This is a part of the EV Innovation Intelligence series
It’s early 2021. The way the rest of the world has been looking at China has changed dramatically in the last ten months. While there had been always been ideological conflicts between many western nations and China (even though what China follows is also capitalism, albeit without the constraints of democracy), the desire of many developed economies to reduce – if not completely eliminate – their reliance on China for their goods and products has significantly increased during this period.
Like they did in many other sectors, the Chinese government and bureaucracy had understood the importance of investing massively in e-mobility infrastructure earlier than those of many other countries. And throwing at the opportunity the same combination of speed and massive governmental support, the country had indeed gotten into a dominant position by 2020 – be it in the manufacturing of batteries and electric cars, or in massive transformation to electric bikes and buses in many cities.
So, will China continue and stretch its current dominance in the e-mobility space too?
There are many reasons why it could be different this time round
COVID 19 could be the real disruptor and game changer in this global competition. Whatever be the truth about the origins of the virus, the pandemic seems to have gotten many large countries (including mine, India) to wear self-sufficiency on their sleeves. The desire for countries to be self-sufficient is not new. But self-sufficiency does not come easy and most parts of the world were not in a position to make the sacrifices to make this happen. But all these countries know that the times of emergencies and deep uncertainties are the times when some of the sacrifices can be made, because these are the times when many other hard decisions are being made as well.
Non-Chinese battery leaders
Batteries, the key area of competition for EVs, is not exactly a new field like solar was in 2010. Li-ion batteries, the type of batteries used in EVs, have been used since the 1990s and many of the companies that are leaders in this field are Korean and Japanese (LG, Panasonic etc.). While China is indeed trying to massively scale LiB production through companies such as CATL, many leading LiB producers worldwide are still non-Chinese as of early 2021.
- Tesla and Panasonic joint venture plant Giga factory 1 has been considered in 2018 as the world’s biggest lithium-ion battery plant after the plant reached a capacity of 22 GWh.
- The world’s fifth-largest lithium-ion battery mega factory, according to Benchmark Minerals’ Lithium-ion Battery Mega factory Assessment was yet another new plant, LG Chem’s Poland facility which had a capacity of 15 GWh and seems to be in a state of perpetual expansion.
- Panasonic is the fourth largest lithium battery company globally. The company ranks No.1 in Japan. Panasonic stands a good chance to gain in the battery market given its strong ties with Tesla.
Importance of software & digital
Software and IT are likely to play a dominant large role in EVs, much larger than they play in conventional vehicles. Software application development has not been a strong point for Chinese companies, especially when compared to countries such as India. Besides, Silicon Valley, where a significant portion of EV development is taking place thanks to Tesla, is the mecca of software innovation and this position is unlikely to change anytime soon.
- China’s search engine giant Baidu Inc said it will set up a company to partner with carmaker Zhejiang Geely Holding Group to make smart electric vehicles (EV), the latest move by a tech company in the fast-evolving sector. Baidu, which has been developing autonomous driving technology and Internet connectivity infrastructure, said the new EV company will count on Baidu’s intelligent driving capabilities and Geely’s car manufacturing expertise. Geely will also be a strategic investor in the new company, which will be an independent subsidiary of Baidu. The unit mainly supplies technology powered by artificial intelligence and works with automakers such as Geely, Volkswagen AG, Toyota Motor Corp, and Ford Motor Co.
Transport vehicles – be they cars, scooters or electric bikes – are too near and dear to their users. With electric cars being new, users perceive more safety and performance risks than they do in conventional vehicles, at least in the initial stages of e-mobility sector development. With this in their minds, many users may want to go for quality over costs.
Companies in the developed economies – Germany for instance – can use their positioning as high-quality manufacturing economies can hence score some heavy points over Chinese at least in the initial stages. (The business case for something like solar panels is not that high in this context, because at the end of the day, solar panels are used and touched every day by users even in the case of rooftop panels and in the case of ground mounted panels, the perceived risks are far lower to the investor/purchaser).
Innovation impact on China
China, for all its might, is still an adopter of technology – though a damned good one at that – than a pioneer. The DNA of China is discipline, hard work and a willingness to obey orders. Innovation requires an independent, sometimes rebellious streaks in character and also some other things additional in the DNA – imagination and a willingness to experiment. Europe and USA (and a few other regions such as Israel) have proven time and time again how they are far ahead of the rest when it comes to the Innovation Quotient.
Battery raw material challenge
While the above are the reasons why China’s impact on EVs could be different from its impact on many other industries, there are also reasons why China might have a stronger grip on this industry than it appears at first read. And one reason stands out among others – its hold over critical raw materials.
In the last few years, China has smartly built entry barriers to access to critical battery raw materials. Through investments in Bolivia, Chile, and Argentina, China controls a large portion of the world’s Lithium processing facilities. China also owns a large portion of the cobalt resources in Congo, a politically volatile country. In 2019, China produced about 60% of the world’s graphite (used in Li-ion battery anode).
BNEF’s lithium-ion battery supply chain ranking provides a snapshot of a country’s position in 2020 and where it will place in 2025, based on its current development trajectory. It ranks countries across five key themes related to the supply chain – raw materials, cell and component manufacturing, environment, RII (regulations, innovation, and infrastructure), and end demand across EV and stationary storage. The report notes that China’s success has come as a result of its large domestic battery demand, 72 gigawatt-hours (GWh), alongside control over 80% of the world’s raw material refining, 77% of the world’s cell capacity, and 60% of the world’s component manufacturing.
One consolation: All these indeed make it appear that the country has a strong grip on raw materials, but then, what happens if fuel cells overtake batteries. Surely even China cannot control access to hydrogen!
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This is a part of the EV Innovation Intelligence series
Posts in the series
Tesla’s Valuation | EV’s in different countries | Purpose built EVs | Mainstream Fuel Cells | IT in Emobility | EVs versus ICEs | Advent of China in Emobility | Charging vs Swapping | Micromobility & EVs | Electric Aviation | Li-ion alternatives | Million Mile Battery | Battery Startups versus Giants | Sales & Financing Models | Ultrafast Charging a Norm | Heavy Electric Vehicles | Material Sciences in Emobility | Lithium Scarcity | Solar Power in EV Ecosystem | EV Manufacturing Paradigm | Innovations in Motors | EV Startups – a speciality | Oil Companies’ Strategies | EV Adoption Paths | Covid-19 affect on the EV Industry |