A recent report from Japanese publication Nikkei has revealed that 4 out of every 10 batteries in Tesla Inc. (NASDAQ: TSLA) electric vehicles are sourced from China. The report brings attention to China’s stranglehold over the electric vehicle battery metals segment and America’s reliance on the eastern Asian nation for critical mineral supplies.
Arguably the largest electric vehicle maker on the globe, Tesla pioneered the modern electric vehicle and encouraged both new and established automakers to begin developing alternate energy cars such as battery electric cars. The key component in each EV is the massive rechargeable battery pack, usually installed along the bottom of the vehicle, that powers the car and supplies all of its energy needs.
These lithium-ion battery packs use metals such as lithium, cobalt and nickel, whose supply is significantly reliant on either Chinese mining or processing. Nikkei leveraged machine-learning algorithms to analyze Tesla’s global complex supply chain network and found that the American EV maker has more than 13,000 suppliers globally. The publication estimates that at least 39% of Tesla’s battery materials come from China.
With China dominating key segments in the mining industry, including accounting for 36% of worldwide global reserves and handling 60% of global lithium refining, it’s not surprising that Tesla has some Chinese companies in its supply web. The Nikkei report also stated that China holds the largest amount of companies that specialize in “inorganic chemistry” in the world, further extending its monopoly in specialized segments such as nonferrous metal smelting.
China’s monopoly over the rare-earth metals segment grants it unprecedented leverage on the global stage and allows the country to exert its influence with the threat of cutting rare-earth metal supplies. Japan has been at the receiving end of such a supply cut, as China recently announced that it would halt exports of two rare earth metals to protect its internal supply chains.
Consequently, the United States and other nations, along with Western automakers are working to decouple their supply chains from China amid increasing tension between Beijing and Washington. Tesla, for instance, has plans to expand its battery manufacturing capabilities and has partnered with Panasonic to increase EV battery production by 10% at Gigafactory Nevada.
The Biden administration is also providing incentives for electric vehicles with as many locally made raw materials as possible to make them more affordable for consumers. This will most likely incentivize battery manufacturers to pitch tent in the U.S. market while pushing EV makers into partnerships with domestic battery makers.
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