China’s Electric Car Ambitions

China, the world’s largest car market, is also leading the charge in the electric vehicle business.

But with little or no fanfare, China also wants to dominate the critical ecosystem for battery-electric vehicles and hybrids. In fact, the nation is already the world’s largest producer of batteries for electric vehicles. And it also controls a sizable part of the supply chain, such as the raw materials, chemical processing and other segments.

This is a big concern for other electric-car battery makers, especially in the area of raw materials. “Without the raw materials, none of these battery plants can operate, and China is aggressively locking up supply,” said Caspar Rawles, an analyst at Benchmark Mineral Intelligence.

China is accelerating its efforts in the electric vehicle market for several reasons. First, the nation faces an ongoing pollution problem in its major cities, if not elsewhere, and the government sees an urgent need to solve the problem. The electric vehicle is one solution.

Then, in 2015, China launched a major initiative, dubbed “Made in China 2025.” The goal is to upgrade and increase the domestic content in several key areas—information technology; robotics; aerospace; shipping; railways; energy systems and vehicles; power equipment; materials; medicine; and agricultural machinery.

The initiative is also geared for semiconductors. In this entire initiative, the country hopes to achieve a simple goal–it wants to be self-sustaining.

Backed by support from the Chinese government, meanwhile, China is the world’s largest market for battery-electric cars. In total, China accounted for 54.3% of the world’s battery-electric car market in 2017, according to NIO, one of several companies in China that is developing and shipping electric cars.

China’s electric car market (battery-electric and hybrids) is expected to reach 3.6 million units in 2022, growing at a CAGR of 37.1% from 2017 to 2022, according to NIO.

China is also developing the ecosystem for the technology. In terms of battery production for electric vehicles, China is the leader with 63% of the world’s installed production capacity, according to Benchmark Mineral Intelligence. In total, China’s installed electric-vehicle battery production capacity is expected to increases from 91GWh in 2017 to 587GWh by 2028, according to the firm.

The nation’s share is slowly dwindling, however. “China is currently the most dominant force in cell production capacity globally. But we are seeing expansions outside of China that are slowly eating away at its lead,” Rawles said. “This year, we think it will be reduced to 61% and will stay around this level until 2023. By 2028, this will have been reduced to 56%.”

Surprisingly, eastern Europe is fast becoming a production hub as well. “Over the time frame, we actually see Europe emerging as the next battery hub, primarily due to two reasons, proximity to customers and we think eastern Europe in particular will be second only to China for lowest cost of production,” he said.

For electric vehicles, the largest lithium-ion battery makers include companies such as BYD (China), CATL (China), LG (South Korea), Samsung (South Korea), SK (South Korea), Panasonic (Japan), and Tesla (U.S.).

In 2017, Panasonic was the largest cell producer, according to Benchmark, which believes that CATL will overtake the Japanese company in 2018. “In reality, controlling cell production is perhaps the least worrying bit for a number of reasons. This is primarily because there are a number of large, high quality cell manufacturers outside of China (LG Chem, Samsung, Panasonic/Tesla),” Rawles said.

“The largest risk/concern to the supply chain is the control of the raw materials, particularly cobalt, lithium and graphite,” he said. “China controls vast sections of much of the battery supply chain, from mining the raw materials through to processing and finally to cathode/cell production.”

Cobalt, lithium and graphite are among the key elements in a lithium-ion battery for electric cars. Cobalt is one example. Some 67% of the world’s cobalt supply is mined in the Democratic Republic of the Congo (DRC), a politically unstable nation with questionable business practices.

Cobalt is mined in the DRC and elsewhere. The materials are shipped to refining companies, many of which are in China. In fact, China controls 60% of the world’s cobalt refinery business.

Cobalt must be refined using chemicals. For this, China produced 80% of the world’s cobalt chemicals last year, according to Benchmark.

In addition, China is locking up other battery materials with various alliances. With that in mind, Rawles said: “The concern is that when the raw material units become extremely scarce (when the markets are in sustained undersupply), will China use the material to supply its domestic market before it can be sent for export?”

This is not the first time China has dominated a materials segment. In fact, China controls roughly 80% of the world’s rare earths. Rare earths are a group of critical materials used in various electronic products.

Now, the U.S. and China are in the middle of a trade war. In the latest move, the Office of the U.S. Trade Representative (USTR) recently released a list of $200 billion worth of Chinese imports that will be subject to tariffs. China has responded with its own list of tariffs against U.S. products.

With these issues in mind, it might get a lot harder, if not more expensive, to source materials in China. And there appears to be no solution in sight.

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