Comment: Western battery R&D surges amid China’s dominance and new US Tariffs

Most industries have been left reeling by the US trade tariffs, and the battery industry is no different. According to Benchmark, China currently accounts for 99 per cent of global lithium iron phosphate (LFP) cell production and the two biggest producers of battery cells for EVs, CATL and BYD, together control 65 per cent of the market.

That level of dependency makes the tariff impact immediate. Battery manufacturers and their suppliers are being forced to reassess supply chains, investment plans, and production timelines, and we are starting to see signs of what this looks like.

The US and Europe now have a clearer incentive to look at alternatives outside of China and expand domestic capacity. Investment in battery cell R&D and early-stage testing is accelerating with renewed enthusiasm, albeit behind closed doors. And although the rate of electrification may slow down for a time, the rate of R&D growth in the western hemisphere, especially around chemistries and production methods, is already on the increase.

Europe has been slow to react, but in the US, capital flows fast when opportunity arises. Amongst the chaos, we see an increasing number of players making calculated bets on near-shoring critical technologies, despite uncertain outcomes. This includes battery production, and aligns with broader political and economic goals around industrial independence. Indeed, the only real point of bipartisan agreement - in both the US and EU - is that industrial capabilities must be rebuilt, even if there’s little consensus on how to do it.

The result will be rapid growth in battery research - in the US, driven by novel chemistries; in the EU, by the revival of the defence industry.

Short-term gains, long-term ambition

In the near term, the biggest gains will come in battery pack assembly and associated R&D. These operations are faster to set up than domestic cell production. They also act as a stepping stone towards a fully near-shored battery value chain including the required investments in cell chemistry and full-scale cell manufacturing.

That transition will take longer. Battery cell manufacturing needs stable access to critical minerals, significant infrastructure, and a trained workforce, none of which scale quickly. But signs of movement are already visible. US-based startups and legacy automakers are launching joint ventures, often backed by state-level incentives and loans (although the future of such initiatives is unclear).

The reliance on China for mature chemistries like LFP is pushing companies to explore alternatives. That opens the door to other chemistries like solid-state, and for challengers, especially those outside China, to gain ground in a market that’s effectively been locked up for years.

Energy, policy, and geopolitical drag

Tariffs and geopolitical tensions will continue to disrupt supply chains and make short-term capital harder to access. However, building domestic battery capacity has moved from an economic goal to a national security priority.

Energy shortages in Europe are a constraint. High electricity costs, especially in manufacturing hubs, make gigafactory operations less viable. Even where policy support is strong, energy supply concerns persist. Europe is also bogged down by slow permitting processes, uneven subsidy frameworks, and competition from more aggressive state-backed programmes abroad.

But one bold decision stands out. Germany has removed its constitutional cap on government borrowing to fund industrial support, a major policy shift that changes how Europe’s industrial engine uses state intervention. Berlin has now opened the door to over €1tn in public investment, including a €500bn fund to modernise infrastructure, expand green technology, and support domestic industry against Chinese competition.

Where previous spending was framed around climate goals and social policy, this new push is justified by national security, protecting strategic sectors and supply chains from external pressure. It’s not going to be easy, but the opportunity is there. Near shoring the entire value chain, from materials to modules, has never been more important.

Marius Koestler, Monolith VP AI for Batteries