Electric batteries and critical materials: a geopolitical analysis

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Abstract:

Electric batteries and critical materials: a geopolitical analysis

Bruno Jetin, Institute of Asian Studies, UBD

Batteries are a core element of electric vehicles. They account for about 50% of the cost of production of the vehicle and they are made of rare earths and minerals. The electric vehicle uses four times much more minerals, around 200 kg than the traditional combustion engine vehicle. The electric vehicle also needs a larger set of minerals compared to the combustion engine vehicle. Contrary to oil and gas, these minerals are not widely spread across the world but are concentrated in a limited number of countries. For instance, in the cases of lithium, cobalt and rare earth elements, the world’s top three producers control well over three-quarters of global output. Their demand will grow not only with the rise of the electric car but also with the progress in energy transition towards net zero emissions in 2050. Wind turbines, solar panels, battery storage, and electricity networks are intensive in minerals. Their combined demand could lead to a situation of scarcity of certain materials which could lead to new trade conflicts. Additionally, the transformation of these minerals is made by a limited number of multinational chemical companies, which behave like a global oligopoly that follows a traditional strategy of profit maximisation.  These mining and chemical companies are not primarily concerned by fair equal access by countries, battery and car manufacturers to the material they need. They also possess very specific and highly-skilled competencies in the refinery of some materials that cannot be easily replicated. In a world impacted by trade conflicts, pandemics and new cold wars, states and regions are increasingly adopting new policies to secure a stable supply of materials and components. They also try to establish the presence of all the elements of the battery value chain in their territory. An additional motivation for the adoption of these new public policies is that some of the minerals and technologies involved have a dual civil and military application. The COVID-19 pandemic and the new cold wars have added new concerns about the fragility of global value chains, the overdependence on a too limited number of supplier countries and lead to a shift from a purely neoliberal approach where private initiative and free market competition come first, to a more managed form of capitalism where public authorities play a more proactive role. Policies of near-shoring, or even relocation are adopted to shorten the supply chains. This involves mining, refinery, and the various elements that constitute a battery.

The aim of our contribution is twofold. In section 1, we identify the main exporters and importers of the minerals involved in the production of batteries and the evolution of their international trade. We will also analyse the international trade of battery cells and other major components of batteries, and batteries themselves. In section 2, we measure the concentration of minerals and battery components imported by of China, the USA, and the EU to have a more precise idea of their potential vulnerability. The lower the diversity of suppliers, the higher the risk of disruption of supply if one of them is seriously hit by the pandemic. We calculate Herfindahl-Hirschmann Index (HHI) to estimate the degree of concentration of imports for selected minerals and battery components. We use the UNCOMTRADE data at the six-digit level. In section 3, we present and discuss the public policies adopted by China, the USA and the EU regarding critical materials and batteries. We show that these policies are strongly influenced by the international relations of these three countries and region in terms of political alliance, agreements and institutions.

In conclusion, we stress the importance of a geopolitical approach of battery and electric car manufacturing. Even more than before, when the internal combustion engine was the only contender, the emergence of the electric vehicle implies the intervention of the State to defend its strategic interests and those of its companies.