A global surge in renewable energy and data centre demand is powering a boom in using batteries for storage on electricity grids, creating a new front in the battle between Chinese and South Korean companies that have dominated cell production for electric vehicles.
Fuelled by surging demand within China itself, Chinese batteries account for nearly 90 per cent of global capacity for energy storage systems (ESS), including a market share of more than 80 per cent in the US and more than 75 per cent in Europe.
But having suffered an 11 per cent US tariff last year, the total now imposed by President Donald Trump and his predecessor Joe Biden mean that Chinese battery companies now face an effective rate of 155.9 per cent, which is due to rise to 173.4 per cent next year — offering hope to Korean battery companies attempting to stage a comeback in the US and Europe.
Energy storage systems, consisting of racks of battery modules regulated by management software, help national electricity networks — as well as individual homes, businesses and factories — cope with fluctuating wind and solar energy supplies.
They also provide backup power for grids set to come under intensifying pressure over the next decade due to the energy demands of artificial intelligence-related hardware and clean technologies such as EVs and heat pumps.
According to an International Energy Agency report released this month, global electricity demand from AI data centres is projected to more than double over the next five years and will account for almost half of the growth in US electricity demand between now and 2030.
“Energy storage is often seen as the least sexy aspect of the renewables industry,” said Iola Hughes, head of research at battery consultancy Rho Motion. “But this is the technology that will prevent countries from experiencing blackouts in the coming years.”
ESS has grown to 20 per cent of the global battery market from 5 per cent in 2020, according to Rho Motion. After global battery storage capacity grew by 52 per cent between 2023 and 2024, the consultancy predicts it will now more than double from 340 gigawatt hours of storage last year to 760 GWh in 2030 — equivalent to the batteries of 7.6mn EVs combined.
The booming sector has also helped Tesla to offset disappointing EV sales with a surge in those of its energy storage systems — the Powerwall system for home use and the grid-scale Megapack. Tesla chief executive Elon Musk told an earnings call last year that ESS was “growing like wildfire”.
However, Tesla still relies on other battery makers, principally China’s CATL, to supply cells for its products because of persistent problems scaling up production of its in-house 4680 batteries. Its chief financial officer Vaibhav Taneja warned this week of an “outsized” impact of tariffs on its energy storage business as it worked to reduce its dependence on battery cells from China. “It will take time,” he said.
Hughes noted Korean battery makers had once led the sector as they specialise in “high nickel” batteries, which offer higher energy density than the lithium iron phosphate (LFP) batteries preferred by Chinese makers.
But a series of fires involving Korean high-nickel batteries, coupled with the rise of cheaper and increasingly high-performance Chinese alternatives, has led to a shift over the past decade towards LFP.
Tesla’s EV rival BYD is a significant player, but CATL dominates both the EV and storage battery markets and now accounts for 90 per cent of the industry profit pool. Its economies of scale have enabled increased spending on research and development, further strengthening its position.
CATL’s total production capacity is expected to more than double to 1.5 terawatt hours in 2027, from 684 GWh at the end of last year, reflecting a compound annual growth rate of around 30 per cent.
By contrast, Korean companies have slashed their near-term capital spending plans as profit margins have swung into negative territory after EV sales fell far short of US carmakers’ projections.
Neil Beveridge, who leads Bernstein’s energy research in Hong Kong, said the divergent fortunes of Chinese and Korean energy storage players amounted to “a tale of two battery markets”.
“CATL is not only the largest scale player in the industry, but it also has the best technology and the highest utilisation levels [at its battery plants],” Beveridge says. “This gives it a clear advantage.”
But China’s ESS dominance has caused unease for some western policymakers, particularly in the US, where Chinese battery systems have already been banned from military facilities.
That has given hope to Korean companies who are building new LFP production lines, converting some high-nickel ones and even switching EV battery production lines to produce cells for energy storage.
LG Energy Solution, the world’s largest non-Chinese battery producer, told the Financial Times that tariffs meant that the US market was “becoming favourable to non-Chinese companies with [American] production bases”.
But Hughes noted that Chinese exporters could potentially withstand tariffs even of more than 150 per cent, given their existing cost advantages over Korean high nickel batteries, cheaper lithium prices and a series of technological innovations that have driven down battery prices.
“A Chinese system in the Chinese market may sell for around $80 per kilowatt hour, whereas in the US market they’d be looking at $130-140 per KWH, which gives them quite a lot of headroom,” said Hughes, noting Chinese companies were also setting up manufacturing facilities in south-east Asian countries presently subject to much lower tariffs.
Tim Bush, a battery analyst at UBS, noted that while leading Korean makers including LG and Samsung SDI were likely to “take a larger share of a smaller market” due to US tariffs, they were yet to prove they could produce LFP batteries at scale and at a competitive cost.
Another possibility, however, is that the US decides to ban Chinese batteries from grid-scale energy storage projects altogether on security grounds.
“You can take a very broad bet and say ultimately I don’t think the US is going to allow itself to be in a situation of total China dependency when it comes to this grid-scale energy,” said Bush.
Chinese energy storage makers are also expected to focus on other markets such as Europe, as they struggle at home with low profit margins due to oversupply and brutal competition.
“They are very keen to expand overseas,” said Hughes. “And if China is not supplying to the US, there is going to be an abundance of cheap supply for other markets.”
