How to strategically derisk the push for electric vehicles

How to strategically derisk the push for electric vehicles | The Hill

How to strategically derisk the push for electric vehicles  at george magazine

Model Y electric vehicles stand on a conveyor belt at the opening of the Tesla factory in Berlin Brandenburg in Gruenheide, Germany, Tuesday, March 22, 2022. The first European factory in Gruenheide, designed for 500,000 vehicles per year, is an important pillar of Tesla’s future strategy. (Patrick Pleul/Pool via AP)

Last month, in one of the most aggressive steps to date in its push to get Americans to buy more electric vehicles (EVs), the Biden administration announced tough new Environmental Protection Agency emissions standards for carmakers’ automotive fleets. 

The regulations, which take effect with the 2027 model year, aim to ensure that two-thirds of the light-duty vehicles and almost half of the medium-duty vehicles sold in the United States a decade from now will be EVs. While air quality in America will undoubtedly improve from the projected 10 billion tons fewer carbon dioxide emissions over the coming three decades, the immediate winner from the new rules may be China, unless resolute action is taken to derisk the supply chains for the critical minerals and batteries. 

As I have previously argued, the biggest obstacle to achieving the green energy transition ambitions of environmental activists and sympathetic governments is not the lack of political will, but the shortage of the necessary material inputs. Nowhere is this more evident than in the EV supply chains that run from mines through the refining and processing of the minerals to the manufacture of batteries. Over the last two decades, the Biden administration’s own supply chain review concluded that, by “operating well outside globally accepted practices,” China has very intentionally and systematically been able to “develop battery critical materials infrastructure well ahead of market drivers,” resulting in the country producing four out of every five batteries in the world today. 

First, start with the minerals required. While newer battery types are under development, most currently produced EVs are powered by either a nickel-metal hydride battery (think Toyota Prius or Honda Prologue) or a lithium-ion battery (think Tesla Model Y or Volkswagen ID.4). While the specifics differ between the two main types — to say nothing of the cell housing within each broad category — they generally require significant amounts of metals such as nickel, lithium and cobalt. Plus, they also need varying amounts of rare earth elements (REEs) for permanent magnets for their motors, while their electric power necessitates copious amounts of copper wiring throughout the vehicle. 

According to a comprehensive study by the International Energy Agency (IEA), achieving the goal of net-zero emissions by mid-century enshrined in President Biden’s December 2021 executive order (as well as the July 2021 European Union Climate Law) will cause the cumulative demand for lithium to grow more than 40 times and nickel “around 20-25 times” between now and 2040. As for seemingly ubiquitous copper, the autonomous and intergovernmental International Copper Study Group’s most recent forecast predicts that this year alone there will be a shortfall of 114,000 tons globally — and the EV revolution has hardly gotten started. 

Moreover, nature has concentrated deposits of many minerals so critical for EVs in a handful of countries. For example, according to the most recent data from the U.S. Geological Survey, roughly half of the 3.3 million tons of nickel mined in 2022 came from just one country, Indonesia. Likewise, the Geological Survey’s 2023 report for cobalt recorded that more than two-thirds of that metal’s production last year was sourced to the Democratic Republic of the Congo (DRC).  

Second, beyond the geology and geography of critical minerals, there is the question of who controls the production, either at the level of mines or that of refining and processing. Although half of the world’s nickel is mined in Indonesia, that country’s own officials and civil society organizations acknowledged last year that Chinese companies control 90 percent of the nickel industry through majority holdings, including the 14 smelters currently operating. As it happens, the Indonesian government’s ban on exports of unprocessed nickel backfired spectacularly, forcing local miners without the capital to build their own smelters to sell ore to Chinese-owned firms at low prices. Likewise, Chinese companies control or finance 15 of the 19 industrial cobalt mines in the DRC. 

China’s dominance of REE processing that converts mine output of rare earths like neodymium and praseodymium into oxides, metals, and ultimately, permanent magnets for EVs and other renewable energy applications, is even more complete: The IEA estimates that it is as high as 90 percent

Third, it is not so surprising that, with strong positions in both mines and processing, China also enjoys a wide advantage in the manufacture of batteries, producing, in 2022, three-quarters of the batteries in the world in terms of gigawatts of power, with a single Chinese firm by itself, CATL, controlling more than 30 percent of the global EV battery market. 

Despite all of the tax credits and other incentives contained in the Inflation Reduction Act (IRA) and the $120 billion in private-sector domestic EV and battery investments claimed by the EPA, it will take some time before U.S. companies make anything close to a dent in the head start that their Chinese competitors have had. Even with the most optimistic projections of U.S. battery production expanding tenfold over the next five years, a study by the Federal Reserve Bank of Dallas estimates that America’s share of total global manufacturing capacity will still only amount to slightly more than 10 percent by 2031 because China will have increased its own capacity by 486 percent during the same period.  

Consequently, whether directly or indirectly (and, one presumes, unintentionally), Washington’s renewed push for EVs is effectively a windfall for Chinese companies, many of which are state-owned enterprises and certainly all of which are heavily influenced by the regime in Beijing. Even if one grants the environmental and economic arguments for accelerating the adoption of lower-emission transport, these considerations have to be weighed against the strategic costs of making America even more dependent on China at a moment when both the administration and Congress have shifted towards a broad bipartisan consensus about the general desirability of greater decoupling of the world’s two largest economies for both economic and national security reasons. 

Whatever the merits or practicalities of decoupling, certainly, there is little political support for increased interdependence, especially when the likely result is so one-sided. That is why, beginning next year, the IRA reduces the tax credit for consumers who purchase EVs containing minerals mined in or processed by China. 

As the administration’s own special presidential coordinator for global infrastructure and energy security, Amos Hochstein, rightly acknowledged at the African Mining Indaba in Cape Town, South Africa, earlier this year: “As we are going into a cleaner, greener, an entirely new energy system, we have to make sure we have a diversified supply chain. … We can’t have a supply chain that is concentrated in any country, doesn’t matter which country that is.”

In short, an “all-hands-on-deck” approach is required. Where domestic mining can be boosted sustainably, do so. Where geology is unfavorable to domestic production, develop new international partnerships that derisk supply chains; the memorandum of understanding signed at the U.S.-Africa Leaders Summit committing the United States to work with the Democratic Republic of Congo and Zambia to strengthen their battery value chains is a good example of this approach. 

And, finally, as Hochstein’s remarks indicated, the biggest threat is that any one country or entity so dominates supply chains that it is able, at will, to block access to critical minerals and, consequently, short-circuit America’s energy transition. To this end, diversification is the top priority, even if it means occasionally having to deal with less-than-ideal countries or companies that can supply the same materials without dominating the supply chains. 

The challenge is not with wanting more EVs or reducing CO2 emissions, but, rather, how to intentionally go about achieving these ambitions without undermining America’s overall strategic position vis-à-vis its chief geopolitical and economic rival at a time when the competition is getting increasingly heated.  

Ambassador J. Peter Pham, a distinguished fellow at the Atlantic Council and a senior advisor at the Krach Institute for Tech Diplomacy, is a former U.S. special envoy for the Sahel and Great Lakes Regions of Africa.


Electric vehicle battery

electric vehicle tax credit

Electric vehicles in the United States

Joe Biden

Politics of the United States

Rare earth elements

supply chain issues

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