Then Russian Raw Materials, Now Chinese Metals
All cars electric makes the diver a dull boy. The story of yet another European suicide.
Translation of this article published on August, 7, 2023.
The European Union's Court of Auditors issued a wake-up call at the start of summer, warning against the unrealistic goal of achieving 100% electric vehicles by 2035. The UE passed regulation to phase out internal combustion engines, only later acknowledging warnings from experts.
The shift to an all-electric vehicle is off to a rocky start, to say the least. Was this shift poorly planned? At the crossroad of politics, economics, and geopolitics, the reliance on electric batteries could potentially disrupt the whole EU economy.
Annemie Turtelboom, the audit team leader at the EU Court of Auditors, cautioned:
"Batteries must not become Europe's new natural gas. We must prevent a repeat of dependency quagmires, as it impacts Europe's economic sovereignty." She added, "By setting a goal to ban new gasoline or diesel cars by 2035, the EU is heavily investing in batteries. However, it lacks control over critical aspects: access to raw materials, attractiveness to investros, and the financial burden could result in this strategy failing."
Europe faces considerable challenges right from the start. It lacks control over the raw materials crucial for battery production, and when these materials are available, they are not utilized. For instance, opening a lithium mine in Allier in France isn't a quick process; it’ll take at least a decade. Moreover, environmental lawsuits, given lithium mining's high water usage, could further delay and even deadlock these projects, undermining Europe's industrial independence, more slogan than reality.
As some have colorfully put it, "It's foolish to obsess over the top of the ladder if all the rungs below are missing."
In this scenario, the control of resources lays predominantly outside Europe. China has secured dominance over lithium, particularly in the region spanning Chile, Bolivia, and Argentina, which holds over half of the global lithium reserves. As a result, China manufactures 75% of the world's lithium-ion batteries and commands 70% of the production capacity for critical battery components like cathodes and anodes.
China's influence extends into Africa as well. For instance, with regards to cobalt, where the Democratic Republic of Congo holds half of the world's reserves, China controls 15 out of the 19 mines. Additionally, China produces 80% of global gallium and germanium, critical for manufacturing semiconductors, solar panels, and batteries. Beijing has imposed export controls on these metals as a countermeasure in its ongoing trade disputes with the United States, significantly impacting Europe as an collateral casualty.
This situation was foreseeable:
"OECD countries are becoming more vulnerable to restrictions on exporting critical raw materials," according to an April OECD report. "Export tariffs have seen an exponential rise. Countries like China, India, Argentina, Russia, and Kazakhstan have been the most active in imposing export restrictions on vital raw materials between 2009 and 2020."
Subsequently to the precedent set by sanctions imposed on Russian raw materials, we now see the very same issue emerge with Chinese metals.
The EU relies heavily on imports for these raw materials from a handful of countries without established trade deals. This includes raw lithium (87% from Australia, refined mostly in China), manganese (80% from South Africa and Gabon, also refined in China), raw cobalt (68% from the DRC), and raw natural graphite (40% from China).
Competition is fierce.
"The demand for lithium in batteries is projected to increase fivefold by 2030 and fourteenfold by 2040 compared to 2020," according to the European Commission. This is the same commission pushing for an immediate phase-out of combustion engines. Despite the EU's efforts to mitigate these issues, dependencies and supply chain bottlenecks will continue to cause signifincant risks."
This depedency on specific materials is old news. Back in 2014, a researcher from the CNRS (The French National Center for Scientific Research) highlighted the looming shortage of metals and minerals critical for building solar and wind energy systems.
Olivier Vidal explained,
"Wind turbines use permanent magnets that need between 200 and 600 kg of rare earth elements per megawatt. Consider that standard onshore wind turbines are around 2 MW, while the newer offshore ones can reach 6 MW. Additionally, in solar panels, we're moving from silicon-based to multi-layered types incorporating gallium, indium, selenium, and copper."
He also pointed out,
"There's a significant lack of research on the actual cost of these technologies, particularly in terms of extraction costs, when rare metals are factored in. We urgently need these studies. We must tackle this issue now to ensure we're not investing in the wrong technologies."
Despite this call for more research, such studies have not yet surfaced. Meanwhile, battery gigafactories are rapidly blossoming across Europe. Four such facilities are planned in Northern France, aimed not only at powering electric vehicles but also at storing energy from solar and, wind energy. The greenfield operations are once again receiving strong support from the French government and the Élysée Palace - thus tax payer’s money flows.
Is this a new Eldorado? The most recent "gigafactory" planed by the Taiwanese company ProLogium has been granted 1.5 billion euros. While the factory is physically in France, it relies on "patents, materials, and technologies from abroad that we do not master," according to the former Minister of IndustryArnaud Montebourg. In 2013, Montebourg initiated 34 industrial strategies to promote future "made in France" indsutrial products, one of which focused on battery manufacturing. This initiative was later ditched by his successor Emmanuel Macron.
The former minister warns:
"As electricity prices keep increasing, these gigafactories – 60% are already idle across Europe due to the energy crisis and the energy pricing mechanism adopted by the EU Commission – will vanish as quickly as they appeared, leaving us with subsidized empty shells, because we lack control over underlying technologies."
Between 2019 and 2021, approximately 8 billion euros public funding were allocated to the battery industry in Europe, predominantly in countries with the financial clout to invest: Germany, France, and Italy.
Driven by EU policies, France is pushing towards complete electrification, implementing low-emission zones (LEZs) that are unpopular and as socially discriminatory.
China dominates the manufacturing of batteries for electric vehicles, while Tesla, an American company, leads in electric car manufacturing, closely followed by its Chinese competitors. This dynamic echoes historical confrontations between superpowers, with Europe being sidelined.
A similar situation exists with semiconductors, crucial for both computers and increasingly for cars, where fears of shortages have spurred numerous initiatives in France and Europe. These efforts are backed by significant public moneys but lack a coherent industrial strategy, particularly one that secures national sovereignty.
In Crolles, Isère, a joint project by French-Italian STMicro and American-Emirati GlobalFoundries aims at doubling semiconductor manufacturing capacity.It’s backed by 2.9 billion euros governement subsidies. The distribution of this aid remains unclear. The European Commission and French authorities are avoiding transparency, offering no explanation for this secrecy.
This scenario could benefit GlobalFoundries, which will control a majority of the production (58%) without creating new jobs. Nadia Sahli from STMicro's CGT union notes, "We'll be the foundry of the foundry." However, the real risk is not just about control. Arnaud Montebourg warns that chips made in France could be subject to U.S. export laws if they fall under the ITAR regulations, potentially allowing the U.S. to restrict their export.
A June study by Vélite highlights France's minimal influence over STMicroelectronics, where France and Italy each hold only 13.75% of shares, while U.S. investors like BlackRock hold 10%. Leadership is also disproportionately American, with more research centers in the U.S. than in France or Italy.
This raises questions about the use of French public funds for a company headquartered in Switzerland. Vélite warns that STMicro's role in French industrial sovereignty is fragile, given these power imbalances.
When it comes to batteries or semiconductors, the overarching question remains: what is the industrial strategy? Is there a comprehensive view of the value chain, including its strengths, weaknesses, needs, and potential?
The European Court of Auditors criticizes the lack of clear, measurable targets in the EU's battery strategy, doubting whether the industry can meet the demand expected by 2030 and beyond.
Nadia Sahli questions the coherence of manufacturing strategies, pointing out that individual companies prioritize profit over national industrial interests. While celebrating new battery factories, traditional manufacturing like Renault's plant in Yvelines is being shut down due to supply chain issues, now shifting focus to refurbishing electric vehicles.
Recycling could be a strategic move for Europe, especially for key materials like lithium, cobalt, and nickel, given the constraints of protectionism within the EU's framework of “free and fair competition” as defined by the Maastricht Treaty. This perspective is echoed by Pierre Régibeau, a former advisor to the EU Competition Commissioner, who in an interview with L’Echo, suggested that if European heavy industry can't compete with cheaper imports, it might as well disappear, reflecting his U.S. educational background and the planned appointment of an American successor.