Close-up photo of an electric vehicle charging with blurred background
π Geopolitics π Economics π Energy
Oil to lithium, the energy transition is shuffling the cards for global politics

The switch to electric cars increases our dependence on China

María Eugenia Sanin, Lecturer in economics at Université Paris Saclay and coordinator of the Sectoral Policies group at the Energy and Prosperity Chair. and Olivier Perrin, Partner in the energy, resources and industry sector at Deloitte
On September 26th, 2023 |
4 min reading time
Maria Eugenia Sanin
María Eugenia Sanin
Lecturer in economics at Université Paris Saclay and coordinator of the Sectoral Policies group at the Energy and Prosperity Chair.
Olivier Perrin
Olivier Perrin
Partner in the energy, resources and industry sector at Deloitte
Key takeaways
  • The transport sector is one of the biggest emitters of greenhouse gases, with cars accounting for 16% of French emissions.
  • The electric car industry raises major economic and geopolitical issues.
  • China's central involvement in the manufacture of batteries raises the question of economic dependence.
  • Regulations on combustion engine cars and the economic and political pitfalls of electric cars threaten the European automotive industry.

Since the advent of the indus­tri­al rev­o­lu­tion, the pro­duc­tion meth­ods and needs of our soci­eties have reached such a thresh­old that it would seem almost impos­si­ble to turn back the clock. “We often hear that the ener­gy tran­si­tion is very dif­fi­cult,” explains Maria Euge­nia Sanin, asso­ciate researcher at Ecole Poly­tech­nique (IP Paris). But the truth is that we have no choice.

Numer­ous sec­tors are there­fore in the fir­ing line for an effec­tive tran­si­tion. How­ev­er, efforts need to focus on one of the most impor­tant sec­tors in terms of green­house gas emis­sions: trans­port (cars account for 16% of French emis­sions). “Trans­port accounts for a large pro­por­tion of car­bon emis­sions,” says Olivi­er Per­rin, part­ner in the ener­gy, resources, and indus­try sec­tor at Deloitte. “That’s why we looked at the dif­fer­ent ways of decar­bon­is­ing it.”

As a result, a great deal of atten­tion is being paid to elec­tric cars. “They say that the com­ing decade is the decade of bat­ter­ies,” says the researcher. “But to pro­duce these bat­ter­ies, we need graphite, cobalt and, to a large extent, lithi­um.” If you con­sid­er the entire man­u­fac­tur­ing process for these cars, and the raw mate­ri­als required, the ben­e­fits no longer seem so obvi­ous. From the extrac­tion of raw mate­ri­als to the final assem­bly of the vehi­cle, the move to elec­tric vehi­cles rais­es sev­er­al issues, both eco­nom­ic and geopo­lit­i­cal, not to men­tion ecological. 

From resource extraction to electric cars

“From an eco­nom­ic point of view, there are three mar­kets for raw mate­ri­als,” explains Maria Euge­nia Sanin. “First there’s the upstream mar­ket, then the down­stream mar­ket and, in between, the mid­stream mar­ket.” The upstream mar­ket includes the resource extrac­tion stage. The mid­stream mar­ket cor­re­sponds to the pro­cess­ing stage, such as refin­ing, of these resources. Once processed, they can be used in the design of var­i­ous objects, such as the assem­bly of bat­ter­ies – this is the down­stream market.

The car­bon impact of an elec­tric car is not just that of its use. The whole process, and each of the stages that make it up, emit green­house gas­es to a greater or less­er degree. What’s more, the out­come of this type of lin­ear process depends on the stages pre­ced­ing it: if the upstream mar­ket is obstruct­ed, the down­stream mar­ket can­not take place. “There is a major geopo­lit­i­cal issue here,” she insists, “because Chi­na dom­i­nates the upper parts of this mar­ket [the upstream and mid­stream mar­kets], par­tic­u­lar­ly for lithi­um, which is essen­tial for bat­tery man­u­fac­ture. So, the devel­op­ment of oth­er large-scale mar­kets depends on mate­ri­als that are cur­rent­ly dom­i­nat­ed by a sin­gle region.”

A domination of “made in China”

There are 4 stages in the man­u­fac­ture of bat­ter­ies for elec­tric cars: the first is the extrac­tion of the var­i­ous raw mate­ri­als. The sec­ond is the pro­cess­ing (refin­ing) of these mate­ri­als. Next comes the cre­ation of the anodes and cath­odes. The fourth and final stage is the final assem­bly of the bat­ter­ies. “When we analyse the mar­ket and take all the stages into account, we realise that we are depen­dent on Chi­na,” insists Olivi­er Per­rin. “As far as ores are con­cerned, the glob­al break­down is accept­able, because we have 10 to 15 coun­tries involved. But when it comes to pro­cess­ing, there’s no doubt that Chi­na is a very strong leader. As far as anodes and cath­odes are con­cerned, Chi­na has more than 50% of the world mar­ket. When it comes to the final assem­bly of a bat­tery, Chi­na has 70%.”

This geopo­lit­i­cal chal­lenge is cou­pled with an eco­log­i­cal one, as Chi­na’s ener­gy is high­ly car­bon-inten­sive (over 50% comes from coal). Its indus­try, and there­fore the elec­tric car indus­try, emits a lot. “The car­bon foot­print from man­u­fac­ture to use of an elec­tric vehi­cle is quite sig­nif­i­cant,” he adds, “and the ben­e­fits com­pared with inter­nal com­bus­tion cars are not so obvi­ous. For this to be the case, the vehi­cle would have to be used quite extensively*.”

The tortoise and the hare

Accord­ing to Maria Euge­nia Sanin, “Europe has not invest­ed suf­fi­cient­ly in the upper end of the mar­ket”, i.e. upstream and mid­stream. As a result, the sup­ply of raw mate­ri­als will not be able to keep pace with Euro­pean demand. “To give an exam­ple,” she adds, “demand for lithi­um is pro­ject­ed to expand by more than 20% a year between now and 2040, while sup­ply will not be able to expand to that lev­el with­in 5 years.”

On the oth­er hand, the Euro­pean Union has recent­ly made an effort to bet­ter equip itself for the down­stream mar­ket. Projects for gigafac­to­ries – giant fac­to­ries ded­i­cat­ed to mak­ing bat­ter­ies and motors – have been launched in Europe. “Two have already opened, one in Ger­many and the oth­er in France. These are still assem­bly plants,” insists Olivi­er Per­rin. These plants will have to buy the com­po­nents to assem­ble the batteries.

To break away from our depen­dence on Chi­na, the Deloitte con­sul­tant is pin­ning his hopes on recy­cling. “Work on the sec­ond life [recy­cling] of bat­ter­ies is very impor­tant,” he says. “Europe absolute­ly must be a major play­er in this field.” Becom­ing such a play­er would enable the Old Con­ti­nent to break away from the Chi­nese mar­ket. Espe­cial­ly giv­en the tar­get set for 2035 – name­ly that Europe will no longer pro­duce com­bus­tion engine vehi­cles in its fac­to­ries – Olivi­er Per­rin main­tains: “We risk see­ing the end of the Euro­pean auto­mo­tive industry.”

The con­sul­tant believes that Europe still has a chance, pro­vid­ed that each of its mem­ber states acts hand in hand. “The Euro­pean car indus­try, if it is capa­ble of join­ing forces, can total­ly com­bat the Chi­nese, Amer­i­can and Japan­ese indus­tries, » he asserts. If every­one goes it alone, I don’t think we stand much of a chance.”

Pablo Andres

*After pub­li­ca­tion, a fac­tu­al error was cor­rect­ed in this arti­cle on 1st Octo­ber 2023. The orig­i­nal ver­sion stat­ed that “to have an obvi­ous­ly low­er car­bon foot­print than a com­bus­tion car, a vehi­cle would have to be used 20,000 km/year.” As this fig­ure was incor­rect, it has been deleted.

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