Tesla's (TSLA  ) Gigafactory, its factory for producing electric car batteries in Nevada, has encountered major problems. Meanwhile, in China, a maker of batteries for electric vehicles is building a factory that could outstrip Tesla's production. They could also surpass companies who make batteries for automakers like GM (GM  ), Audi (ETR: NSU), and Nissan (TYO: 7201).

Only a handful of companies are responsible for making the battery cells used in electric cars. One of them is Contemporary Amperex Technology Limited, or CATL. Founded in 2011, CATL has climbed to the top of the electric battery market to become the number one supplier to electric vehicle producers in China.

CATL now plans to sink $1.3 billion into its new factory. In order to fund the construction, it will sell a 10% stake in itself. CATL expects that the factory will be ready to produce cells by 2020. The factory will raise the company's production capabilities fivefold.

This means that CATL is well positioned to take advantage of the Chinese government's new plans to ban the sale of new vehicles with internal combustion engines to curb emissions and limit environmental impact. Given that China has a market of nearly 30 million new vehicles yearly, the demand for electric batteries is expected to skyrocket. Companies like Volkswagen (ETR: VOW3), BMW (ETR: BMW), Hyundai (KRX: 005380), Toyota (TM  ), Honda (HMC  ), and Nissan are considering using CATL lithium-ion batteries in vehicles manufactured locally in China.

The government has also dictated that all such vehicles must be equipped with batteries produced by Chinese makers to receive a subsidy. These subsidies are critical for Chinese electric car manufacturers, as the subsidies lower the price of producing electric vehicles. These subsidies can account for roughly half of the price of the electric vehicle, and it would be difficult to sell the vehicles without the reductions in price that the subsidies enable.

This might prove a major boon for CATL - and a major disappointment for Tesla. Tesla had hoped to open a Gigafactory in China, but the new regulation could kill the plan.

CATL is not alone in the market, however. AESC, BYD, LG Chem, and Panasonic are all considered major manufacturers of the lithium-ion cells used in electric and plug-in hybrid vehicles.

Automotive Energy Supply Corporation (AESC) produces all cells used in Nissan's vehicle. Formerly a venture backed by Nissan and Japanese tech company NEC (TYO: 6701), AESC was recently sold to a Chinese investment fund. Chinese manufacturing company BYD (SHE: 002594) is the world's largest seller of electric vehicles in China, and also produces its own cells. LG Chem (KS: 051910) is a South Korean company that supplies cells for automakers like General Motors and Chevriolet. Panasonic (TYO: 6752), a Japanese company, has partnered with Tesla to produce its batteries, but has also supplied certain cells to Toyota for their line of hybrid vehicles.

Chinese battery makers are widely thought not to be of the same high quality as producers elsewhere. Even so, given Chinese policies and increasing demand, this will not be a major hindrance to CATL's growth.

CATL has also recently begun exploring cobalt, an alternative to the lithium-ion battery. CATL is also planning an IPO for June of 2018 to continue funding its expansion.