Why China’s EV Dominance May Be Coming to an End
Amid global geopolitical tension and the need to reduce sourcing risks, countries including the United States and businesses worldwide are seeking alternatives to China for their sources of raw materials, particularly for electric vehicles
As much of the Western world attempts to pivot away from ‘fossil fuels’ and toward alternative energy sources, the EV industry has emerged as an essential component in this effort.
However, as is the case for the vast majority of critical raw materials for many industry sectors, China dominates the EV supply chain, with 80 percent of the global raw material refining in the lithium-ion battery supply chain, 77 percent of the world’s cell capacity, and 60 percent of the world’s component manufacturing.
But China’s dominance in the EV supply chain could soon be coming to an end.
“China’s advantage may not sustain very long as other countries have realized China’s dominance [in the EV sector] and stepped up their response to go around it, with the best example being the US’ IRA,” a research note released on Thursday by Natixis said, referring to the Inflation Reduction Act signed by President Joe Biden in August 2022.
“EVs can be the next geopolitical battlefield after semiconductors, especially on batteries,” the note added, pointing out that the IRA will “limit the ability of China’s expansion and in favor of other countries, such as Korea.”
Aside from geopolitics, the Chinese EV sector’s leadership is facing additional headwinds, including competition from other countries and the fact that “the demand-supply balance [within China] may [be] tilt[ing] with challenges in profitability,” according to Natixis, which added that “China’s recent EV price war demonstrates the potential risks of lower profit margins. Any rapid increase in capacity combined with a decrease in demand may raise concerns about overcapacity.”
Countries such as the United States, Germany, Norway, Japan, and South Korea that have developed EV markets and promise significant potential are also already posing significant competition to China’s EV dominance.
While U.S. EV makers like Tesla, General Motors, and Ford are present in China, no Chinese EV is made in the United States. Moreover, European luxury EV brands, including Mercedes, BMW, and Volkswagen, sell about a third of their EVs in China.
In addition, Germany has created critical technologies for specific portions of the EV battery tech value chain, such as recycling, and have been at the forefront of testing innovative battery chemistries such as sodium-ion batteries.
Stranglehold a Concern
The sudden rise in EV sales during the COVID-19 outbreak combined with escalating geopolitical tensions emerging from the Russia–Ukraine conflict and U.S.–China tensions has increased the EV industry’s anxiety about China’s control over EV supply chains.
The dangers of industry concentration are often exacerbated by inadequate substitution and recycling rates. In EV batteries, for example, there is no substitute for lithium. Australia, Chile, and China account for more than 80 percent of global lithium production, with China also controlling more than 50 percent of global processing and refining.
Meanwhile, despite the fact that new EV car sales are likely to reach a record 9 percent (up from 7 percent in 2022) of all passenger vehicles in the United States this year, according to Atlas Public Policy, the nation lags behind countries like Germany, China, and Norway.
“But for the supply-chain issues that impacted the auto industry’s ability to fulfill all of the federal government’s (zero emission vehicles) orders in fiscal year 2022, ZEVs would have achieved approximately 20 percent of acquisitions in 2022,” the White House said, Reuters reported.
Consequently, while the United States has take several steps to boost EV adoption and move toward self-sufficiency, lawmakers are also worried about China’s “adversarial actions” impacting the country’s supply chains.
Over the past few months China has been restricting exports of materials vital to electric vehicle batteries, which has been interpreted as retaliation for U.S. restrictions on technology sales to China.
For instance, on Monday, House Energy and Commerce Committee Chair Cathy McMorris Rodgers (R-Wash.), Energy, Climate, and Grid Security Subcommittee Chair Jeff Duncan (R-S.C.), and Environment, Climate, and Grid Security Subcommittee Chair Bill Johnson (R-Ohio) wrote to Department of Energy Secretary Jennifer Granholm expressing concerns about China’s recent moves to cut off “American access to critical minerals that play a significant role” in the nation’s “security, economy, and as a critical energy resource.”
That aside, to meet President Biden’s goal of having 50 percent of all new vehicle sales be electric by 2030, the White House unveiled a package of public and commercial commitments in April under the EV Acceleration Challenge to promote the U.S. auto industry’s transition to electric.
These commitments were made as part of the Investing in America plan, which aims to enhance domestic manufacturing, strengthen supply chains, increase U.S. competitiveness, and generate well-paying employment.
Similarly, Europe today is almost totally reliant on China for procurement in certain portions of the EV chain, such as raw material refining.
Consequently in September, the European Union pledged to shield the region’s auto industry from a “race to the bottom” by investigating Chinese state subsidies for electric vehicle manufacturers.
Ursula von der Leyen, head of the European Commission, also expressed concern that China’s state subsidies for its automakers could undermine competitiveness in the bloc and threaten Europe’s manufacturing sector.
Given that Chinese brands already offer cheaper models, these cars are likely to gain market share in Western Europe and attract “potential regulatory intervention—i.e., imposing higher tariffs on Chinese brands,” a note released by ING in early November said.
Changing Landscape
Experts say net-zero policies are driving the shift toward electrified transportation, and the world’s automobile sector is under increasing pressure to adapt to this change.
This is prompting politicians and businesses to concentrate strategically on how to safeguard the accompanying economic gains and build the required supply chains.
Against this backdrop, “The road to success of Chinese EV makers will likely face restrictions from foreign government policies, such as a preferential treatment for friend shoring and supply chain security,” the Natixis note said.
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Tom
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How silly is it that China will need to build many more polluting coal plants to provide for recharging “green” EV’s? The green movent is nothing but an exercise in dummkophery.
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