U.S. media published an article on Tuesday saying that China is leading the world's auto industry's transition to electric vehicles, which worries the United States and Europe. Western policymakers want to avoid long-term dependence on China, but catching up is difficult and expensive.
China’s advantages in electric vehicles really scare the West. In the face of Chinese car companies' aggressive entry into the European market, the European Commission announced earlier this month a countervailing investigation into Chinese electric vehicles. In response, a spokesperson for the Chinese Ministry of Foreign Affairs stated that China has always opposed all forms of trade protectionism. The relevant measures taken by the EU are not conducive to the stability of the global automotive industry chain and supply chain, and are not in the interests of any party.
US media said that industry data and estimates from Bloomberg New Energy Finance show that it is very difficult for the West to even be more realistic and slightly reduce its dependence on China, let alone be self-reliant. China, Asia's largest economy, has a firm grip on battery production, making global automakers more or less dependent on Chinese partners. Chinese battery manufacturers supply about 80% of the world's battery cells, and the mining and processing chain of raw materials is gradually controlled by China.
"Is it feasible to completely cut off China's supply chain? Of course not at the moment." said Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies.
China's strength
In terms of battery raw material mining, China dominates the mining of graphite. The mining of lithium, nickel and cobalt is the advantage of other countries. However, US media pointed out that China has invested in African lithium mines and Indonesian nickel producers, which allows China to still have influence in these raw materials. At the same time, major U.S. automakers such as General Motors Co. have also joined the raw material investment boom, and countries can use free trade agreements to meet some procurement requirements for electric vehicle parts.
The next step is refining. In this regard, China’s dominance is unassailable. US media said that China has spent several years building its own expertise. More than half of the world's lithium, two-thirds of its cobalt, more than 70% of its graphite and about one-third of its nickel are processed in China, according to the International Energy Agency.
However, where China's real strength lies is in battery components: the four key components necessary for a battery to work. China accounts for 70% of the world's cathodes and more than 80% of its anode production capacity, as well as well over half of its electrolyte and separator production. Together, these components make lithium-ion batteries, more than three-quarters of which are produced in China, mainly from two companies: CATL and BYD.
According to US media, China’s huge manufacturing infrastructure and strong policy support have made China the largest electric vehicle market on the planet. In some Chinese cities, electric vehicles now account for nearly a third of sales. This also means that it will be difficult for Western countries to catch up. Take the European Union, for example. The bloc has to deal with a complex bureaucratic web of 27 different countries while meeting some of the world's most ambitious climate goals.
The price of self-reliance
Bloomberg New Energy Finance estimates that the volume-weighted average price of battery packs in China is $127 per kilowatt-hour, while prices in North America and Europe are 24% and 33% higher respectively. This makes battery cell factories the most capital-intensive part of the push to diversify the supply chain.
In Germany, the largest automotive market in the United States and Europe, just one lithium iron phosphate battery factory costs approximately US$865 million. By comparison, construction costs in China were $650 million, largely due to lower construction and labor costs in China.
Looking at the bigger picture, to meet domestic battery demand in 2030, Europe and the United States will need to invest US$98 billion and US$82 billion respectively in battery metal refining and battery core manufacturing facilities. Battery cells and battery packs account for the majority of these costs, and mining raw materials and building and equipping factories to produce electric vehicles will further increase costs.
The EU estimates that by 2030, they will invest another 382 billion euros in the entire value chain.
EU 'powerless'
Although the EU has launched a countervailing investigation into Chinese electric vehicles, this may strengthen Chinese investment in the region to more easily meet procurement requirements or avoid future troubles. Chinese companies have stepped up their efforts to enter South Korea's battery industry to take advantage of South Korea's free trade agreement with the United States and increase their chances of qualifying for tax breaks.
"Right now, the EU can't do anything about Chinese car manufacturers entering Europe. The battery supply chain is completely controlled by China, so I can only wish the EU good luck. Any EU tariffs on imported Chinese electric cars will be a big deal. By the way, several Chinese companies now also hold shares in European manufacturers." AIR Capital analyst Pierre-Olivier Essig (Pierre-Olivier Essig) said.
Currently, CATL is increasing production at its battery cell factory in Germany and is building another factory in Hungary. China's Honeycomb Energy Technology plans to expand its European operations to five factories and has launched talks to supply batteries to European carmakers.
Additionally, the European Union has pledged to ban the sale of all new petrol and diesel cars from 2035, adding another layer of pressure. Bloomberg Industry Research said that China’s dominance of electric vehicles will become the focus of attention in the 2024 European Parliament elections, and EU leaders may carefully balance political points and promote efforts to mitigate climate change at this critical juncture.