As China continues to dominate the Electric Vehicles (EV) global supply chain, can India and the US cooperate to disrupt this dominance?
Electric Vehicles (EV) is the upcoming strategic industry that has gripped the global supply chains, primarily owing to their significance in marking a shift to renewable energy utilization and becoming a catalyst to transitioning towards a green economy. The use of critical minerals for the production of EV batteries has also given rise to another domain of economic competition, especially when every major power wants to have a stronghold on the manufacturing of these batteries. One major power already does- China. When it comes to the manufacturing of EV batteries, much of the world relies on the production in China as majority of the batteries in countries like India and the USA are still imported from China. This particular positioning of China as a leading manufacturer is crucial for two reasons - one, it gives China an unprecedented power over the EV supply chain, giving it the power to disrupt the supply chains as and when it deems fit; the second reason, is that countries like the US and India also find themselves being dependent on their geopolitical rival, China.
While India as well as the US are devising new ways of incentivising EV battery manufacturing in their local industries, it would be necessary to understand how we got to this point, how did China become a giant in the EV battery manufacturing sector?
It was after the global financial crisis of 2007-08 that China understood the gaps in west dominated economic paradigms. Until then, China itself was dependent on the West for the development of its own automotive industry as the focus was on non-renewable energy sources for automotive vehicles. It was after the crisis that China started shifting its focus on something that would become a dominating factor in the years to come - electronic vehicles. After extensive research and transformation in the automotive industry, the manufacturing of electric vehicles started taking centre stage in China. This was also reflected in the rising status of China’s electric vehicles as opposed to the previous non-renewable fuel dominated vehicles from China that were primarily considered of low quality. A major factor contributing to China’s rise in this field is also the fact that the country exported the locally manufactured EV batteries at the reasonably low cost to other countries as well as the immense manufacturing potential. These factors coupled with consistency in production led the way to China becoming the dominant power in the global EV supply chains despite not having the maximum reserves of critical minerals needed for the production of the EV batteries.
China, from the very beginning of heir venture into the EV industry, had laid importance to acquiring the necessary raw materials for the production of the EV batteries. World’s largets lithium reserves can be found in Latin America, more specifically in Chile, Bolivia and Argentina as well as in Australia. However, it is China that has been able to monetize the lithium processing, despite having just 8 per cent of the world’s lithium reserves. The secret lies in investing heavily in foreign lithium mines, especially in Africa and Latin America. When it comes to raw critical minerals, China is leaving no stone unturned, even entering into dialogues with Afghanistan’s Taliban on mining the Hindu Kush mountains for critical minerals.
This hunger for acquiring every outlet for lithium has led China be in abundance of this raw material. Refining this acquired raw material is also a sector where China seems to be in the lead.
China’s Lithium-ion battery production averages about 75 per cent of the global share, accounting for the maximum production by any country. The rapid rate of battery manufacturing, reforms in their domestic automotive industry as well as the large market that China provides has all resulted in the country’s dominance in this economically strategic sphere. The Contemporary Amperex Technology Limited (CATL) accounts for about 37 per cent of the total market share. The company provides batteries to leading EV manufacturers like Tesla, Volksvagen and BMW. The second Chinese firm to contribute to the EV battery production is after CATL is BYD. These firms are also getting state sponsored incentives to continue to improve their EV battery production and become leading players in the global market share.
As China dominates the global EV battery market, major powers are trying to devise ways of movin away from their dependence on China. When it comes to India, the country holds immense potential in the production sector however the lack of availability of the raw material has become a challenge. India, the regional rival of China, itself is dependent on China as it souces 95 per cent of its lithium imports from China. India is completely import dependent when it comes to Lithium due to the lack of local reserves. This dependence on China will become a challenge for India in the long run and the country has started creating ways to diversify the sourcing of lithium for the EV battery production.
India is looking towards Latin America, especially Argentina and investing considerable capital in the lithium mining industry. Apart from diversifying outside sources, India is also beginning to incentivise the production by providing subisidies to production companies and aiming to improve the demands for electric vehicles in the country. The same is also true for the United States. High ranking EV manufacturers in the US are dependent on China for the imports of lithium-ion components significant for battery production.
This poses a significant problem for both the US and India as they attempt to counter China’s dominance in this sphere. It is not just because of their regional and global rivalries but also due to the fact the this unprecedented dominance over the EV sector gives China an upper hand in the control of the global supply chains. India and the US would be the last countries to want to depend on China for such a critical resource. China can put a halt on the export of the lithium-ion batteries or other components and it will most significantly disrupt the global supply chain.
This poses a strategic question- can India and the US collaborate in diiversifying their resource acquisition. Increasing partnerships with leading lithium producing countries such as Argentina, Chile and Australia could serve the purpose in the longer run. India and Australia have been deepening their multi-dimensional bilateral relations over the years and the agreements over critical minerals mining and production have taken center stage. The United States can find an ally in India when it comes to countering China’s dominance over EV battery production, essentially because India itself has been ready to increase investments in lithium mining overseas. India’s huge market, along with the EV manufacturing capabilities could benefit immensely from the financial backing of states like the US.
It has been projected that both India and the US are likely to increase their EV battery production in the next five years, while the production in the US may move from 131 gWh to 1037 gWh, India’s production may rise from 18 gWh in 2023 to 120 gWh in 2028. These projections are perhaps based on the current situations of the countries aiming to increase their EV battery production output and also improving investments in lithium mining as well as other critical mineral resources.
While China continues to wield immense influence and a stronghold on the global EV markets, investing more in the acquistion of raw materials as well as improving the demand of EV in the global markets will also bring about new players in the industry. As India and the US continue to reduce their dependence on Chinese imports, it could also be projected that China’s share in the global market might reduce, if not considerably, in the coming years.