McKinsey estimates that Europe and North America will each account for 20% of global battery cell production by 2030. However, both regions combined are forecast to hold anywhere from 5 to 10% of global cell component capacity, lagging further behind incumbents in Asia—specifically in separator and electrolyte components.

As a result of this supply shortage, the regions will likely need to import locally produced core cell components.

McKinsey projections show more than 200 new battery cell factories will be built by 2030 to keep up with rising demand from EVs. Overall, the market for cell components—comprising cathodes and anodes, separators, electrolytes, and cell packaging—is expected to grow by 17% per annum until 2030, reaching more than $235 billion.

This rapid growth opens a window of opportunity for cell component suppliers, start-ups, and new entrants, particularly in Europe and North America. Across both regions, industry and governments alike are strongly inclined to nearshore—or bring supply closer to home—in an effort to derisk supply chains and secure control over intellectual property. Despite this opportunity, however, current localized production would need to increase significantly to ensure supply meets demand by 2030.

Suppliers in the battery component sector thus face challenges regarding commercial market entry, the necessity for substantial funding, and a rapidly evolving technological landscape. Moreover, local suppliers face a highly competitive market dominated by incumbent suppliers, mostly in Asia. And environmental and regulatory factors pose risks that could disrupt production, increase costs, and create negative perceptions of the sector.

Cell component companies that seize the opportunity to meet the demand for local supply will place bets strategically from the start, build a backbone for success, and efficiently deliver on capacity additions.

—McKinsey report