China is flexing its muscles in the ongoing global tech cold war, strategically targeting the electric vehicle (EV) battery industry. While many people believe that lithium is the most crucial component in a lithium-ion EV battery, it is actually graphite that holds this distinction. Graphite serves as the anode, or negative pole, in these batteries, making up nearly half of their weight. Surprisingly, more than 90% of anode-ready graphite is currently produced in China.
Seeking to highlight its dominance in the EV battery market, Beijing recently made an announcement on October 20th. This came just days after the United States tightened controls on semiconductor exports to China. Starting December 1st, any sales of graphite from China will require a license.
Earlier this summer, President Xi Jinping’s government imposed similar restrictions on two rare earth metals commonly used in electronics manufacturing: gallium and germanium. As a result, gallium prices have surged by 50% according to data provider Argus. However, experts believe that a squeeze on graphite could have an even more significant impact. Ross Gregory, a partner at Korea-based consultant New Electric Partners, describes the previous rare earth restrictions as a mere “flesh wound” compared to the potential “internal bleeding” caused by limited access to graphite.
Graphite can be sourced through mining or synthesized from petrochemicals. While synthetic production is more prevalent and theoretically easier to replicate, it comes with environmental consequences and a significant carbon footprint. Tom Kavanagh, the editor of Argus Battery Materials, explains that the massive blast furnaces used in China for graphite production contribute to its unlikelihood of being seen in Western countries due to environmental concerns.
China’s unwavering hold on the graphite market underscores the country’s clout in the global EV battery industry. As tensions continue to escalate in the tech cold war, the battle for control over critical resources like graphite intensifies. The upcoming restrictions on graphite sales from China will undoubtedly shape the future landscape of the EV market, potentially leading to a significant power shift in the industry.
The Future of Synthetic Graphite: A Potential Power Shift
Introduction
In the realm of synthetic graphite production, Vianode, a Norwegian company, backed by Norsk Hydro (NHY.Norway), is making bold claims about reducing CO2 emissions by 90%. However, this promise comes at a higher cost compared to the Chinese model. This development has led some experts to believe that China may be attempting to regain pricing power in the graphite market.
Chinese Dominance and Its Potential Consequences
As China has increased its synthetic graphite production and faced a decrease in domestic electric vehicle (EV) demand due to economic challenges, the prices of graphite have actually declined. This pricing trend has prompted Kien Huynh, the Chief Commercial Officer at Alkemy Capital Investments, to suggest that China is strategically asserting its influence over the market.
The Potential Risks for China
With past instances of trade weaponization resulting in counteractions, China needs to tread carefully. Marko Papic, the Chief Strategist at the Clocktower Group, highlights how China’s restriction on rare earth exports to Japan in 2010 led to customers exploring alternatives. Consequently, China’s worldwide share of rare earths production dropped from 90% to 70%.
The Ripple Effect on Industries
An extreme squeeze on graphite availability would not only impact the EV industry but also have repercussions on various other sectors that rely on this element. This outcome would further burden China’s already struggling economy. To avoid such consequences, Beijing is likely to selectively decide which industries are granted access to Chinese graphite resources.
The Potential Losers: U.S. Auto Manufacturers
Gregory, an industry expert, believes that the shift from internal combustion to EVs by U.S. automakers could face severe setbacks if China implements restrictions on graphite exports. This development could place American companies at a significant disadvantage.
A Critical Diplomatic Moment
The timing of Chinese Foreign Minister Wang Yi’s visit to Washington is crucial against the backdrop of these escalating dynamics. Scott Kennedy, a senior advisor in Chinese economics at the Center for Strategic and International Studies, emphasizes that neither side is inclined to fundamentally alter their behavior for the sake of technological cooperation. This perspective highlights the underlying tensions that persist between the U.S. and China.
In conclusion, the future of synthetic graphite production holds significant implications for the global industry landscape. While Vianode’s ambitious CO2 reduction plan is promising, the potential power shift and China’s strategic calculations raise important questions about the stability of the market. As the landscape evolves, it remains unclear how these developments will shape the future of the EV industry and international trade dynamics.
