How did the place of origin of the electric car, lithium-ion battery, and solar cell lose leadership in all three to China? The solution is not one bad move, but a set of policy choices and industrial strategies that remade the world’s clean energy map.
The divergence started with electric vehicles. In the early 20th century, the United States was a leader: in the 1900s, one third of cars on American roads were electric, and New York City’s Electric Vehicle Company operated battery-swapping cabs decades before hailing an electric car with a smartphone app. But as infrastructure for gasoline spread and internal combustion engines became better, electric cars disappeared from the American masses. “A lot of rural America was still using gasoline for stoves and kerosene for home lighting,” explained David Kirsch, a University of Maryland professor of management and entrepreneurship. Gasoline’s convenience, combined with Ford’s assembly line mass production capabilities, dooms early EVs.
Half a century later, California’s zero-emission vehicle (ZEV) mandate offered a second chance. General Motors’ EV1 found enthusiastic drivers, but when regulators retreated, the program collapsed. By contrast, China’s policymakers saw opportunity in the gap. Around 2010, China’s Ministry of Science and Technology, led by Wan Gang, launched a massive push into EVs, aiming to leapfrog the West’s dominance in combustion engines. The government rolled out a suite of incentives: buyers could receive rebates up to 60,000 yuan (about $8,000), exemptions from sales tax, and coveted green license plates that bypassed years-long waits. Manufacturers benefited from tax breaks and streamlined permitting. According to the Center for Strategic and International Studies, China invested approximately $231 billion in EV adoption likely an underestimate.
The result: in 2024, China sold 6.4 million electric vehicles, dwarfing America’s 1.2 million. As U.S. federal incentives face congressional headwinds, the policy gap is poised to widen. “There’s a real danger of the U.S. becoming more technologically isolated in the automotive sector,” warned Ilaria Mazzocco, deputy director and senior fellow in Chinese business and economics at the Center for Strategic and International Studies. The U.S. share of EVs, at 9.5% of new car sales in 2023, is way behind China’s 38%.
The lithium-ion battery industry followed a similar trajectory. Developed in the U.S. and perfected in Japan and the U.K., lithium-ion batteries drove the initial wave of portable electronics. However, as EV uptake trailed behind in America, manufacturers of batteries floundered to expand. A123, one of the first American leaders in lithium iron phosphate (LFP) batteries, went out of business and was purchased by a Chinese company. China spent billions on battery R&D and production while also, most importantly, on acquiring and processing key minerals cobalt, nickel, graphite, and lithium at the center of the supply chain. Now, China holds 94% of the global market for EV-grade lithium iron phosphate batteries, and 85% of global battery cell production capacity.
Dominance is not simply a matter of scale, but of supply chain integration. China’s expanded producer responsibility mandates oblige battery manufacturers and car producers to set up formal recycling systems in hopes of closing the loop on key minerals. Despite all this, there are challenges: just 20% of scrapped lithium-ion batteries enter formal recycling channels, and even under intense recycling, the demand-supply imbalance for cobalt and manganese is estimated at 54 and 116 times their 2022 production levels by 2060. Cutting-edge direct cathode recycling technologies, yet to be applied beyond lab-scale, can eliminate up to 55% of emissions from the battery supply chain and earn up to $58 billion in profit by 2060, but their large-scale rollout is uncertain.
The United States, on the other hand, continues to encounter barriers in ramping up its battery supply chain. Although the Inflation Reduction Act and Infrastructure Investment and Jobs Act provide tax credits and grants, U.S. factories are costlier to construct $865 million compared with $650 million for a similar Chinese factory and local production of critical components lags well behind demand. By 2030, American cathode supply will be 0.8 million metric tons per year and demand 1.3 million. The U.S. Department of Energy has already made investments in R&D for battery recycling, yet the industry is still in its infancy, constrained by shortages of labor and technology.
The same applies to solar panels. The first commercial solar cell was invented at Bell Labs in 1954, and by the late 1970s, 95% of the world’s solar industry was U.S.-based. Federal investment was spurred by the oil crisis, but political winds shifted in the 1980s, and R&D budgets were reduced by 85%. Germany and Japan captured much of the displaced talent, and by the early 2000s China’s entrepreneurs capitalized on surging European demand, creating enormous manufacturing capacity. Following the 2008 financial crisis, as Europe slashed subsidies, China doubled down, spending $50 billion on solar manufacturing and cultivating a domestic market. Now China dominates 80% of the world’s solar panel supply chain, with eight of the top ten manufacturers having headquarters there.
Technological progress goes on apace, especially in perovskite-silicon tandem solar cells, which show greater efficiencies and lower prices. Recent breakthroughs have driven perovskite module efficiencies above 19% for commercial-sized modules, to 27% for laboratory cells. Still, cost is an issue: despite better yields and economies of scale, perovskite modules are still more expensive than crystalline silicon, and the industry has challenges in volume production and long-term stability.
What comes through from this comparative terrain is the preponderant influence of stable, forward-looking policy. I look across the period from say ’69 to the present what strikes me is how inconsistent we have been with policy, Kirsch stated. “The Chinese have just cleaned our clock by having consistent policy.” America is still a dynamo of invention, but without strong, sustained backing for commercialization and American demand, the rewards of American innovation have too frequently been reaped elsewhere.
