The rise of lithium-ion batteries

Since batteries were first pioneered by Alessandro Volta over 200 years ago, they have become a fundamental way to store electricity and power an ever-wider range of applications, from smartphones to electric vehicles to robots. But for the majority of their history, they were far too expensive, heavy and bulky to be used as the main source of energy for large devices. The invention of lithium-ion batteries finally changed that – but only after a long period of development spanning multiple countries, markets and government policies.

Today, the global lithium-ion battery market is worth more than USD 150 billion. Arguably, its strategic value extends far beyond this figure, as lithium-ion batteries have become central to the automotive industry, power grids, data centres, drones for defence, robotics and other sectors. This commentary traces their rise from research laboratories to one of the defining technologies of the 21st century. In doing so, it offers important lessons that could support countries seeking to build or strengthen their own battery industries.

Research into lithium-ion batteries began in the aftermath of the 1973-1974 oil crisis, as oil-importing economies around the world sought relief from soaring crude oil prices. As highlighted in the latest edition of the IEA State of Energy Innovation report, it was in publicly funded universities and laboratories in the United States, Europe and Japan – all heavily reliant on oil imports at the time – that the scientific foundations of lithium-ion batteries were laid and the first prototypes built. Reducing reliance on imported fuel was a central objective of this early research, with advanced batteries seen as a way to electrify road transport – the largest source of oil demand – and store renewable electricity. Yet the technology's first commercial success did not come from electric vehicles or power systems.

Electronics firms in Japan were among the first to recognise the commercial potential of the technology, leading to a patent for the first pre‑commercial prototype in 1986 and later a commercial product in 1991. Portable electronic producers were the earliest customers for lithium-ion batteries, attracted by their compact, lightweight and rechargeable features. Their products could also command high enough prices to absorb the steep costs of early lithium-ion batteries.

As music players and mobile phones gave way to smartphones as the engines of battery demand in the early 2000s, Korean producers pioneered flatter, more flexible battery designs that allowed Korea's Samsung to overtake Japan's Panasonic as the world’s largest lithium-ion battery producer in 2011. By 2010, global battery demand had increased over tenfold compared with a decade earlier and, thanks to economies of scale and continued technology improvements, average battery cell prices fell by around 80% over the same period.

The next leap was much larger. These trends accelerated over the following years, increasingly driven by the growing uptake of electric vehicles (EVs). By 2025, global annual battery demand had grown to almost 1 000 times its 2000 level, while average cell prices had fallen by 97%.

EVs were identified early on as a promising application for lithium-ion batteries. In 1996, Japanese automaker Nissan prototyped the Prairie Joy – the world’s first lithium-ion EV – and, two years later, produced the Altra at commercial scale. However, high costs and limited driving range prevented early EVs from finding many willing customers. A turning point came in the late 2000s, when falling battery prices helped spur the development of EVs for the mass market. In 2008, the United States automaker Tesla released its Roadster as a high-performance premium electric vehicle. This was followed in 2010 by Japan’s Nissan Leaf, which became the first electric car to sell more than 100 000 units.

China had identified EVs in the early 2000s as a strategic means to establish itself in the global automotive sector – then dominated by European, Japanese and United States incumbent manufacturers – and reduce its dependence on imported oil. Yet as late as 2010, the global lithium-ion battery industry was still led by Japanese and Korean firms. At the time, much of the technical expertise and scientific knowledge underpinning battery technologies remained concentrated abroad.

Today, the picture is radically different. China is the world's largest car producer and exporter, accounting for over 70% of the production of electric cars globally and 85% of lithium-ion battery production. It is also home to the world’s largest EV fleet, which avoided around 1 million barrels per day of oil demand in 2025 – equivalent to roughly 13% of the transport oil demand China would otherwise have had that year. Achieving this took decades of industrial and demand-side policies.

EVs were elevated to the status of a strategic emerging industry across four consecutive Five-Year Plans (FYPs), which set out China’s domestic industrial and economic priorities. The shift began with the 12th FYP (2011-2015) and was reinforced by state-led industrial strategies such as Made in China 2025, which in 2015 identified EVs as one of ten industrial priorities for the coming decade. Early policy support also came from government-funded demonstration projects, such as the promotion of electric buses during the 2008 Beijing Olympics and the “Ten Cities, Thousand Vehicles” programme in 2009, which helped electrify public fleets and create guaranteed early demand for Chinese battery firms.

Once these early demonstrations proved successful, the Chinese government had confidence that the industry could expand further and then targeted the passenger car market. Subsidies for consumers were introduced in 2013, followed by a purchase tax exemption in 2014, helping EV sales rise from less than 20 000 units in 2013 to over 300 000 in 2016. Demand was further boosted by preferential EV registration and license plate policies in major cities, alongside a dual credit system that set minimum EV production targets for automakers starting in 2018. As EV demand accelerated, the number of domestic battery manufacturers tripled between 2013 and 2015, peaking at 217 in 2016. Yet these efforts – and the simultaneous explosion in competition among domestic automakers – did not automatically translate into technological leadership on a global scale.

To help close the gap between Chinese producers and the technological edge still held by leading Japanese and Korean manufacturers, China restricted access to its domestic electric car market. From 2015 to 2019, EV subsidies were available only to vehicles equipped with batteries produced from approved suppliers, all of which were Chinese. Financial support – in the form of land use guarantees, preferential land pricing, and state backed capital – was also made available to Chinese battery firms to help them expand to meet this demand and improve their products by competing with one another.

China also moved early to address another vulnerability: access to raw materials. The 2016-2020 National Mineral Resources Plan linked strategic emerging industries, such as EVs and batteries, with rising demand for lithium, graphite and other key minerals. Subsequent policy frameworks promoted domestic resource development, coordination across mineral value chains and research and development on advanced materials. As its battery output grew, China became the world’s biggest critical minerals refiner and a major investor in resource-rich countries, such as the Democratic Republic of Congo and Indonesia, from which it sources key raw materials.

By the time the protectionist features embedded in its EV subsidies programme were removed in 2019, China’s domestic battery ecosystem had reached considerable scale and maturity. The country’s electric cars had become cost competitive on a global scale and could start competing against combustion engine cars at home. The strategy then shifted from one designed to nurture large-scale expansion to one that pushed for technological leadership through global competition. EV subsidies were progressively reduced and ultimately phased out at the end of 2022. Meanwhile, the 2021-2035 New Energy Vehicle (NEV) Industry Development Plan framed EVs as a national strategy – with a focus on breakthroughs in battery technologies, materials and integrated EV battery value chains. Efficiency gains, cost reductions, and technology leadership became key state objectives, contributing to market consolidation around the strongest Chinese firms. Today, the two largest Chinese battery producers alone account for more than half of global production.

Competing in today’s lithium‑ion battery industry requires both scientific excellence and large‑scale, high‑precision manufacturing. Neither capability is sufficient on its own.

Developing a competitive battery industry – and diversifying global battery supply chains – requires sufficiently large and predictable demand, patient capital and sustained policy commitment. It may also require targeted support for firms to help them accumulate experience, achieve manufacturing scale and gradually develop a competitive battery ecosystem.

China’s experience underlines the central importance of large and predictable demand. State support took many forms, but the development of the world’s largest and most competitive EV market may ultimately have been the most consequential government intervention. Other policies – including initial protection from foreign competition, access to low-cost capital and sustained policy commitment – enabled firms to expand production to meet escalating demand, rather than scaling up in the hope that prices would eventually fall and demand emerge organically.

However, today’s context differs markedly from the one in which China’s battery sector emerged. Large markets can accommodate new entrants, but they are also far more competitive and characterised by increasingly complex manufacturing processes and faster innovation cycles. Battery innovation is also advancing rapidly – global battery-related patents accounted for 40% of all energy patents in 2023, a level never commanded before by any single energy technology.

Support for smaller, homegrown producers also remains important for strategic reasons, but they are unlikely to close the scale and technology gap with market leaders in the short term. Attracting investment from – and partnering with – best-in-class Asian battery manufacturers has proven effective in the past and remains so for accelerating the development of battery industrial ecosystems. The early lithium‑ion battery industries in North America and Europe emerged through partnerships with established Japanese and Korean firms, and leading Korean, Chinese and Japanese firms still operate most battery manufacturing capacity in both regions.

As battery technologies continue to improve – and as demand expands and applications proliferate – the market will evolve further, intensifying competition among producers. Narrowing today’s cost, technology and manufacturing gaps in the battery sector will take time, sustained investment and long-term policy commitment, but it is possible. The payoff would be a more diversified, resilient and secure global battery supply chain. That is becoming increasingly important in a world where high-performance batteries are emerging as a critical enabler of a range of highly strategic sectors in the Age of Electricity – not only in transport and power systems, but also in data centres, robotics, drones and beyond – with far-reaching implications for energy security and industrial competitiveness.

The IEA will continue to monitor these trends, including through its Energy Technology Perspectives report series, in order to provide timely analysis and policy advice as battery technologies, markets and supply chains evolve.