(Bloomberg) — The U.S. is narrowing the gap on China’s dominance of the $46 billion lithium-ion battery industry thanks to investments from Tesla Inc. and the Biden administration’s policy push to drive growth of electric vehicles.

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The U.S. rose to second spot in BloombergNEF’s global lithium-ion battery supply chain ranking for both this year and a 2026 projection, the energy data and analysis firm said in a Thursday report. The nation was sixth for 2020 in last year’s inaugural ranking. The U.S. has the second-largest EV market globally, after China, and Tesla and Asian cell makers are making “significant” investments in the country as government policies help establish a domestic battery supply chain.

“The U.S. has many of the ingredients needed to foster a domestic lithium-ion battery value chain,” James Frith, BNEF’s head of energy storage, said in the report. “Now that there is policy support in place, we are seeing a coordinated effort from companies across the supply chain to anchor more value within the country.”

China still continues to dominate the ranking due to continued investment and strong local and domestic demand for its lithium-ion batteries. The Asian nation hosts 80% of all battery cell manufacturing capacity today, with capacity expected to more than double, enough for more than 20 million electric vehicles, in the next five years, the report said.

Yet, as governments worldwide recognize the strategic importance of the battery industry, local supply chains are emerging to challenge China’s dominance. European countries are climbing the rankings as passenger EV sales steadily grow. While European nations are ranked individually in the report, the ability for tariff-free trade in Europe means that as a continent its battery demand is second only to China. If ranking Europe as a whole, it comes in first for both 2021 and 2026 rankings.

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