EVs Have Given Asian Suppliers Unrivaled Industrial Might

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Seen by some as a moral imperative, electrification is swiftly changing the dynamics of the automotive industry. While automakers spend billions of dollars developing EVs and securing the necessary partners, many are becoming dependent on a handful of companies in Asia for the all-important battery cells needed to power the damn things. It’s gotten so serious that the U.S. government has taken an interest following a December 2019 report from the Institute for Defense Analyses that claimed battery manufacturers had taken on an “outsized importance” in the automotive sector.

It also said the United States would be at a distinct disadvantage if there are supply shortages  which is something that has already happened and is presumed to worsen as more electric vehicles flood into the market over the next few years. The automotive industry is pushing hard into electrification as governments around the world attempt to plot out an elaborate plan to supplant the internal combustion vehicle with EVs. But there are concerns that this has stacked the deck for a small number of suppliers from China, South Korea, and Japan.

With rare-earth elements necessary for battery production difficult to come by, there will be a period where mining will need to be ramped up immensely to support the glut of new-energy vehicles the industry plans on delivering. But there have been shortages already and they’ve been causing production problems for automakers. Both Volkswagen Group and Jaguar Land Rover had to postpone assembly schedules on electric vehicles after confronting supply issues with LG Chem.

The battery supplier is currently in a legal dispute with SK Innovation over an intellectual property dispute as well. Depending on how that goes, the U.S. International Trade Commission is warning of a “catastrophic supply disruption,” according to an industrial review from Bloomberg. Even if everything goes smoothly, many analysts have suggested there simply won’t be enough batteries on hand to meet some of the bold claims automakers have been issuing. EVs may remain prohibitively expensive well beyond 2025 (when they were originally claimed to reach parity with internal-combustion vehicles) and take decades longer to become the dominant mode of transportation for average families.

This matters little to battery suppliers, however. They’ve got the industry over a barrel now and are really only in competition with each other to strike favorable deals with automakers desperate to gain access to its wares in an attempt to avoid government fines and sell new product.

From Bloomberg:

Suppliers of batteries are wary of over-committing to any one automaker and eager to recoup the billions of dollars they have spent on production lines around the globe. Many are hedging their bets by crafting agreements with more than one partner. This small club includes the two South Korean rivals, Contemporary Amperex Technology Co. of China and Japan’s Panasonic Corp.

Battery suppliers can be very picky with their OEMs,” said Nathalie Capati, a former battery engineer at General Motors and Apple Inc. who now runs the Battery Lab, a consulting firm in San Francisco. “There are only a few cell suppliers who can meet their quality and volume. The automakers are at the mercy of cell suppliers these days.”

Even businesses that seem quite chummy are experiencing a semi-strained relationship. Tesla has been working with Panasonic at the Nevada Gigafactory for years. But CEO Elon Musk has repeatedly expressed frustrations that the company cannot meet production demands allowing him to build automobiles at a quicker pace. There’s little to be done about it. Panasonic claims it’s already operating near maximum capacity the world over and is not beholden to Tesla  it has a partnership with Toyota. Meanwhile, Musk has struck deals with CATL and other suppliers to maintain a steady stream of cells until it can finish building its own battery factories.

Other automakers might not be as fortunate, however. While many have gone out of their way to procure the raw materials necessary for battery production, few are in any position to manufacturer cells of their own and the clock is ticking. Loads of European locales have decided to ban the sale of internal combustion vehicles between 2030 and 2040. In the United States, California has sworn itself to uphold environmentalism at every turn and recently promised to ban gasoline-powered cars in 2035.

“A new arms race has begun,” Mary Nichols, chair of the California Air Resources Board (CARB), said in the announcement. “It’s an electric race to get to cheaper and more powerful batteries, and it’s one that manufacturers around the world are competing in.”

California is keen to export its environmental ideals to other states but there are a lot of questions on how feasible rampant electrification will be across the whole country. Many states still lack the charging infrastructure necessary to support EVs and range is not improving at a pace that makes us feel confident that can be gotten around without large tax-backed expenditures on advancing the national infrastructure. That’s likely to slow progress immensely, which is fine for the handful of battery suppliers that are already building batteries as quickly as possible and presumably happy to be courted by the automotive industry for the foreseeable future.

[Image: Sergii Chernov/Shutterstock]

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