Global policy makers can bridge the significant production cost divide with China through targeted investments in manufacturing efficiency and innovation, according to the authors of the newly released report. While China currently holds a substantial competitive edge, strategic government interventions and international partnerships can narrow these differences by focusing on automation and larger-scale production rather than just low wages.
“Closing the gap is possible. Policies will be most effective if they concentrate on areas where manufacturing efficiency gains, scale effects and innovation can make a difference – rather than, for example, trying to compete on the basis of low-cost energy or labour.” The report further notes that for lithium-ion batteries in the European Union, production costs “could be cut by one-third – closing a staggering 80% of the gap with China – through measures that enhance manufacturing efficiency and secure access to cheaper components and materials.”
This means that other countries do not need to rely on having the world’s lowest wages or the cheapest energy bills to become competitive. Instead, they can lower their costs by making their factories more efficient, building larger facilities to save money through mass production, and finding smarter ways to manufacture goods through new technology. By working together with other nations to source affordable parts, countries can significantly reduce the price differences that currently make Chinese products much less expensive.
The report “Energy Technology Perspectives 2026” was published by the International Energy Agency (IEA) in Paris, France. It was prepared by the IEA’s Energy Technology Policy Division under the direction of Chief Energy Technology Officer Timur Gül.
