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    The push to dominate the battery supply chain

    enSeptember 20, 2023

    Podcast Summary

    • The Role of Lithium-Ion Batteries in the Energy TransitionLithium-ion batteries, a technology essential for electric vehicles and other devices, are revolutionizing technology and confer significant geopolitical power due to their role in the energy transition. Control over their production and raw materials is a strategic race for corporate and national interests.

      The transition away from fossil fuels presents enormous opportunities for various players in the market, particularly in the electric vehicle sector, which is projected to reach a trillion-dollar market size by 2028. Lithium-ion batteries, a technology that was commercialized in the late 1990s after being developed in the 1970s, have revolutionized technology with their lightweight and long-lasting properties, making them essential for devices such as smartphones, wireless keyboards, and AirPods. Now, they are playing a pivotal role in the energy transition, with electric cars being the next frontier. Control over the production of these batteries and their raw materials confers significant geopolitical power, making it a strategic race for corporate and national interests on the global stage. The Financial Times' Behind the Money is exploring which players are leading this race and what those falling behind can do to catch up. Harry Dempsey, the Feet's commodities correspondent, explains the importance of lithium-ion batteries and their role in the ongoing technological revolution.

    • From Raw Materials to Electric Vehicles: The Battery Supply ChainThe battery supply chain involves mining raw materials, chemical processing, battery production, and car manufacturing. Raw material producers face challenges in meeting demand due to long lead times, potentially causing shortages and higher prices.

      The battery industry is a growing market, driven by the demand for electric vehicles and the need to store excess renewable energy. The supply chain for batteries involves raw material producers, battery producers, car manufacturers, and governments. The production of batteries begins with mining companies extracting key minerals such as lithium, nickel, cobalt, and graphite. These raw materials then go through chemical processing to become high-purity materials for battery production. Companies like LG and CATL then produce the batteries, which are sent to car manufacturers like Toyota and Volkswagen to be assembled into electric vehicles. However, raw material producers are facing challenges in meeting the increasing demand due to the long lead times for mining projects. This could lead to shortages and higher prices, potentially hindering the shift to electric vehicles and net zero plans.

    • China's Dominance in the Global Battery MarketEurope and US aim to compete with China by building local champions or attracting Asian companies, while Tesla leads in electric vehicle manufacturing and China heavily subsidizes and manufactures batteries at scale.

      The battery supply chain is currently dominated by a few East Asian companies, with CATL (China's battery producer) leading the pack, producing approximately 37% of the world's batteries. Europe and the US have different strategies to compete - Europe is trying to build its own battery champions, while the US is trying to attract Korean companies to set up shop in the country. Car companies like Tesla, which is vertically integrated, are leading the way in electric vehicle manufacturing, while others are forming partnerships with battery companies. Japan is betting on solid-state batteries as the next generation technology. China, which has long-term plans for the industry, heavily subsidizes the sector and is manufacturing batteries at a large scale. Overall, China's strategic approach and cost advantages have given it a significant edge in the battery market.

    • US and China's Race for EV DominanceThe US and China are competing to lead the EV industry, with the US introducing tax credits for EVs sourced from specific countries and China offering efficiency and cost-effectiveness. Europe is also a major player, but its strategies differ from the US and China.

      The US and China are engaged in a geopolitical race to dominate the electric vehicle (EV) industry, with each country offering incentives and imposing restrictions to gain an edge. The US Inflation Reduction Act introduces tax credits for EVs sourcing raw materials from certain countries, excluding those from countries of concern like China and Russia. This has led carmakers to consider how they can satisfy these requirements and build market share. However, the question remains whether the US can compete with China's efficiency and cost-effectiveness in EV production. Europe is also a significant player in this race, with its massive automotive industry and different driving patterns requiring different battery technologies. The US and Europe's strategies to protect their industries differ, with the US using both incentives and restrictions, while Europe may not be able to protect its industry in the same way. Ultimately, the dilemma is whether to decarbonize as friends with China and use their technology or keep geopolitical tensions in mind and not rely on Chinese technology, which could dominate the global industry.

    • Opportunities and Challenges in the Shift to Renewable Energy and EVsThe oil industry could decline, but car companies that struggle to adapt to the EV market may face the biggest losses. Effective supply chain management and strategic partnerships with mining companies are crucial for securing raw materials and meeting demand in the EV industry.

      The shift towards renewable energy and electric vehicles (EVs) presents significant opportunities for success, particularly for those involved in the new supply chain. However, there are also potential losers in this transition. The oil industry could see a decline, but the biggest losers are likely to be car companies that struggle to adapt quickly enough to the EV market. Companies like Ford have already experienced financial difficulties in their new EV business, and those that lag behind in the US and Europe may feel the pain most acutely. Another major challenge is the availability of raw materials for EV production, making effective supply chain management and strategic partnerships with mining companies crucial for success. The biggest risk, therefore, is whether car companies can make the shift to EVs fast enough and secure enough raw materials to meet demand.

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