Global battery markets are growing strongly – and so are the supply risks

The global lithium-ion battery market exceeded USD 150 billion in 2025, an increase of over 20% from 2024, but its economic and strategic significance extends far beyond market size. Batteries are becoming a cornerstone of the automotive sector, a critical source of flexibility for power systems, and an increasingly important source of back-up power for digital infrastructure, including data centres and artificial intelligence.

Beyond energy, batteries remain indispensable for a wide range of industrial and strategic applications, from portable electronics and unmanned defence systems to emerging technologies such as humanoid robots. As applications diversify and costs continue to fall, batteries are evolving into a foundational component of modern economies. This shift carries far-reaching implications for economic competitiveness, supply security and industrial policy, as battery supply chains remain highly concentrated and technologically complex.

These dynamics are already evident in battery deployment trends, as declining costs and expanding applications continue to drive rapid growth of demand for batteries across sectors.

Global lithium-ion battery deployment in 2025 was six times as high as in 2020. Electric vehicles remain the dominant driver of demand, with global sales reaching a new record and accounting for one-in-four cars sold globally. Electric vehicles account for more than 70% of total lithium-ion battery deployment. This is followed by battery energy storage at over 15%, reflecting the growing role of batteries in providing flexibility in power systems.

The situation represents a profound shift from a decade ago. In 2015, nearly half of global battery demand came from portable electronics; by 2025, this share had fallen to below 5%.

Falling prices have been instrumental to this expansion. In 2025, average battery prices declined by 8%, supported by advances in manufacturing, improvements in battery chemistries and intensifying global market competition. Battery energy storage systems (BESS) saw the sharpest price declines, with average global prices in 2025 falling to one-third of levels seen in 2020.

At the same time, regional price disparities have widened. In 2025, battery pack prices in China were 30% lower than in the United States, and 35% lower than in Europe.

Record low lithium iron phosphate (LFP) battery prices also contributed significantly to overall cost reductions in 2025. LFP battery prices fell by more than 15%, compared with less than 5% for lithium nickel cobalt manganese oxide (NMC) batteries – the second most deployed battery chemistry globally. This made LFP batteries on average more than 40% cheaper than NMC alternatives. As a result, LFP accounted for over half of EV batteries and over 90% of battery energy storage systems globally.

While LFP batteries benefit from structurally lower material costs, there are growing concerns about the sustainability of today’s price levels. Many LFP cathode producers are operating at a loss, increasing the possibility of market consolidation.

Deployment remains heavily concentrated in China, but uptake is also expanding rapidly in emerging and developing economies. LFP batteries now power well over half of all electric car sales in emerging and developing economies – double the share in 2023 – driven by imports of Chinese-manufactured vehicles and LFP batteries.

Battery energy storage has grown at an exceptional pace, with global installations increasing more than 20-fold in storage capacity over the past five years. This growth has been driven by falling battery prices, abundant supply and relatively short project lead times. As variable renewable generation expands in many markets, battery storage is becoming an important source of flexibility and resilience for power systems, while also representing a growing commercial opportunity for battery manufacturers.

However, more than 90% of battery storage applications rely on LFP batteries that are almost exclusively supplied from China, which accounts for almost all global manufacturing capacity and the associated technical expertise. Korean producers are investing to scale up LFP battery production that can offer an alternative, but they face intense competition from established, lower-cost Chinese producers in an oversupplied market.

As batteries become more central to energy systems and the wider economy, strategic risks across their supply chains are becoming more pronounced. Chinese, Korean and Japanese companies are the main drivers of global lithium-ion battery cell production, accounting for nearly all of global output. China continues to top the list, manufacturing well over 80% of all batteries in 2025. The European Union and the United States meanwhile account for the majority of the remaining output, with each contributing a similar share.

Battery factories in Europe and the United States rely heavily on imports for the majority of their battery components, which come mostly from China. The lack of investment in midstream supply chains in these markets poses a growing risk to global supply security, a topic that will be examined in depth in the upcoming IEA publication Energy Technology Perspectives 2026. Production capacity and technical expertise for essential components, such as active materials and their precursors, remain heavily concentrated in China. Korea and Japan are the only other countries with notable midstream battery industries, offering opportunities to diversify some component sources. Nearly all batteries used for power grids rely on China for at least one step of their supply chain, while over 70% of all electric vehicles produced outside China rely on batteries or components from China.

This structural imbalance is unlikely to change in the near term. Addressing it would require a substantial increase in investment and stronger international co-operation across the battery value chain. China’s export controls on key battery components that it has introduced since 2023 underscore these vulnerabilities, as they focus precisely on the most vulnerable links in the battery supply chain.

Efforts to diversify the battery supply chain will need to be underpinned by sound economic fundamentals to succeed. Europe and the United States have attracted significant investment in battery cell manufacturing, supported by large automotive industries that offer predictable sources of demand. Similar conditions apply further elsewhere in supply chains: scaling up midstream production capacity requires stable, large-scale demand to justify investment, with a competitive and reliable battery manufacturing base acting as a critical anchor.

However, cost competitiveness remains a key challenge. Even with public support measures excluded, production costs in Europe and the United States are still as much as 50% higher than in China, complicating efforts to establish a competitive midstream industry.

Achieving manufacturing efficiencies comparable to those in China – where average production yields well exceed 90% – will take time and sustained investment. When a new producer begins operations, the share of output that is unfit for sale is often much higher than that needed to achieve profitability. For regions without a strong battery industrial base, progress will depend on patient investment, long-term commitment, and partnerships with experienced manufacturers and resource-rich countries.

Technology innovations will also play an important role. For example, sodium-ion batteries – a sector in which investments from leading manufacturers is growing rapidly – could create opportunities for more geographically diverse supply chains. Current project pipelines, however, point in the opposite direction – nearly all installed and announced sodium-ion battery manufacturing capacity is located in China.

The advantages and challenges related to sodium-ion batteries, which are an emerging player in batteries markets, will be examined in an upcoming IEA commentary.

As the strategic role of batteries in energy systems and beyond continues to rise, the IEA will continue to monitor these trends in order to provide timely analysis and policy advice. Extensive analyses on the supply chain security of batteries and other energy technologies will be released in the IEA’s forthcoming flagship technology publication Energy Technology Perspectives 2026.