivals CATL and BYDi run theirs near full throttle. The global battery industry has fundamentally realigned from premium performance to cost-effectiveness.
While South Korean manufacturers built their business on nickel-based batteries with superior energy density, Chinese companies dominate production of cheaper lithium iron phosphate batteries that automakers now prefer.
“When automakers accept LFP for high volumes, demand for premium nickel cells becomes a niche market serving luxury, long-range, and performance vehicles,” Oliver Petschenyk, powertrain analyst at research firm GlobalData, told Rest of World. “This shrinks the volume addressable for South Korean players built around that chemistry.” LG Energy Solution’s factory use has fallen for four straight years while China’s CATL operates at 90% capacity, according to SNE Research. The three South Korean giants’ combined share outside China dropped to 38% this year, down seven percentage points from 2024. The battery wars that reshaped the industry began in 2021 when Chinese companies massively increased production of nickel-manganese-cobalt batteries. The surge drove up prices for lithium, nickel, and cobalt, widening the cost differential between NMC and LFP battery packs and triggering a market shift that South Korean firms failed to anticipate. “Though prices for NMC inputs have now dropped, South Korean firms that produce NMCs in the Chinese market had to deal with the consequences from this period in which their costs of production spiked,” Laura Gormley, senior research analyst at Rhodium Group’s China practice, told Rest of World. “Chinese LFP producers as well as NMC producers that could shift production lines more quickly ate up market share.” South Korean companies focused on premium nickel batteries for high-end EVs, dismissing cheaper LFP technology as inferior, while China mastered LFP production just as the market shifted toward affordable mass-market electric vehicles. Even as South Korean companies now scramble to produce LFP batteries, China’s advantages in raw materials, labor costs, and vertical integration have made competing on price almost impossible.
Government support helps Chinese firms lower their costs of production, secure market share, and outlast foreign peers through industry downturns.”
South Korean companies are responding with emergency measures including executive salary freezes, workforce reductions, and management overhauls, even as Chinese competitors who have mastered mass-production economics grab market share. China controls the battery market through sheer production scale that exceeds global demand. The country has 82% of global manufacturing capacity, giving Chinese firms the power to flood markets and outlast competitors, according to Rhodium Group’s data. The dominance stems partly from massive government backing, which South Korean firms lack. BYD and CATL each received at least $2 billion annually in state support in 2023 and 2024, Gormley told Rest of World. The subsidies provide a safety net for Chinese firms. “Government support helps Chinese firms lower their costs of production, secure market share, and outlast foreign peers through industry downturns,” Gormley said. “Even if other jurisdictions have invested intensively in R&D and possess technological capabilities, they may still depend on China as the primary buyer until domestic demand is sufficient across the value chain.” CATL’s scale demonstrates China’s manufacturing prowess. The company, which claims to power one in three EVs globally, can produce a cell in a second and a battery pack in 2.5 minutes — efficiency levels beyond the reach of its South Korean rivals. The Chinese giant operates 13 global facilities and is investing more than 11 billion euros ($13 billion) in plants across Germany, Hungary, and Spain. This expansion brings Chinese manufacturing to markets that South Korean firms had considered secure territory. “This scale is the result of our relentless pursuit of innovation,” CATL said in an emailed statement to Rest of World. “We’ve invested over $10 billion in R&D, built a world-class team of more than 20,000 researchers with 50,000 patents granted and pending globally.” South Korean firms made a strategic error by expanding aggressively in the U.S. and Europe just as EV sales slowed in 2024. Their factories sit idle while Chinese rivals serve faster-growing markets in Asia and emerging economies, according to Teymour Bourial, founder of sustainability consulting firm ExoPeak. Samsung SDI suffered as the sales of BMW’s electric model slowed and U.S. carmaker Rivian switched to Chinese company Gotion’s LFP batteries. LG Energy Solution, meanwhile, took hits from Tesla’s declining sales volume, data from SNE Research showed. The vertical integration of Chinese firms provides additional advantages. CATL owns lithium mines, holds stakes in component manufacturers, and operates what industry analyst Steve LeVine describes in his newsletter The Electric as “by far the world’s largest global constellation of battery gigafactories.”
South Korean firms face a difficult choice between writing off existing investments and continuing to serve a shrinking premium market.”
Chinese companies have continued to push technological boundaries while maintaining cost leadership. CATL’s new Shenxing Pro batteries deliver 758 kilometers (471 miles) of range and can add 478 kilometers in 10 minutes even in extreme cold — eliminating the cold-weather weakness that South Korean firms once used to justify their avoidance of LFP technology. South Korean companies are now scrambling to develop LFP capabilities they earlier dismissed. Samsung SDI and SK On have both targeted 2026 for mass production of LFP batteries, while LG Energy is prioritizing LFP development in the U.S. and expects its Morocco plant to be operational next year. “SK On has succeeded in applying the technologies around making high-nickel battery electrodes and materials to LFP batteries,” vice president Hwang Jae-youn had said while showcasing the company’s pilot product in 2023. “This allows us to compete in the mass market segment we previously ignored.” The recalibration comes with significant challenges for South Korean manufacturers accustomed to premium production. Their smaller scale compared to Chinese rivals results in less leverage in supplier negotiations, making it difficult to achieve the cost reductions necessary for LFP competitiveness. “Existing investments in nickel-line capacity, supplier contracts, and customer commitments make rapid, large-scale LFP switches expensive and operationally complex,” Petschenyk said. “South Korean firms face a difficult choice between writing off existing investments and continuing to serve a shrinking premium market.” Chinese battery makers, meanwhile, are expanding into markets South Korean firms once dominated. CATL counts Tesla, Volkswagen, and BMW among its major clients — relationships built on cost advantage and technological capabilities that match or exceed South Korean offerings. BYD has recently partnered with Japan’s Toyota, breaking into the historically insular Japanese market that South Korean firms had targeted for growth. In India, despite geopolitical tensions, China’s CALB Group and Gotion have established long-term partnerships with local manufacturers. Mercedes-Benz has increasingly considered Chinese partners for volume models — sometimes even dubious ones — while reserving South Korean suppliers primarily for flagship vehicles. The German automaker’s shift reflects the broader industry trend toward Chinese batteries for mass-market vehicles. LG Energy Solution’s CEO, Kim Dong-myung, predicted earlier this year that global battery demand will hit its lowest point in the first half of 2025 before potentially rebounding in 2026, though recovery may not restore South Korean dominance. The International Energy Agency warned in March 2024 that South Korean makers’ survival depends on embracing cheaper LFP designs, a realization that has prompted catch-up investments. South Korean manufacturers invested a combined $1.7 billion in research and development in 2024 — an all-time high according to company reports. Yet this investment pales compared to the broader Chinese ecosystem’s research capabilities.The collapse in demand for South Korean batteries has rippled through the country’s supply chain. Major materials firms that feed battery production, including L&F, Posco Future M, and Ecopro, have suffered significant revenue decline due to Chinese competition, impacting every stage from raw materials to finished cells. South Korea now finds itself trapped between past investments and future necessities. The country has spent billions building state-of-the-art factories for premium nickel battery production. Converting the factories requires rebuilding entire production lines with new equipment and processes. “South Korean players cannot realistically compete with China on cost since their operations are less vertically integrated, their plants are smaller, and their yields are lower,” ExoPeak’s Bourial said. “Their best chance lies in focusing efforts on next-generation technologies such as solid-state or sodium-ion batteries because a breakthrough could allow South Korea to reclaim influence in specific parts of the global market.” The article appeared in restofworld