Outside Of Tesla, China Might Be Dominant Force In Global EV Market
If not for Elon Musk, China might end up being the dominant player in the global EV market – the total new frontier in the automotive industry. Ford is making electric trucks. Its batteries will be made by South Korean firm LG Chem, but in the U.S. Tesla TSLA is making cars, of course, but also batteries. That might be where the real money is.
One of the reasons why Tesla is beating the Street and driving short sellers insane is because of its batteries.
The problem with batteries is that they are made from rocks dug out of the ground in Russia, China and in parts of Africa, often controlled by Chinese interests.
In an op-ed in the Financial Times this week, General James Conway, the 34th Commandant of the US Marine Corps and Peter Ackerman, the founding chair of the International Center on Nonviolent Conflict, wrote that the world must not let China dominate those rare earths. These minerals – like lithium and nickel – will be used to power Tesla batteries. They’re what will power the new EV Hummer. Without them, there is no EV right now.
China is already the world’s largest auto market and, as a result, is the largest seller of EVs. Its entry level EV Kandi is coming to the U.S. Its luxury “Tesla killer” (as some have called it) Polestar is said to make its way to U.S. dealerships this year. A Wall Street Journal article recently called it the “most beautiful” EV out there.
Conway and Ackerman put this forth in the FT: “It is essential to develop a domestic supply chain for critical minerals, with reasonable mining and permitting processes to enable our companies to compete. To ensure this can happen, extraction and processing must take place in return for a commitment to strict environmental standards, recycling and R&D for new material research. For the minerals unavailable domestically, the international allies must diversify supply, working together to limit Chinese investment in critical resource reserves. The national security weaknesses of relying on China for rare earths are simply too great to remain stuck with the status quo.”
China might say, here we go again, another attack on competition coming from Asia.
But looked at another way and it is clearly a warning bell for Ford and LG Chem and Tesla and a host of new car companies like Lucid of California that are popping up to make a play for EV demand.
Over the weekend, the Chinese legislature passed a new export control law that has the potential to limit or ban exports of rare earth and critical minerals.
“China may take countermeasures against any country or region that abuses export-control measures and poses a threat to China’s national security and interests, according to the law,” the official Xinhua News Agency reported. The inclusion of the phrase “and interests” suggests that the law will give the government more leeway to move against those it wants to punish.
What many Americans do not know is that the largest rare earth mine in the U.S., in Mountain Pass, California, is nominally owned by an American company called MP Materials that has a contract to sell everything it digs out of the mountain to China. Those metals are mostly used for magnets and may or may not be used in EV motors.
While the U.S. Department of Defense and the White House are becoming more interested in securing rare earths as part of a push to shore up supply of critical materials — everything from pharmaceutical drugs to manganese — the Mountain Pass mine seems to get a pass.
This is a turning point in U.S.-China relations and could have severe implications for U.S. technology development over the next 30 years, says Pini Althaus, CEO of USA Rare Earth.
“The United States is more dependent than ever on China for the importation of critical minerals and rare earth elements, the technological building blocks needed to build defense applications, electric vehicles, wind turbines, medical equipment and everything else high-tech,” says Althaus.
“China has repeatedly threatened to stop exporting those minerals, and the export control law passed by the CCP this weekend, aligned with its ‘Made in China in 2025’ initiative, is evidence of their intent to do exactly that,” Althaus says.
Beijing has identified electric vehicles and the batteries that power them as part of their 2025 growth strategy. The country that leads this technology will be the nation that sets the standards and regulatory terms of trade for the future of transportation. China will set the building specs.
China now accounts for 90% of the world’s rare earths production. China also controls the refining and processing sectors. The market for these products are mostly the EV supply chain. China has worked hard to exert control over the mining and processing of those critical minerals used in making EVs what they are today. Their lead is this segment of the supply chain, a super important segment to say the least as Polestars aren’t powered by the wind. Some 70% of global EV battery manufacturing capacity is in China, while the US has less than 10%, most of it being run by Tesla. Of the 142 lithium-ion battery megafactories under construction worldwide, China will be home to 107 of them. Just 9 will be in the US. China also produces more than 60% of the world’s cathodes and 80% of anodes for batteries, and the majority of the world’s permanent magnets used in EV motors, the FT op-ed writers stated.
China is a force to be reckoned with on the critical metals that will be used to power the automobiles of the future, but not only cars – tanks, boats, residential home generators, among other things.
There’s some reason to be optimistic here though Tesla co-founder J.B. Straubel is trying to turn his three year old company Redwood Materials into the world’s top battery recycling company and one of the largest battery materials companies in the U.S. American Manganese is angling to do the same in Canada, and build battery recycling facilities alongside the battery makers here if all goes well with their pilot plant in British Columbia.
Last year, global lithium-ion battery cell production stood at around 180 GWh. Tesla’s Nevada Gigafactory reached 35 GWh capacity last year. And just last month, Tesla announced its new, entirely designed and made in-house battery cell, the 4680. They have already launched a “pilot” factory for the 4680 in Fremont, California, that outputs around 10 GWh.
With this new cell, Tesla said by the end of 2022, they plan to produce 200 GWh a year. If they pulled that off, it would be more than all of 2019’s global production.
In addition to Nevada, Tesla will also be making batteries in Austin, TX.
Tesla is also behind a manufacturing plant that can turn hard rock spodumene concentrate into lithium hydroxide for direct use in its battery cells. Tesla has secured about half the lithium it needs from Piedmont Lithium in North Carolina, and at Battery Day Elon suggested all the lithium they’d ever need is available in Nevada, not China.
Then again, Tesla is also opening a massive battery factory in Shanghai. Which, just happens to be home to the busiest container seaport in the world. It’s a perfection location to build batteries and export batteries, perhaps even cheaper than what Tesla can do here.
Right now, no other American car company is getting into lithium production at this time. It’s only Tesla. In China, BYD is a battery maker. As is Geely, which is the China car maker behind Polestar. Ford and General Motors GM , the two legacy car makers left in the U.S., do not make their own batteries.
Update: Original version said the Mountain Pass metals were used for EV batteries and other long life batteries, but that is not clear. Most of them are used for magnets, which can be used in EV motors, though not necessarily. The main point of Mountain Pass is China’s control over that resource, currently under contract.