Why China’s dominance of electric vehicle supply chain must be countered

Source– The post is based on the article “Why China’s Dominance of electric vehicle supply chain must be countered” published in The Indian Express on 14th November 2022.

Syllabus: GS2- International Relations

Relevance: Groundwater conservation related

News– The article explains that it is too risky and expensive for India to be dependent on imports across the energy transition board, particularly EVs.

What are the concerns in energy transition?

There are issues related to the supply chain for electric vehicles.

The assertive behaviour by China across the Taiwan Straits acts may create challenges. The risk may be even more acute because of a troubled relationship with China.

Supply chain is highly concentrated in China.

What are some facts related to China’s dominance in various stages involved in the supply chain of Electric Vehicles.

According to a recent report by the International Energy Association, every part of the EV supply chain is highly concentrated, mostly in China.

As the first stage of the supply chain are the key minerals required for batteries, namely lithium, nickel, cobalt and graphite.

China has an 80 per cent share of global mining output in graphite. In cobalt, the politically highly unstable Democratic Republic of Congo mines two-thirds of the global supply and Chinese companies control a big share of that country’s mining.

The second stage of the supply chain is the processing of ore into metal.

Globally, over 60%of lithium processing, over 70% of cobalt processing, 80% of graphite processing and about 40% of nickel processing takes place in China.

The third stage is cell components where China produces two-thirds of global anodes and three-fourths of cathodes. The only other producing countries of note are South Korea and Japan. After that come battery cells, where China has a 70% share.

Finally, in EVs themselves, China has a share of around 50 per cent in global production. Europe is a distant second with 25 per cent. India does not feature as a player of note.

What are facts related to investment in energy transition across the world?

China is now the biggest spender on climate  and energy transition. According to a report by Bloomberg’s New Energy Fund (NEF), in 2021, total global investment in climate transition is $750 billion. China alone spent $266 billion.

The US was a distant second with $114 billion.

India was at 7th place with $14 billion invested.

Almost 40% of Chinese and US spending was on EVs. In the case of India, more than 95 per cent of India’s spending is on renewable energy. In Europe, about 75-80 per cent of the spending is on EVs, which is why it leads the US in this sector.

In India, despite intent, EVs have not received sufficient investment.

What is the way forward?

A two-pronged strategy is needed.

First, on the minerals and materials. India has been slow at acquiring overseas mines of these critical minerals.

The government focus is upon PSUs. An alternate option is to liberalise exploration policies domestically, benchmark them with global best practices and invite global investors to find and mine in India.

It is important to have supply alliances with countries ex-China, as has been done with Australia. There is a need for much investment in the higher end of the supply chain.

A public-private partnership is vital. The vibrant startup ecosystem must be leveraged because it is more likely to be innovative than legacy firms.

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