China is Leaving the United States Behind on Electric Vehicles
In a first for the Chester Energy and Policy blog, I’ll be hosting a guest post from a colleague to write on a topic they know quite well and have important ideas to share. Teague Egan is the CEO of EnergyX, a sustainability energy company that’s focused on (among other things) the importance of lithium extraction for the future of clean energy technologies—namely electric vehicle batteries and larger-scale energy storage.
The pending market explosion of EVs is one that cannot be denied and is already happening much more quickly in places other than the United States. The situation with EVs evokes the classic “ready or not, here they come.” In this instance, ‘they’ are the EV manufacturers and buyers, and the entities that may or may not be ready include installations of public EV chargers, utilities that are seeing the greatest single increase to their demand load in history, and the provider of the key raw materials for EVs—chief among them being lithium for the batteries.
With that in mind, I’m happy to run this piece by Teague about what China as a nation is doing to prepare for the EV revolution and where the United States is falling behind. If you like this piece, want to hear more from Teague, or have an idea you’d like to run as a guest post then please feel free to leave a comment below or reach out to me on Twitter.
China is Leaving the United States Behind on Electric Vehicles
By Teague Egan
To all Americans, when we think electric vehicles, we think Tesla. Sure, GM has the Chevy Bolt. It’s a nice all electric car, starts at $36,620 MSRP, has a 238-mile range, but Tesla started building electric cars when no one thought it could be done. Elon’s Musk’s biography, “Tesla, SpaceX, and the Quest for a Fantastic Future,” discusses how lithium-ion batteries were hitting the point of viability for usage in electric cars. However, it still took Tesla nearly 10 years to release their signature Model S sedan, and thus the revolution began.
Witnessing history in the making, I bought Tesla stock back in 2013 at $40 per share. This was after tracking it jump from $20 to $40 per share in a matter of weeks. Not to be slowed, in the weeks following it jumped from $40 to $80 per share. I was able to purchase my very own Tesla Model S with the earnings, and so my love affair with electric vehicles began.
Along with so many other technologies invented in the United States, it seems electric vehicles have followed suit. After Tesla proved it was possible to make EV’s and the market was growing, China replicated, mass-produced, and now dominates. Following a 126% increase in EV sales in 2018, the Chinese market was flooded with new EV startups keen on producing electric vehicles.
Hell bent on taking a global lead, Beijing decided to stimulate sales after announcing a series of government subsidies back in 2010. The government funding led to the creation of 500 startups which, along with China’s manufacturing prowess led to the mass-production of EVs. Washington attempted to provide government subsidies, but we have not seen Detroit based auto manufacturers transition as readily.
With Chinese policies aimed at making it easier to buy electric vehicles over their internal combustion engine (ICE) counterparts, buyers quickly flocked to them. Since then, however, with overproduction of electric vehicles as a result of its very competitive auto manufacturing, China is seeing a slowdown in its domestic EV market. Yet Beijing has built an impressive lead in the global EV market, doubling the United States’ production and sales.
Breaking Barriers & Old Traditions
Although domestic sales have dropped, China continues to outpace the US in flying colors. After surpassing the US in 2015 to become the largest electric-car market it has kept the title since. Helped by the government subsidizing purchases and spurring companies’ research efforts, annual electric-car sales in the Asian country will reach 2 million units next year, after topping 1 million for the first time in 2018.
I have to ask the question: “How can the US be letting this happen again?”
With a massive China vs. US trade war brewing, and the critical issue of climate change at the forefront of our attention, what are the underlying circumstances?” Part of the answer is government subsidies. Additionally, there is China’s massive and cheap labor force. But a significant factor is the supply of the battery raw material and the associated value chain. You need a mind-boggling amount of batteries and the materials to make those batteries to make a battery-powered car.
In light of the recent slowdown, China announced a range of new measures primed to set the industry back on track. By revoking subsidies and increasing the qualifications needed for new companies to infiltrate the market, Beijing expects the industry to regulate itself. On top of this, the government announced a series of policy changes that will promote the sales of EVs, as it seeks to reduce the amount of internal combustion engine vehicles on its roads and the pollution they emit.
Despite the Chinese EV market seeking to reduce its production rate, it is still projected to keep its top spot as a global leader through 2030. As Wharton’s John Paul MacDuffie explains: “China has been willing to pull all the policy levers available to them to jump-start the electric vehicle market. [It wanted to] stake out a claim to be not only the biggest market in the world, but the one that is accelerating the pace of the transition from internal combustion to electric.”
There has been some debate as auto industry pundits try to determine when sales will stabilize, but recent studies from the International Energy Agency (IEA) and Bloomberg suggests that China will continue to be a global leader in EV production and sales.
Photo Source: SCMP Graphics
Continued Leadership
Both the IEA and Bloomberg studies show that electric vehicle manufacturing remains one of the fastest-growing sectors worldwide. With ICE sales in China expected to drop coupled with the incursion of Chinese EV manufacturers in overseas markets, major auto manufacturers in the United States and Europe have taken note of the country’s rise as a global leader. China’s production of electric vehicles has spurred competition internationally with Western nations pushing for more EVs on their roads.
China sold a million electric vehicles last year – an impressive feat considering 2018 saw total global sales of EVs top 1.8 million. The United States came in second, selling 400,000 units. Experts believe the Asian nation is set to sell over two million units this year as Beijing maintains its dominance over the US and European markets. Although the United States has seen a steady increase in sales of electric vehicles over the past few years, it has been unable to compete with China’s production power.
Back to the batteries the thing that makes an electric vehicle, electric. As the owner of my brand new Tesla Model S, I started to see that electric vehicles were the future. One month of zipping around with that instant acceleration, and 4.2 seconds 0-60 mph and you are instantly hooked. I became extremely curious about all things EV. Leaving the entertainment industry, I decided to start a renewable energy company focused on batteries and battery materials. This is when I came to find that Tesla, the darling of the EV revolution, sources essentially all of its lithium and battery materials from outside the US.
What’s Under the Hood?
On top of its world-leading sales numbers, China also boasts the highest production of EV batteries and has secured the resources needed to build them. But just how big is that lead? China produces nearly two-thirds (66%) of the world’s lithium-ion batteries, compared with 5 percent for the United States. Tesla does produce its own batteries, but it sources lithium from the world’s top 5 providers, only one of which, Albemarle, is based in the United States. Albemarle produces just a tiny fraction of its lithium domestically in Nevada, which presumably goes to Tesla.
Taking it further upstream, China controls most of the world’s lithium processing facilities as well. Beijing has been supporting lithium and copper mining operations globally as it seeks to satisfy its demand for EVs. It also has had a hand in funding new nickel mines, another important battery material. Japan, Australia, and the US have attempted to circumvent China’s manufacturing dominance by jointly investing in the sourcing of materials, however, Beijing’s grasp stretches globally. Tianqi and Gangfeng are the two Chinese lithium behemoths, and Tianqi owns a 24% stake in SQM, the world’s second largest lithium producer. China is crossing borders to secure all the materials needed to make batteries for it’s EVs.
While China refines its manufacturing prowess and broadens its value supply chain, its EV industry will carry on leading world markets. I am hopeful the US can begin to speed up electric transition our staple Detroit auto manufacturers, but we must also explore sourcing raw materials and producing more batteries domestically. These are critical to building our sustainable energy future.