EV Battery Output Surges Unstoppable

The Global Battery Boom and Its Implications

The global battery production is surging at an unprecedented rate, far outpacing the demand for electric vehicles (EVs) and energy storage systems. This imbalance has led to a significant oversupply in the market, which is expected to drive down prices. Chinese manufacturers are playing a major role in this overcapacity, with their production capabilities continuing to expand despite slowing demand.

This trend is part of a broader shift in the EV industry, where supply is now three times greater than demand. While this may seem like a positive development for consumers, it poses challenges for manufacturers who must navigate the complexities of excess inventory and fluctuating market conditions.

Key Statistics on Battery Production

According to S&P Mobility data, global EV battery production capacity is projected to reach 3,930 gigawatt hours this year, while demand is forecasted at just 1,161 GWh. These figures do not even account for under-construction Chinese plants, whose capacities remain undisclosed. The surge in production is primarily driven by companies like Contemporary Amperex Technology Limited (CATL) and BYD, which are leading the charge in battery manufacturing.

Japanese and Korean players, once dominant in lithium-ion cell production, are losing their global market share. Each EV battery consists of several components, including anodes, cathodes, separators, and electrolytes. These parts require specialized suppliers and facilities, and many manufacturers are now vertically integrating to produce more components in-house.

Impact of Overcapacity on the Industry

The current overcapacity is causing battery makers to delay or shelve projects. For example, Panasonic is not expected to reach peak output at its new Kansas plant until 2027, partly due to weakening demand from Tesla, its main customer. Similarly, LG Energy Solution (LGES) slowed down the construction of its battery plant in Michigan last year.

In the long term, this overcapacity could choke off raw material extraction, potentially slowing the supply chain as EV demand is projected to surge again after 2030.

Tariff Pass-Through to Consumers

Japanese automakers are beginning to pass on the costs of U.S. tariffs to American consumers. Initially, many foreign automakers tried to absorb the added costs, but this approach is proving unsustainable. Toyota Motor recently raised prices in the U.S., with an average increase of $270 per model. The tariff on Japanese auto imports has been reduced from 27.5% to 15%, though the exact timeline for this reduction remains unclear.

U.S.-EU Trade Relations

The U.S. and the European Union are working on a deal to reduce the 27.5% tariff on European car imports to 15%. In return, the EU would drop its own tariffs on certain U.S. industrial goods and grant preferential market access to a wide range of American seafood and agricultural exports. Both sides aim to have the new rates take effect by August 1.

Even at 15%, these tariffs will still cost automakers billions, but the cut would provide some relief. The stakes are particularly high in the luxury segment, where brands such as BMW, Mercedes-Benz, Volvo, and Audi ship the bulk of their U.S.-bound vehicles directly from Europe.

Challenges of Battery Oversupply

With the current oversupply, questions remain about what will happen to the excess batteries. Will they sit in factories or warehouses? How will unsold batteries age over time? What capacity fade concerns need to be addressed as these overproduced batteries sit idle?

The situation highlights the delicate balance between supply and demand in the EV industry. As production continues to outpace demand, manufacturers must find innovative ways to manage their inventories and adapt to changing market conditions.

Other Industry Developments

Rivian’s upcoming R4 and R5 models are expected to be lower-cost siblings to the R2 and R3, according to CEO R.J. Scaringe. The successful launch of the R2 is crucial for Rivian’s future. Meanwhile, Jaguar’s first EV has finally gained access to Tesla Superchargers, much to the surprise of many. The 2026 Jeep Cherokee also features a smaller battery, signaling a shift in design priorities.