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Russian Gas and Chinese Raw Materials – The EV Shift Will Demand Complex Choices

There’s a famous video circulating on the Internet for quite some time of Donald Trump warning Germany about Russian. If you have never seen it, it’s embedded below. Everything happened at the 2018 United Nations (UN) General Assembly during the then-POTUS speech. German diplomats laughed at him. Whatever you think about the man, what he said could have spared Germany from the issues it is now facing with the Russian invasion of Ukraine. That may hold some lessons about the EV shift.
BYD HanBYD Qin PlusBYD Song PlusBYD DolphinNIO ET7Xpeng G3Xpeng P7China concentrates the raw materials supply chain for lithium-ion cells – and that can become a problem
Although it may seem that these two situations have nothing in common, more context will make it clear. It was not only Trump who warned Germany that it was not wise to depend on Russia for energy. Bruno Maçães, a former Secretary of State for European Affairs in Portugal, said they discussed building connectors between the Iberian Peninsula and the rest of Europe to replace Russian gas in 2015. The answer was: “No need. We know Russia better than you.” 

The concern was evident. Russia was ruled by Vladimir Putin for many years. Someone with any chances of beating him in elections didn't exist. Russian forces invaded Crimea in 2014. People feared that Russia would weaponize energy. Despite that, Germany signed the contract for Nord Stream 2 in 2015... Those who favored buying Russian gas did not think the country would jeopardize its primary income source. We all know what happened. So does Germany, even if it does not admit the full extent of its error. It is even making it worse by shutting down nuclear plants in an energy crisis.

So what transport electrification has to do with that? Like Russia, China pretends to be a democratic country. Yet the Chinese Communist Party (CCP) rules everything, and there is no room for challenging lockdowns in entire cities for weeks. The internet is censored, and those criticizing the government can go to jail. Have you ever heard about the Uyghur people? Exactly.

Before the UK returned Hong Kong to Chinese rule in 1997, the CCP promised to allow the region political autonomy for 50 years. It has since arrested critics, closed newspapers, and jeopardized Hong Kong’s financial hub status. As Andreas Steno Larsen warned on Twitter, this is the country that dominates the raw materials supply chain for electric cars.

China is the most important producer of rare earths, a crucial component of electric motors. Although it is not as relevant in mining copper, nickel, cobalt, or lithium, all these minerals go to China to be processed. The country developed this manufacturing infrastructure because Chinese cities had a massive public health problem with ICE cars in regions with more than 30 million inhabitants. I have no idea if that advantage was developed with geopolitical intentions, but the fact is that it can be used that way, especially when batteries become more necessary than today.

That is what the Inflation Reduction Act intends to change by incentivizing electric cars made in the U.S. with local components. World Trade Organization (WTO) threats will probably make no difference for the American government when what is at stake is to avoid depending on the CCP. That involves more than developing the skills and industrial infrastructure necessary to produce the batteries that electric cars need. It also relies on creating a relevant market for these vehicles, which explains why the Inflation Reduction Act focuses on more affordable automobiles.

That may solve the problem for the U.S., but Europe has proposed no solution to process the raw materials its several battery factories will need when they are ready. Some of these processing steps are energy-intensive, making it an even bigger issue for a continent that used to rely massively on Russian gas. Despite that, European countries keep ruling out combustion-engined vehicle sales and shutting down nuclear plants – the only ones apart from hydropower plants with constant energy production and the potential to be carbon-neutral. Solar and wind power plants need sun light and wind to work.

In a connected world, it is a fantasy to believe a given country or continent will be able to manufacture everything it needs. However, it is possible to choose where you will buy these things and who will sell them to you. You may need natural gas, but you’d better buy it from Norway, Algeria, or countries that do not intend to invade others. You may also need raw materials for batteries, but buying them from the government that suffocated Hong Kong, wants to do the same with Taiwan, and holds the Uyghurs in concentration camps in Xinjiang does not feel wise.

Suppose China decides not to sell raw materials abroad anymore. What will carmakers do? Where will they get the cells they need worldwide? What about the brands committing to selling 100% of electric cars by 2030 or even earlier? Remember how many people carmakers employ worldwide (directly and indirectly). Now calculate how much power a country concentrating raw materials for cell production has in a world that only buys battery electric cars.

That does not mean that we should stick with combustion engines. Fossil fuels have a limited reserve, combustion engines turn most chemical energy into heat and fumes, and electric motors are unbeatable in energy efficiency and emission-free when operating. Transport will be electric, and that is unavoidable. What is still up to debate is the pace to get there, the means to achieve this goal (batteries, fuel cells, or a mix of both), and which partners will help us get there. Ruling out dictatorships is a no-brainer: we do not have to repeat Germany’s mistake with energy when it comes to electric cars, do we?


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Editor's note: The gallery presents images of electric cars from China for illustration purposes.

 
 
 
 
 

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