Success of EVs threatened by cobalt-crisis, and China

Children in a mine in Katanga, picture courtesy France24.com

The drive to electric driving could be driven off a cliff by two unsettling trends: An impending shortage of rare minerals needed to make the batteries, and a more than obvious attempt by the Chinese government to rig, and eventually corner the nascent EV market.

A week ago, Financial Times reported that Volkswagen failed to secure a five-year supply of cobalt needed for electrical vehicle batteries. Traders said the deal was for 80,000 to 130,000 tonnes of cobalt. World production “is just over 100,000 tonnes a year,” the FT said. Volkswagen wanted a price below the current market, and it was blown off by miners.

“They completely misjudged the contents of the tender. There’s no point negotiating — it’s not even a discussion point,” a trader was quoted by the FT.

In the span of one year, forward contracts for the strategically important cobalt mineral more than doubled in price, from around $28,000 a ton in October 2016 to $60,500 on Friday last week, Infomine.com says.

The push for electric vehicles was driven by a fear that our dwindling oil supply is dependent on politically instable regions.  The situation looks even worse for batteries.

More than 60% of the world’s cobalt comes from highly volatile Congo, and most of it is shipped straight to China. The big producers are the Anglos-Swiss commodity house Glencore, and China Molybdenum, “along with thousands of artisinal miners who mine the metal and send it to China,” writes Infomine, adding that “Amnesty International has said the process involves child labour.”

Volkswagen did not get its cobalt, but Chinese battery makers do. In July, Glencore “signed a major deal to sell up to 20,000 tonnes of cobalt products to a Chinese firm,” wrote Reuters. The firm is Chinese battery maker Contemporary Amperex Technology Co Ltd (CATL), which in turn will supply batteries to Volkswagen, said the report.

In China, the cobalt is a strategic ingredient of the country’s plan to dominate the electric vehicle space. “Batteries have emerged as a critical front in China’s campaign to be the global leader in electric vehicles,” wrote the Wall Street Journal yesterday, “but foreign auto makers and experts say it is rigging the market to favor domestic suppliers.”

The market-rigging has not been a secret.

“To qualify for subsidies by the central government, the batteries used in the electric vehicle must be from an approved manufacturer,” I wrote three months ago when I was still writing for Forbes, and I added that the approved ones “are all Chinese.” Meanwhile, the news reached the WSJ:

“Foreign batteries aren’t banned in China, but auto makers must use ones from a government-approved list to qualify for generous EV subsidies. The Ministry of Industry and Information Technology’s list includes 57 manufacturers, all of them Chinese.”

Demand for the Chinese batteries is guaranteed by government edict.

China is forcing its automakers, both foreign and domestic, to produce 10% of their annual output as EVs by 2019, and by 12% a year later. What seems like a push to clear China’s notoriously polluted skies, in actuality it is an attempt “to help its domestic industry leapfrog foreign rivals by creating a large captive market for their products,” writes the Journal. ”EV production is one of 10 high-tech industries which Beijing is prioritizing through its flagship Made in China 2025 strategy.”

Picture courtesy NASDAQ

Most of the 123,000 tons of cobalt produced per year is used in batteries to power our smartphones, and tablets, and “the production of batteries for EVs already tests the boundaries of capacities,” wrote the financial wire Deutsche Wirtschaftsnachrichten today in Germany. Cobalt isn’t the only raw material getting rare, write the wire. According to DWN,

  • Prices for lithium carbonate “explode.”
  • Prices for copper are in an uptrend, up 50% in last year.