Beijing Puts Export Curbs on EV-Critical Graphite
The Lede: On Friday, China's Ministry of Commerce announced it will require permits for the export of graphite, a critical mineral used in the production of lithium-ion batteries for electric vehicles (EVs). The restriction is expected to exacerbate the already acute shortage of the mineral as the global demand for EVs continues to rise while China competes with Western automakers to capture market share.
What We Know:
- Starting December 1, regulations on graphite will be adopted on the basis of China’s Export Control Law to secure the country’s strategic goods and materials and prevent Chinese companies from exporting them unless they undergo an examination process and obtain permission. The new restrictions will apply to synthetic graphite material, including high-purity, high-strength, and high-density versions, as well as for natural flake graphite.
- The European Union called the new export controls an impediment to the investigation the bloc launched last month into China’s subsidies for EV manufacturers and whether the Chinese car companies unfairly undercut other car brands.
- This would put EV makers such as Tesla, Rivian and Lucid Motors, as well as traditional car manufacturers with their own EV lines at risk of production shortages. Western car manufacturers have started to rush to secure new suppliers before the official implementation of China’s export restrictions.
The Background: Signed into law last year, the U.S. Inflation Reduction Act provides a 10% tax credit to domestic producers of graphite among other minerals used in clean energy. Last year, China was responsible for close to two-thirds of the global production of graphite and all but 2% of output for spherical graphite used as a final product in anodes for lithium-ion batteries. This move comes just days after the U.S. imposed new restrictions on the export of advanced semiconductor chips to Chinese companies. Tesla has signed a supply contract with an Australian company that owns a graphite mine in Mozambique. Mercedes-Benz and other automakers are also looking for contracts with Australian companies. In July, China imposed export restrictions on the critical minerals gallium and germanium, which are important for the manufacture of semiconductors. Exports for the minerals fell to zero a month after the imposition of curbs.
Likely Outcomes:
- If the outcome of China’s recent restrictions on germanium and gallium are any indication, Western automakers may indeed face severe shortages of graphite needed for EVs. Predictions of the results of the previous critical minerals restrictions by the Chinese government were contingent on the outlook for Beijing’s relations with the U.S. and Western governments. Despite increased dialogue and high-level visits, the trade and commerce side has continued to deteriorate with more trade restrictions and increased regulatory scrutiny on all sides.
- Prospective graphite suppliers outside of China will likely experience a lasting surge in demand that will also require substantial capital expenditures in the future. There will also likely be significant upward pressure on EV prices from Western manufacturers, which will complicate the EU’s investigation into Beijing’s EV subsidies. There may be increased state support among the West’s automakers down the line as the industry rivalry intensifies.
Quotables:
“At the moment both China and Western countries are engaged in a tit for tat, highlighting how protectionist measures often spread. Newton’s third law that every action causes a reaction applies here, too. At the same time, both sides of the dispute also realize how costly it is if geopolitics trumps economic.” – Stefan Legge, head of tax and trade policy research at the University of St Gallen
“The whole of the car battery industry is dependent on anodes, and they nearly all come out of China. It’s not that the rest of the world can’t catch up, they can, but it won’t happen overnight.” – Ross Gregory, partner at New Electric Partners
Good Reads:
China to curb exports of key EV battery material from Dec. 1 (Nikkei)
China restricts exports of graphite as it escalates a global tech war (CNN)