China Still Controls the Battery Supply Chain That Matters Most

The battery bottleneck moved downstream from the mine

The strategic difference between a mineral deposit and a battery material is qualification. A mine produces a feedstock. A battery anode, cathode, separator or electrolyte has to meet tightly specified physical and chemical characteristics inside a customer's particular cell design. Particle size, morphology, purity, coating, porosity, moisture control, formulation and production consistency can affect energy density, fast charging, cycle life, safety and manufacturing yield. The IEA notes that cathode precursors allow manufacturers to control particle size, morphology and impurity levels, all of which influence battery performance.[1]

This creates a three-layer advantage for incumbent suppliers. The first is scale. The second is manufacturing know-how and equipment. The third is qualification with downstream customers. A new project can possess raw material and still fail at either of the latter two layers.

The economics reinforce the gap. The IEA estimates that new refining projects outside the dominant supplier can face capital costs 20% to more than 150% higher, with operating costs around 50% higher on average.[2] It also notes that only a handful of suppliers outside China provide key equipment for battery-grade graphite processing.[2] In other words, diversification requires an industrial ecosystem, not simply another deposit and a processing plant.

That helps explain a paradox in current battery markets. Falling Chinese material prices can improve battery economics for automakers while making supply-chain diversification harder to finance. The IEA says many leading cathode active material producers have operated at significant losses since 2023, even as capacity has continued to expand.[1] If low prices force higher-cost entrants to delay projects while scaled incumbents continue operating, the market can become more concentrated even while the component itself becomes cheaper. Overcapacity can function as an ecosystem moat.

The recent collapse in investment adds to the timing problem. Battery-metal capital spending fell by more than 20% in 2025, while lithium-company investment fell by around 40%, according to the IEA.[2] Upstream mine announcements can therefore coexist with a slower buildout of the qualified midstream capacity that cell makers actually need.

Graphite shows why a non-Chinese cell can still have Chinese material exposure

Graphite is the clearest example of why country-of-origin analysis at the cell level can be misleading. China produces more than 90% of anode active material used in electric-car batteries.[17] Its influence is not limited to natural graphite mining. The more defensible part of the chain is purification, shaping, coating, graphitization and the ability to deliver battery-grade material at consistent quality.

U.S. trade records make the customer network unusually visible. In the Commerce Department's July 2025 preliminary antidumping determination on active anode material from China, exporter-producer pairings included Tesla Shanghai with Shijiazhuang Shangtai Technology, Guangdong Kaijin, BTR and Shanghai XFH; SK On with BTR; Samsung SDI entities with BTR and Jiangxi Zichen; and numerous Panasonic entities with BTR and Resonac.[7] The February 2026 final determination was narrower, but it still listed Tesla Manufacturing Brandenburg and Panasonic Global Procurement China in pairings with BTR entities.[16] These records do not prove that every named producer is indispensable to every named exporter, but they show that Chinese anode producers sit directly inside the commercial networks of Japanese, Korean, American and European battery operations.

That is the important analytical distinction. An investor screening for "Japanese battery exposure" or "Korean battery exposure" can still be looking at a material chain that reaches back into Chinese graphite conversion. The location of the cell plant is not the same thing as the location of its critical inputs.

Policy has not removed that dependency. The United States Department of Commerce found dumping and subsidization in its 2026 active anode material investigations, but the U.S. International Trade Commission subsequently determined that the imports did not materially retard establishment of a U.S. industry. As a result, Commerce did not issue antidumping or countervailing duty orders.[8][16] Strategic importance therefore does not guarantee trade protection, and investors should not value a domestic project as though a protective tariff floor is automatic.

Non-Chinese alternatives are emerging, but their commercial milestones illustrate how difficult substitution can be. The U.S. Department of Energy financed Syrah's Vidalia, Louisiana active anode material facility, which uses graphite from Syrah's Balama operation in Mozambique. Syrah also signed a four-year agreement to sell Tesla the majority of Vidalia's active anode material output.[13] That is a more meaningful diversification signal than an announced mine because the chain links feedstock, processing and a downstream buyer.

NOVONIX provides the other side of the same lesson. Its Riverside synthetic graphite facility in Tennessee has capacity supported by offtake agreements with Panasonic Energy and PowerCo, but battery-grade qualification has taken longer than the construction story alone suggests. In 2026, NOVONIX said Panasonic mass production was expected in the second half of 2027 while final qualification continued, and it separately disclosed that it and Stellantis had been unable to agree on product specifications and mass-production qualification milestones.[14] For investors, customer qualification is not a formality after capacity is built. It is part of the asset's commercial value.

LFP dominance is becoming more important as LFP takes market share

LFP is the second major chokepoint because the chemistry's success increases exposure to the supply chain that is most geographically concentrated. The IEA estimated that more than 98% of global LFP cathode material and LFP battery cells were produced in China in 2024.[3] China also produced roughly three-quarters of battery-grade purified phosphoric acid and 95% of battery-grade manganese sulphate, two inputs that become more important as phosphate-based and manganese-rich chemistries expand.[3]

The concentration is not only a national statistic. It appears in specific supplier relationships. Hunan Yuneng, one of China's largest phosphate cathode producers, said in its 2024 annual report that it was deepening cooperation with strategic customers CATL and BYD.[9] CATL also held 7.90% of Hunan Yuneng at the end of 2024.[9] The relationship therefore combined a major downstream customer with an equity link, an example of the industrial integration that is difficult to capture by looking only at commodity flows.

Hunan Yuneng also illustrates how China's battery-material advantage can travel abroad rather than simply remain inside China. In its 2024 annual report, the company said it had established entities in Singapore and Spain and was advancing a planned 50,000-tonne-per-year cathode-material project in Spain.[9] If Chinese material producers expand capacity in Europe, a battery can become more geographically local without becoming independent of Chinese-owned process knowledge, customer relationships or corporate supply.

The same issue appears in projects that never reach production. ICL signed an agreement with Shenzhen Dynanonic in January 2025 to establish LFP cathode active material production in Spain. By November 2025, ICL and Dynanonic had jointly decided to terminate that venture.[15] The episode is a useful warning against counting announced gigawatt-hours or tonnes of planned non-Chinese capacity as if they were already qualified supply. Financing, economics, customer commitments, technology transfer and commissioning all have to survive the period between announcement and production.

There is also a competitive feedback loop that favors incumbents. LFP's price advantage is one reason the chemistry is gaining share, but the same low-price environment can weaken the economics of new plants in the United States or Europe. The IEA estimates that cathode active material represents roughly 25% to 30% of LFP cell cost in China.[1] A new cathode plant must therefore compete in a component where small unit-cost differences matter to the finished cell and where Chinese producers already benefit from integrated upstream inputs, equipment, technical experience and customer scale.

That is why the relevant investment question is not simply whether non-Chinese LFP factories are being announced. It is whether those factories can reach acceptable yields, qualify with major battery customers, secure low-cost feedstock and operate at a cost structure that survives Chinese pricing. Until those tests are passed, announced capacity is an option on diversification rather than completed diversification.

Separators and electrolyte reveal the hidden component relationships

China's position is not equally dominant in every battery component. That difference is useful because it shows why market share alone is not enough. Separators are more geographically diversified than graphite anodes or LFP cathodes. The U.S. Department of Energy estimated in 2025 that about 41% of lithium-ion battery separators were produced in China, with the industry still predominantly based in Asia.[12] Yet Chinese separator manufacturers are embedded across the global battery sector.

Yunnan Energy New Material, better known internationally through its SEMCORP business, said in its 2025 annual report that it had entered the supply-chain systems of CATL, BYD, EVE, CALB and Gotion in China, as well as Panasonic, LG Energy Solution, ACC and Ultium Cells internationally.[10] The company also described separator production-line construction, commissioning and customer validation cycles as lengthy, and said high-end products face increasingly rigorous certification requirements.[10]

That combination is more informative than a national production share. A 41% country share sounds less concentrated than graphite's more than 90%, but a qualified supplier that is already designed into multiple leading cell makers can still be difficult to replace on short notice. The membrane itself is inexpensive relative to the battery pack, yet it directly affects ion transport, internal short-circuit prevention and safety. The strategic value of the relationship can therefore exceed the separator's share of cell cost.

Electrolyte materials are more concentrated still. According to CIC and GGII industry data reproduced in Guangzhou Tinci Materials Technology's March 2026 Hong Kong listing application, China shipped 1,292.7 kilotonnes of lithium-ion battery electrolyte in 2024 out of 1,406.9 kilotonnes globally, or roughly 92%.[11] The same data put China's 2024 share of lithium hexafluorophosphate, or LiPF6, at 157.0 kilotonnes out of 168.8 kilotonnes globally, and its share of LiFSI at 21.7 kilotonnes out of 23.9 kilotonnes.[11] These figures come from a draft listing document and third-party industry research, so they should be treated as market estimates rather than audited global production statistics. Even with that limitation, the scale of concentration is difficult to dismiss.

Tinci's own position shows how concentration can exist at both the country and company level. The same application reported that Tinci shipped 502.7 kilotonnes of electrolyte in 2024, equal to 35.7% of the global market, along with 37.6% of global LiPF6 shipments and 51.2% of global LiFSI shipments.[11] Its five largest customers represented 58.5% of 2025 revenue, with the largest alone representing 36.1%, although the document did not identify those customers by name.[11]

For investors, that creates a different risk profile from a lithium miner. A miner's exposure is primarily to resource quality, production volume and commodity price. A specialized electrolyte or separator supplier can also carry qualification risk, customer concentration, formulation know-how and switching friction. The downstream customer may be much larger, but the smaller supplier can be more economically exposed to the relationship. Conversely, if the supplier occupies a scarce qualified position, its strategic relevance to the customer may be larger than its revenue size suggests.

The investable signal is qualified capacity, not announced capacity

The most important consequence of China's midstream dominance is that battery diversification should be measured by completed industrial relationships, not by factory announcements. A cell plant in North America or Europe can still depend on Chinese anode material, cathode powder, electrolyte salts or separator film. A cathode plant can still depend on Chinese equipment and process expertise. A local raw-material source can still fail to become a qualified battery input.

There are credible attempts to close those gaps. Syrah links non-Chinese graphite feedstock to U.S. anode processing and a Tesla offtake.[13] NOVONIX has binding demand from Panasonic Energy and PowerCo for synthetic graphite, although the qualification timeline shows that commercial ramp-up remains a separate risk from construction.[14] ENTEK is building a U.S. wet-process separator plant with a $1.3 billion Department of Energy loan, directly addressing a component where U.S. manufacturing is thin.[12] These projects matter precisely because they attack the midstream steps rather than stopping at the mine.

But the failure modes are just as important. The ICL-Dynanonic Spain LFP venture was terminated before it became operating supply.[15] NOVONIX's experience with Stellantis shows that an offtake relationship can fail to convert into a final product specification.[14] The U.S. active-anode trade case shows that a strategic industry can win an affirmative Commerce finding and still fail to receive final trade orders because the USITC reaches a different statutory conclusion.[8][16]

That suggests a more demanding way to evaluate battery-supply-chain investments. The relevant milestones are whether a project is financed, whether the equipment is installed and commissioned, whether a specific customer has qualified the material, whether the plant can achieve commercial yields, and whether binding demand survives the qualification process. Nameplate capacity without those conditions can materially overstate how much supply is actually available to replace Chinese inputs.

The same framework changes how risk should be read at larger battery and automotive companies. A Korean or Japanese cell supplier can diversify cell manufacturing geographically while retaining Chinese material relationships. An American automaker can source a U.S.-made cell while still being exposed several tiers upstream to a Chinese separator, graphite or electrolyte producer. Conversely, a Chinese supplier building in Europe can reduce logistics and tariff exposure without necessarily reducing concentration of ownership or know-how.

This is why a simple "China versus ex-China" battery basket misses the mechanism. The better segmentation is upstream resource, midstream conversion, qualified component, cell manufacturing and end customer. The scarcest layer is not always the one with the most expensive product. It is the layer with the fewest validated substitutes.

Conclusion

China's battery advantage is increasingly an industrial-system advantage rather than a mining advantage. The country dominates graphite anode material and LFP cathode production, holds a very large share of electrolyte and electrolyte-salt output, and has separator suppliers already qualified across major Chinese, Japanese, Korean and Western battery makers. It also has the equipment base, operating experience and customer relationships that allow those materials to be produced at scale and low cost.

That makes lithium-mine diversification necessary but insufficient. The more consequential milestone for battery security is a non-Chinese supplier that has moved from feedstock to qualified material, from pilot output to commercial yields, and from an announced customer to a binding, surviving production relationship.

The near-term policy calendar reinforces that conclusion. China's proposed 2025 controls on LFP cathode materials, synthetic graphite anodes, manufacturing equipment and technology remain suspended through November 10, 2026, while the older graphite licensing regime continues.[4][5][6] Whether the newer controls are extended, modified or allowed to take effect will matter because the underlying industrial concentration has not disappeared during the suspension.

For investors, the central finding is therefore narrower than "China dominates batteries." China dominates several of the battery inputs for which substitution requires both industrial capability and customer requalification. Until competing regions build those capabilities at commercial yields and acceptable cost, headline growth in non-Chinese cell capacity will overstate the amount of the battery supply chain that has actually diversified.

Sources

1. International Energy Agency, "Electric vehicle batteries," Global EV Outlook 2026, 2026. https://www.iea.org/reports/global-ev-outlook-2026/electric-vehicle-batteries
2. International Energy Agency, "Executive summary," Global Critical Minerals Outlook 2026, 2026. https://www.iea.org/reports/global-critical-minerals-outlook-2026/executive-summary
3. International Energy Agency, "Beyond NMC batteries: Supply chain issues for emerging battery technologies," Global Critical Minerals Outlook 2025, May 21, 2025. https://www.iea.org/reports/global-critical-minerals-outlook-2025/beyond-nmc-batteries-supply-chain-issues-for-emerging-battery-technologies
4. Ministry of Commerce of the People's Republic of China and General Administration of Customs, Announcement No. 39 of 2023 on graphite export controls, October 20, 2023. https://exportcontrol.mofcom.gov.cn/article/zcfg/gnzcfg/zcfggzqd/202310/912.html
5. Ministry of Commerce of the People's Republic of China and General Administration of Customs, Announcement No. 58 of 2025 on export controls for lithium batteries and artificial graphite anode materials, October 9, 2025. https://interview.mofcom.gov.cn/mofcom_interview/front/swfgk/article?id=20251003602241
6. Ministry of Commerce of the People's Republic of China and General Administration of Customs, Announcement No. 70 of 2025 suspending implementation of Announcements 55, 56, 57 and 58 and related measures through November 10, 2026, November 7, 2025. https://www.mofcom.gov.cn/cms_files/filemanager/policySummary/viewcore_7902cbe4bcba4e9db47972b13e7d0dfa.html
7. U.S. Department of Commerce, "Preliminary Affirmative Determination in the Antidumping Duty Investigation of Active Anode Material from the People's Republic of China," July 17, 2025. https://www.trade.gov/preliminary-affirmative-determination-antidumping-duty-investigation-active-anode-material-0
8. U.S. International Trade Commission, "Active Anode Material from China Does Not Materially Retard the Establishment of a U.S. Industry," March 12, 2026. https://www.usitc.gov/press_room/news_release/2026/er0312_68281.htm
9. Hunan Yuneng New Energy Battery Material Co., Ltd., 2024 Annual Report, March 15, 2025. https://static.cninfo.com.cn/finalpage/2025-03-15/1222807407.PDF
10. Yunnan Energy New Material (Group) Co., Ltd., 2025 Annual Report, 2026. https://static.cninfo.com.cn/finalpage/2026-05-19/1225312833.PDF
11. Guangzhou Tinci Materials Technology Co., Ltd., Application Proof, Hong Kong Exchanges and Clearing, March 27, 2026. https://www1.hkexnews.hk/app/sehk/2026/108340/documents/sehk26032701229.pdf
12. U.S. Department of Energy, "DOE Approves Loan Disbursement to ENTEK, Supporting American Manufacturing and Securing Domestic Supply Chains," September 17, 2025. https://www.energy.gov/edf/articles/doe-approves-loan-disbursement-entek-supporting-american-manufacturing-and-securing
13. U.S. Department of Energy, "LPO Offers First Conditional Commitment for Critical Materials Project for Syrah Vidalia to Support Domestic EV Supply Chain," April 18, 2022. https://www.energy.gov/edf/articles/lpo-offers-first-conditional-commitment-critical-materials-project-syrah-vidalia
14. NOVONIX Limited, SEC Exhibit 99.1, 2026. https://www.sec.gov/Archives/edgar/data/1859795/000119312526083357/nvx-ex99_1.htm
15. ICL Group Ltd., 2025 Annual Report on Form 20-F, filed 2026. https://www.sec.gov/Archives/edgar/data/941221/000117891326000817/zk2634483.htm
16. U.S. Department of Commerce, "Final Affirmative Determinations in the Antidumping and Countervailing Duty Investigations of Active Anode Material from China," February 11, 2026. https://www.trade.gov/final-affirmative-determinations-antidumping-and-countervailing-duty-investigations-active-anode
17. International Energy Agency, "Manufacturing and trade," Global EV Outlook 2026, 2026. https://www.iea.org/reports/global-ev-outlook-2026/manufacturing-and-trade

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