What Happens When a Chinese Battery Factory Comes to Town

Ultimately, local residents might feel disconnected from these batteries and the green energy transition they enable, as Hungarians are not the target consumers. Most lithium batteries produced in Hungary are destined for Western European auto markets, where consumers are wealthier and already convinced of the need to switch to clean energy. “The average Hungarian has the money to buy a 10-year-old German used car, usually powered by diesel or gasoline. They don’t have the money to buy electric vehicles,” says Bartók.

Sluggish demand

It should be borne in mind that not all international agreements announced by Chinese battery manufacturers have come to fruition. Of the 68 factory investments we identified, at least five of them were suspended or officially canceled, in some cases even after construction had begun. This is partly because consumer adoption of electric vehicles in these markets has proven to be a much more gradual process than in China.

Chinese battery makers were planning an aggressive global expansion at a time when governments were providing generous subsidies for factory projects and tax credits for consumers buying electric cars. They must now recalibrate as this enthusiasm wanes. In the United States, the Inflation Reduction Act passed under Joe Biden incentivized Chinese and American companies to build factories, but electric vehicle subsidies in the legislation were later reversed under President Donald Trump. Even Europe, which previously set a goal of completely ceasing production of gasoline cars by 2035, now has doubts.

“Battery makers, of course, would have less incentive to make a big investment if they are unsure of the policy direction,” says Alexander Brown, a senior analyst studying industrial policy at the Mercator Institute for China Studies.

What if the world didn’t want electric vehicles? Some battery manufacturers are already rolling out a backup plan: switching to energy storage. Ford, which is building a massive battery factory in Michigan using CATL manufacturing technology, announced in December that it would shift from making batteries for electric vehicles to producing batteries for energy storage. Envision AESC, another major Chinese battery company whose U.S. expansion plans were on hold for most of the last year, also recently announced that its existing factory in Tennessee would shift from manufacturing electric vehicle batteries to storage batteries.

Even as some sectors of the traditional auto industry lobby against electric vehicles, everyone seems happy to have more batteries on grids and in homes, which can prevent power outages and even allow consumers to sell their electricity back to the grid. (Well, at least almost everyone. Pakistan’s national utility operator and the Chinese banks that lend it money are not so happy about the rise of Chinese battery storage, as another piece on our program explained.)

The good news is that energy storage technology has rarely been politicized. In the United States, deeply Democratic California and Republican Texas have become big fans of grid-level battery storage, so Chinese ambitions to build more factories are unlikely to be completely in vain.

Reverse technology transfer

For partner companies and governments working with Chinese battery makers to set up factories in their countries, the goal has always been clear: trading market access and subsidies for the promise that these companies will eventually train local workers to produce cutting-edge batteries themselves.

The irony here should not be lost on anyone interested in the global auto industry. Over the past three decades, American, European, Japanese and Korean automakers have been happy to trade their technological know-how for access to the Chinese auto market. But today, this relationship has been reversed.