China seeks global dominance in electric cars

August 17, 2018 10:31
The 'Made in China 2025' plan identifies the production of electric car batteries as an industrial priority. Photo: Reuters

Chinese brands hold a negligible share of the world's car market. But Beijing plans to change all that for the new generation of electric cars – it wants to be the global leader.

The "Made in China 2025" plan identifies the production of electric car batteries as an industrial priority. Six of the 10 largest global makers of electric cars are Chinese.

According to the International Energy Agency (IEA), China was by far the largest electric car market in the world in 2017, accounting for half the global market. Nearly 580,000 such cars were sold in China, up 72 percent from 2016; second was the US, with 280,000 units, up from 160,000 in 2016. China accounts for more than 99 percent of electric buses and electric two-wheelers, IEA said. At the end of 2017, China had nearly 214,000 public recharge stations, compared to 47,000 in the US.

All of Shenzhen’s 16,400 public buses are electric, a process the city government started in 2009. It is the first city in the world whose buses use only electricity.

China arrived late to the auto revolution and learnt how to make conventional cars through joint ventures with foreign firms. Foreign brands account for a substantial share of the domestic market. China has limited reserves of petrol; in 2017, it surpassed the United States as the world’s largest importer of oil.

But, for electric cars, the sums are completely different. Three major components are needed to produce electric vehicles – rare metals, lithium and cobalt.

China accounts for 79 percent of global production of rare metals. Most are processed at Baotou in Inner Mongolia, which residents have nicknamed "the Silicon Valley of rare metals".

Last year China accounted for seven percent of global production of lithium. Australia ranked first with 44 percent, followed by Chile with 33 percent and Argentina with 13 percent.

The Democratic Republic of Congo (DRC) accounts for nearly 60 percent of global production of cobalt. “This makes the supply of cobalt particularly subject to risks,” IEA said. “The capacity to refine and process raw cobalt is also highly concentrated, with China controlling 90 percent of refining capacity. Cobalt demand for electric vehicles is expected to be between 10 and 25 times higher than current levels by 2030.”

In March this year, Glencore, the world’s biggest producer of cobalt, announced that it had agreed to sell about a third of its cobalt production over the next three years to GEM, a Chinese battery company listed in Shenzhen. It will sell 52,800 tons of cobalt hydroxide to GEM between 2018 and 2020. Glencore’s cobalt is mined as a byproduct from its copper and nickel mines in DRC, Canada and Australia.

The price of cobalt has more than tripled from US$10 a pound in December 2015 to about US$40 this year, reflecting the strong demand in the world for electric vehicle batteries.

Industry estimates are that, because of this lock on supply, Chinese firms will by 2020 produce 80 percent of the electric batteries in the world. In line with the "Made in China 2025" strategy, Beijing will prefer to sell electric vehicles rather than the batteries alone. The main battery producers in China are BYD Auto, Wanxiang, and Contemporary Amperex Technology.

All this is ominous for companies in Japan, North America and Europe which want to make electric cars. China will control a large proportion of the materials they need to produce such cars.

In face of this Chinese dominance, in October 2017, the European Union set up the European Battery Alliance. According to a statement by the European Commission, "the immediate objective is to create a competitive manufacturing value chain in Europe with sustainable battery cells at its core. To prevent a technological dependence on our competitors and capitalize on the job, growth and investment potential of batteries, Europe has to move fast in the global race.

"According to some forecasts, Europe could capture a battery market of up to €250 billion a year from 2025 onwards. Covering the EU demand alone requires at least 10 to 20 ‘gigafactories’ (large-scale battery cell production facilities),” it said.

The downside for China is that electric cars are "clean" only when they are on the road. The extraction and refining of rare metals in Inner Mongolia, much of it in open-cast mines, is extremely polluting for the land, water and air and those who work and live around the sites.

It takes at least 200 cubic meters of water to purify one ton of rare metals. There are high levels of cancer in the areas around the plants. The inhabitants of Dalahai, an area close to the mines in Inner Mongolia, call their home "the village of cancer" and do not expect to live long.

This is a price Beijing is prepared to pay. It wants first place in the race to become the world's number one producer of electric cars.

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A Hong Kong-based writer, teacher and speaker.