Three vehicles on sale in China today will do more than 600 miles of range and recharge in under ten minutes. Not concepts. A buyer can put money down and drive one away.
Ken Hoffman, who leads McKinsey's research on battery materials and the value chain, had just come back from Asia when this was recorded at the Battery Show in Detroit, and those cars are his answer to every question about whether electric vehicle demand is fading. It is not, he says: a slow few months, then Western models that will, in his phrasing, knock your socks off. What produced the Chinese cars is what he thinks the West has misread.
The gap is in the pack
Everyone waited for chemistry to break the deadlock. Solid state was going to change everything, or lithium sulfur was. Chemistry did move, with LFP going from around 180 watt hours per kilogram to closer to 200 and cell amperage rising. That helps a bit, Hoffman says, and moves on.
The real number is pack efficiency, meaning how much of the pack volume actually holds active material. Western vehicles sit in the high 40% range. Tesla is in the low fifties. Vehicles now coming out of China are in the seventies and aiming at 80%.
That is what allows a 140 kilowatt hour pack in the same physical space, and the pack is what delivers the range figures. It is also why LFP has come roaring back, because a chemistry with modest energy density becomes viable once far more of it fits in the car.
Hoffman describes Western OEMs as taken aback at how fast the market changed. Some went to China planning a car for three years out with 400 miles of range and ninety minutes of charging, saw what was already on the road, and came back asking what they were doing.
He expects a reset, and material consequences shortly after. Range and recharge are what consumers ask for whenever anyone puts the question, and these cars deliver both. Western vehicles rebuilt around larger packs mean demand for lithium, iron phosphate, iron manganese phosphate, which he thinks could be the next big wave of cathode material, and high nickel at the top end. Morocco is becoming a large base for LFP powders in Europe. Several chemistries survive, in his reading, each with a place.
What those cars cost, and what keeps them out
BYD Seal variants offering around 500 kilometres of range sell in China for 8,000 to 15,000 euros, which Hoffman calls a good price point for the value. The thousand-kilometre cars at the top end are 40,000 to 45,000 dollar vehicles, and large ones. On a US lease, he thinks they would sell very, very well.
Tariffs are not really why they are absent. Vehicles have to be crash tested to be street legal, and if regulators decline to test them, that settles it. There are, as he puts it, ways governments can impede Chinese vehicles coming in.
Japan did not try to win at vacuum tubes
Asked whether China's lead is insurmountable, Hoffman reaches for a precedent rather than a forecast. He is a history buff, and treats the past as an algorithm for the future.
In the 1920s and thirties the United States led the world in vacuum tubes, the technology underneath radio and computing alike. Japan concluded it could not beat the Americans there: too good, too much infrastructure. So it bet on transistors, which dropped cost and raised capacity dramatically, and the world followed. Japan ruled for about fifteen years. Then the United States, unable to compete on transistors, moved to semiconductors.
The lesson he draws is not to copy the incumbent. That means investment in cell technologies that change the cost structure, lithium metal anodes, lithium sulfur, other variants, and it means a target: anyone not aiming at $20 a kilowatt hour long term, he says, should not be in the space.
He is blunt about where that leaves the West. There is no major North American battery producer. Europe thought it had one, and his comment on how that is going is a shrug. What is needed is domestic innovation inside a domestic industry, a CATL of Europe, a CATL of North America.
Something has been built, and he measures it by the floor plan. The Battery Show used to be in the suburban showcase, in one room. Then two rooms. Then the parking lot. Now the convention centre. The IRA has had a massive impact.
How lithium stopped being a niche metal
The price swings in lithium, cobalt and nickel look less mysterious against how small these markets used to be.
A decade ago world lithium production ran at 150,000 to 180,000 tonnes, for medicines and phone screen glass. This year over a million tonnes of lithium products will be produced. So much for the argument that the volume cannot be made.
A market that small has no real spot market, and even a modest inventory build starts to snowball. That is what happened in China, where buyers who expected prices to rise bought ahead, and inventories climbed without being consumed. Two lithium cycles have now run, each lasting almost exactly 24 months from spike to collapse. Twenty-four months is also how long China takes to bring significant new capacity to market.
Longer term Hoffman expects lithium to get cheaper. A friend at Tesla has counted 96 companies claiming direct lithium extraction technology, a figure he believes because five or six more appear at every event he attends. Three or four of them working would be enough. They promise a step change in capital and operating expense, facilities costing hundreds of millions rather than billions.
The other change is who is buying. Rio Tinto announced its acquisition of Arcadium the day before this conversation, which Hoffman reads as deep pockets and serious research capability entering an industry short of both, and hunting economies of scale. He expects similar declines in turning manganese into material for NMC and LMFP, and in phosphate.
Do not build a Chinese plant in Iowa
Refining is the gap the West has not filled, and Hoffman's advice follows the transistor logic.
Nobody out-Chinas China. The industrial complex there has efficiencies of scale he calls unbelievable, and touring a Chinese facility and then building one in Iowa does not produce a competitive plant.
What could work is a process that skips steps and still lands the same product: a new membrane, a regenerative process, chemistry that does the job differently on a much smaller footprint. Cut opex and capex hard enough and a Western refiner can compete with anyone.
Getting there needs money private capital will not put up alone. China funded cell companies, those companies then had the cash to pull the raw materials industry along behind them, and demand and supply rose together. Hoffman wants European and North American governments writing cheques on the same basis. New technologies are starved of capital, private investors will come in but want a partner, and first versions are expensive. The economies of scale arrive at version two, three, four. Somebody has to fund version one, and not every bet pays.
The timing matters to him because the raw materials work he sees is close. The pilot plants have been running, they are showing a lot of success, and the companies behind them are ready to put a foot in the ground and build commercial capacity.
This piece draws on the full conversation, which is available with a complete transcript on the episode page.