Global to local

A globalized supply chain for lithium-ion batteries has supported the global EV sector to date. Is that model now on the way out? Henrique Ribeiro, Jacqueline Holman and Ben Kilbey look at regional strategies and investment flows in the sector.

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The COVID-19 crisis has exacerbated concerns across the lithium-ion battery industry about China’s dominance of the supply chain. The pandemic has also highlighted the need for local supply chains, in order to improve sustainability and work towards net zero targets.

Despite some momentum, however, the development of regional supply chains still faces challenges that go beyond simply raising equity.

Although there has been controversy about Chinese dominance, other regions such as South America and Australia are significantly more important than China in the lithium raw materials mining and extraction process. But it is evident that the vast majority of the downstream value-add activities are performed in China, largely due to an abundance of cheap energy and forward planning.

This is a consequence of the Chinese government’s early push towards electrification, especially through subsidizing electric vehicles (EVs). The country currently accounts for more than half of global EV sales. This emergence of demand incentivized the development of the industry around it, combined with an important financial push from the Chinese government.

As it becomes increasingly clear that the electrification trend will not reverse, the Western Hemisphere has been trying to catch up. In the case of the US, one of the main challenges to reducing the gap is the lack of a government-run, one-direction plan, which is exactly what allowed China to take the lead, according to Emily Hersh, managing partner at consultancy DCDB.

“You won’t find a Republican senator saying he is in favor of green energy, and you won’t find a Democrat saying he is in favor of mining,” she said, adding that there needs to be a champion to articulate a plan. “The successful approach in the US would be for governors who have slightly different capital situations going on to take the lead and work with each other regionally,” Hersh said.

The US concerns about the importance of lithium and other minerals date from 2017, when the Trump administration signed an executive order to “ensure secure and reliable supplies of critical minerals.” A list of 35 minerals – including not only niche products such as lithium and rare earths, but also more common ones like bauxite and tin – was released one year later.

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