Ep 18 Volt Rush and China’s role in the EV battery supply chain with Henry Sanderson

Ep 18 Volt Rush and China's role in the EV battery supply chain with Henry Sanderson

Transcript automatically generated

Yiou: Hi everyone, I'm Yiou.

Ben: And I'm Ben. Welcome to Sustainable Energy Asia podcast. Today we are really excited to have a conversation with Henry Sanderson about his book Vote Rush Henry is executive editor of Benchmark Mineral Intelligence and author of Vote Rush, the Winners and Losers of the Race to Go Green.

Yiou: In this very well researched book, Henry presents the battery technologies, the material essential for EV batteries and the leading players in this industry. As you will see throughout the book, many Chinese companies are now playing a central role in the EV battery supply chain, and we'll focus our discussion on these players.

Ben: As always, grateful. If you can take the time to rate and comment on the show, it helps listeners to find us.

Yiou: Thanks and on with the show.

Yiou: Hi Henry. Welcome on the show. Could you introduce yourself and explain what was your motivation to write this book - Volt Rush?

Henry: Well, thank so for having me on the show. My motivation for writing the book was really to explain to readers, the supply chain behind clean energy technologies such as lithium-ion batteries and electric vehicles, and give them a sense of the scale of the challenge that, in essence the electric vehicle doesn't just arrive at your door - the solar panel, wind turbine. We need to build out these supply chains and at the root of them is the raw materials that we need to mine to meet the huge demand for clean energy technologies. So I wanted to open people's eyes about the challenges of building these supply chains and the geopolitics of it as well.

How China has a dominant position in a lot of these supply chains and how that impacts the West's efforts to meet their own climate change targets. And I think since I've written the book, this topic has become much more mainstream, which is really great to see and heartening to see that this issue is really front and center now of a lot of climate change and clean energy discussions.

Ben: Thanks so much Henry. This is excellent book and highly praised by the critics. And I really enjoy one point in the book that you were covering the personal path of some of the main leaders in these industries and the origin story of the companies they're staring.

For example, the chapter on Ponse Laru from SQM in Chile was interesting and maybe two elements I'd like to mention about your book and to structure our conversation is:

First your book is centred around the critical material for lithium-ion battery, most notably related to a NMC chemistry, for which lithium, nickel and cobalt are all the necessary materials for the battery cathode.

The second point is talking about EV battery mineral globally a large part of the book is necessarily centred around China and the role of the key Chinese players such as CATL, Ganfeng, Huayou cobalt, and Tsingshan.

So those two points will be restructuring for our conversation as we will cover some of the subjects around battery, lithium, cobalt, and nickel. We also cover these topics through the lens of the leading Chinese players in this sector. Of note in your book, you actually don't cover the LFP chemistry, which is a really interesting development, but, I think we'll need another full episode on that. So we won't cover this. With that said, I think it would be interesting if you can start by giving an overview of what role does China play in the EV battery supply chain.

Henry: Thanks so much. You know, you're right about LFP and I probably should have had more of that in the book and maybe in the next one. But China really has a dominant position throughout this supply chain. But actually, less on the mining side. But mostly in the processing of the minerals and then the production of battery materials, and then production of lithium-ion batteries. So it's all those other stages. Once the materials have been dug up, how do you actually transform the material into a final product? There are exceptions to that though in graphite and rare earths. China has both the mining and the processing and the production of the final products. So rare earth permanent magnets, China produces 90% and it also mines a lot of the rare earths and graphite as well. But things like lithium nickel cobalt, the mining's actually done outside China and China has to import these minerals. But, basically in your electric vehicle today, it's very hard to produce an EV without any involvement from China because these companies are so dominant in a lot of these stages of the supply chain.

So we see that, even, while Tesla is starting to build its own batteries and make its own process its own lithium, it's quite reliant on China and the Chinese supply chain. So China really has been extremely successful in capturing a lot of the value that goes into the electric vehicle battery

Ben: Thanks so much. Let's start speaking about battery and especially one dominating company, which is 宁德时代or CATL which is one of the biggest success stories in the energy transition. The company's leading the manufacturing of EV batteries and was founded in 2011 and now has a market cap of about USD 140 billion. Can you talk about the role play by CATL in the global battery value supply chain and share about the personal story of its founder Robin Zeng.

Henry: CATL is a giant, it's responsible for a third of all lithium-ion battery production, but it really has supply agreements with all the major automotive companies that you can think of: Tesla, a lot of German automakers and Chinese automakers. So, it's really, I'd say the sort of backbone of the electric vehicle industry and it had relatively late start to the EV battery industry. Obviously, there were other companies before, but I think what CATL has done so well is scaling up production remarkably quickly and bringing costs down and producing quality batteries reliably. And also, really developing LFP technology and also innovating in terms of how you put these batteries together, how you improve the energy density. So, it's become a massive, reliable supplier. And I think it's hard to for western companies to keep up or to produce a rival to CATL because it keeps getting bigger and bigger thanks to its scale. And I think what is interesting is it does tell the story of China quite well, the history of that company. That's why I chose them because the founder, Robin Zeng really, he didn't grow up in wealth or anything like that. He grew up in a village outside Ningde and he left the state sector to go south to Southern China to Dongguan. And he made his thought in Southern China, which was obviously opening up and attracting a lot of foreign investments, and then he helped found ATL, which made batteries for mobile phones and consumer electronics and really took some of the business away from Japan at the time and made batteries cheaper. So, he had all this experience making batteries for consumer electronics so that when he could see that the Chinese government was serious about subsidizing electric vehicles. He broke away and formed C A T L which purely focused on electric vehicles.

And it was perfect timing 'cause it really benefited from a lot of the subsidies. Beijing started to dole out and also some of the protectionist measures that they put in place where Japanese and Korean battery manufacturers were essentially banned from the market. So C a t L was in a perfect position to benefit and actually it got its start.

It's interesting that B M W helped them at the beginning. They're one of their main clients. But by 2017, C A T L had overtaken Panasonic as the world's largest lithium ion. bash juice in terms of sales, and it's just gone from strength to strength. And I think now what we see is real innovation coming outta c a t l with sodium iron with other technologies.

So I think it's interesting to see now where we go from are they almost too big or can they sort of innovate and keep maintaining their market share. But they're definitely a huge success story for China.

Ben: Exactly it's really impressive what the company has achieved and is largely dominating this market now. really important component of the lithium ion battery is of course lithium. And the lithium is produced mainly in Australia and Chile who are essentially the two leading producer globally.

The type of lithium deposit in this country are very different. So in Chile it. Lithium is essentially extracted from lithium, Bri, and Australia is extracted from a rock, which is called the spodumene. Can you explain how Lithium extracted and the processes related in these two country and why the lithium extracted from the spodumene is seven time more carbon intensive that lithium extracted from Lich and brine.

Henry: So I think if you look at lithium suppliers today Yeah. Australia's the the biggest supplier and as you say, followed by Chile. Chile really changed the market in the late nineties when it started producing lithium from brine. 'cause essentially the brine is pumped up from below the Atma desert in the salt flats, and they use the sunlight to evaporate it in different ponds until they get to a more purified lithium solution that's then further processed and purified to lithium carbonate or lithium hydroxide.

 And Australia is quite a different method. It's more the classic mining method where. Rock is dug up so-called Odine, which is lithium containing rock. And they still have to process it on site but essentially they export to China rock containing about 6% lithium which is then further processed in China by roasting and to high temperatures.

So the carbon footprint. Of that route is much higher than the lithium from brine because you are using the sunlight to evaporate the lithium in Chile. But there are other concerns about lithium in Chile, such as water because it's very arid dry region. When you visit the, at Tacoma Desert, it's extraordinarily barren, but there is lots of life there and also communities rely on the water that's there. So there are lots of concerns about if you expand lithium production there, what's that do to some of the the ecological impacts of that. So each method has its different issues. But essentially what Australia wants to do now is to to process more of the lithium in Australia into a higher value product. So that perhaps, also through innovation and other methods, there could be a way of reducing those carbon emissions. So that's the challenge for Australia. But you're right, it is not an ideal system where you're exporting spot concentrates China to be further processed. Often used in coal fired power, natural gas in China. So those emissions need to come down.

audioZHOUYiou31788430244: Yeah, that's interesting on the global lithium extraction methods. So I think now we can take a look at the giants in the lithium industry. Could you explain how Chinese firms like Ganon Lithium and 10 G Lithium are involved in the lithium supply chain and how they have built their dominance over the years?

Henry: So it's a really interesting story because if you look at lithium, you know, in fact the US used to be a huge producer decades ago and then, We had American companies such as F M C, which is now live, and going into Argentina quite early on and obviously S Q M and Chile starting production in the nineties.

But now, over the last decade, 15 years, the Chinese companies, Tian Qi lithium and Ganfeng Lithium really expanded extraordinary fast, and they were investing in new capacity much more than the Western companies at the time. So we saw some extraordinary deals such as Tienchi, lithium buying the biggest, best lithium mine on the planet, the green Bush's mine in Australia and then buying a stake in sm in Chile.

So they really expanded very fast. And Ganfeng Lithium the same a lot of assets o overseas or invested equity stakes in assets. And they have brought on their first overseas project that they've developed in Argentina. The production this year the Kahari project. So both these companies have sort of come out of nowhere to really be quite dominant suppliers Ganfeng supplies Tesla for example. And also the key thing is that they have managed to hone the skill of, processing the lithium in, China in in cost efficient manner. And it's quite hard to actually do that to, to produce high purity battery grade lithium that's actually gonna go in your electric vehicle. You don't want your EV to explode or catch fire. So you need very high purity. so they've simultaneously honed that skill in China, but also gone overseas to invest in projects.

And you see. It's still happening, you know, ANGs invested in Africa. And only recently have we seen the sort of western lithium companies invest in new projects and new supply. But it's taken too long. So these Chinese companies have had a real head start. The question now though, is with some of the hostility in the west. In Canada and elsewhere, what's their future are their best days over in terms of securing overseas resources. So that's the challenge for them. Now, Australia's probably got much more tricky for them. So Africa is a key place and south America as well.

Ben: that's interesting 'cause I think that's really a theme in your book where we can see that all these Chinese player have rebuilt their dominance 'cause they invested and went really early whether it was in the lithium, the cobalt, or the nickel space. But those company were investing heavily at the time where Western companies were not really looking at these minerals.

Let's talk about cobalt. cobot is very interesting 'cause its production is concentrated in one country and there are some issues around the extraction due to child labor. But can you start by presenting the role of the Congo d r c in the global cobalt supply chain and essentially the role play by two of the dominant player, which are Huayou Cobalt and glenco.

Henry: So cobalt's fascinating because the Democrat, Republic Congo has such dominance in the mining of Cobalt. produced as a byproduct of copper in the D R C where you have this incredibly rich belt of minerals centered around kwei uh, lui in the sort southeast of D R C.

So, they're producing over 70% of the world's cobalt. So they really have such a dominant supply. I mean, quite early on the Chinese obviously realized they had to go to the country to secure the resources to feed the Processing plants and industrial supply chain in China.

And Hu Cobalt was one of those pioneers going to the D r C relatively early and setting up plants in the country and buying a lot from artisanal mining, which is the hand mining where ordinary people just go out with sticks and shovels to mine, cobalt by hand.

So China really buys and still buys a lot of that sort of artisanal material. And a lot of that material gets sent to China to be processed. And then the other side, you have Glenco, which is a big industrial minor. Which has operations in the D R C, which look very much like other industrial mining operations, which are huge huge plants.

And they are the biggest cobalt producer in the world. But China has caught up in that side as well because there was an extraordinary deal where China Molybdenum bought the 10 K mine a few years ago from a US mining company, Freeport. McMoRan copper Producer. So China now is not only a big industrial producer in the D R C, but it also buys a lot of the artisanal supply.

 The issue with cobalt is that the amount of cobalt in the battery has come down for cost reasons and other concerns. But also Indonesia is now emerging as a bigger producer 'cause it's also produced alongside nickel in Indonesia. So, The market is actually quite well supplied at the moment, and indeed prices have gone down.

So there is somewhat of a surplus in the market at the moment. But definitely even though the amount of cobalt's gone down in the battery, the scale of battery production that we're talking cobalt demand's still gonna be pretty robust this decade for sure. So yes, China has a very dominant position in the processing side.

During my book, I not only visited the D R C I saw whether Cobalt was mine, but I also visited hu Cobalt in China and I saw the big bags of cobalt at that plant which had come from the D R C. So I saw both ends of the process.

audioZHOUYiou31788430244: We were just talking about Congo's D R C role in the cobalt supply chain. So I think despite that, there's. Some more concerning aspect, right? So a big issue with the cobalt extraction comes from artisanal mining and child labor in Congo, d r c. So can you talk about this amnesty 2016 report and maybe touch on this impact and the challenges of tracing the shorts of cobalt in the value chain.

Henry: So, amnesty was not the first, but it was a really landmark report. 'cause I. I think the situation was before electric vehicles that for consumer electronics, et cetera, no one had paid too much attention to cobalt, and it also wasn't officially a, a conflict mineral.

Because where it's mine in the D R C is not an area of of conflict. So I think there hadn't been that much focus on it, but amnesty really drew people's attention because it came just as electric vehicle sales were accelerating and EVs were coming more into mass market consciousness, thanks to Tesla, and it really showed not only the terrible situation there the deaths, the child labor, the poor working conditions, but also, the fact that many of the end using companies had no idea what was going on or hadn't traced their supply chain.

Properly and also really put a lot of attention on Huo Cobalt showing that they are one of the, my main buyers and what were they doing about this? And I think following the report we saw a lot more attention on the issue. And some car makers I think had. Slightly wrong approach of saying, well, we won't source from the D R C at all.

We don't want the risk of child labor at all. But I think others including Tesla, try to engage more, try to, to visit and try to come up with ways to you know, try to alleviate the situation. Although we still haven't seen a car maker. Come out and say they're happy to buy artisanal material.

They're happy to buy from errors that have been improved where efforts have been made to improve. So we're still. A long way from that. And in the meantime, this material is just going into the market. We don't necessarily know where all of it is going. So I think we do need to engage with the D R C.

We do need to not just run away. And there are efforts being made to make sure these people get a fair price to try and improve the working conditions. But it's a difficult situation with no easy solutions. But the perfect shouldn't be the enemy of the good.

We can't expect it to be perfect, but we're looking for improvements, I think. And I think that's what we need to see. And many of these people don't have other options. They don't have other economic opportunities, so of course they're going to go and mine for Coldwell Copper, especially when prices are high.

So uh, we need to really focus on the situation. But I think Amnesty really started it off and, since then, there's been lots of other media reports and investigations into the situation. But we need to be careful that, you know, this is a livelihood for these people.

This is a way to make a living. They don't have other opportunities often, so we don't want to not buy material from these people. So we need to see improvement. That's the way I think of it.

Ben: Definitely interesting to note in the book that essentially. While try to help improve the condition on the ground. But then there are also other companies that are buying from the intermediary. So I think it's a challenging issue for the car makers and for the miners to solve the other material that's we haven't talked yet is Nicole you have a chapter called Dirty Nicole and we'll discuss about the environment al impact of nickel. But there's one Chinese company, which is quite dominant and I've seen in lot of projects in Indonesia which is Tsingshan can you introduce Tsingshan and talk about how the company has positioned itself to benefit from Indonesian ban of export of Ro or in 2020 and how it succeeded. In dominating the NICO industry with specifically this its investment in the more w Industrial Park.

Henry: Is an extraordinary story Chinese growth founded. 1988 in, and it's really massively expanded to be the biggest nickel producer and stainless steel producer in the world. Its revenue is in, over 28 billion. So what they did is, Indonesia has the world's biggest nickel reserves and they essentially, realized, much like other Chinese companies that they needed the nickel for their business to survive.

So why not go to the source of the nickel and invest there? And that's exactly what they did with the Morro Ali Industrial. And it also aligned with Indonesia's policy goals of having more value add in the country, not just exporting raw materials. So they were there just slightly before Indonesia introduced a ban on nickel exports, which essentially meant.

If you want to get hold of their nickel, you have to come invest in the country. And that's what Shan had done and has done since. So as a result, they have ready access to ful supplies of nickel. In a sense, you know, China's offshoring some of its pollution and the environmental impacts of this industry. it fits perfectly in with what Indonesia wants. And when the EV industry came along, Tsingshan also became involved in processing nickel for electric vehicles. And it's also gone further downstream with having its own battery company energy storage company. So it's a really, a giant in this industry.

And I think Indonesia is the only place where big investment in nickel and nickel processing is happening. So there isn't gonna be electric vehicles without Indonesia this decade. And Tsingshan is in the perfect place to capitalize on that thanks to its investments.

Now, of course, there are debates about whether, Indonesia's Ban was legal and Europe bought a W T O case against Indonesia because of it. There are questions, but there's no doubt it's been successful as a policy and Shan has benefited from that.

But I think the issue now is, as I say, some of the environmental impacts of that production. Safety issues of labor working there local people and also. The use of coal fired power, right? Indonesia has a net zero target Indonesia needs to clean up and if this nickel is going to electric vehicles, it also needs to clean up.

So that's some of the questions that face this industry.

Ben: And it was. So interesting to note that. You take well in the book that in 2019 on the L m E in London, they were a lot of purchase of Nicole ahead of the band. I think on the commodity market, this is not a restriction and sen I think already had position itself to benefit from the ban at the time. I think another point that you mentioned was essentially that, Nicole and especially the production of stainless steel actually needs a lot of energy.

And that's has Environmental impact with the grid in Indonesia being reliant mainly on coal. so would be interesting if you can expand on the environmental impact of processing nickel for stainless steel in many of the processing plan in Ma Hui and how the c o two emission from these plants compare with stainless steel pro produced in other part of the world.

Henry: So basically you know, the root is slightly different for stainless steel and for batteries. For batteries most of the nickel is using H pal high pressure acid leaching process which is lower emissions than the furnaces rotary K, electric furnaces that are using to produce a nickel for stainless steel.

They're the most carbon intensive. But the problem is a lot of the power source, as I say, is coal fired power. And a lot of the plants have their own captive coal fired power plants. So that's really the issue. And the other issue is because of the demand for nickel in EVs Ching Shan and others started to take some of the nickel for stainless steel and then reprocess it for use to produce nickel sulfate for electric vehicle batteries.

And that's high emissions. So that was of a concern as well. But what is so interesting about the nickel market as you mentioned the L M E is that a few years ago, bet you know, one way they bought up a lot of nickel 'cause they could see Indonesia was gonna ban exports.

But then they got into a lot of trouble last year. When they were massively short nickels, 'cause they could see all this supply coming on in Indonesia, but actually the Russian invasion of Ukraine caused the price to spike. So they made, huge losses on that bet. So they haven't always got it right, but essentially they were right.

Just the timing was wrong. That all this investment has created a lot of nickel supply. So at the moment the market is looking quite so well supplied with all these nickel projects, but you're right, the issue is even with the H Pal how do you reduce those emissions even further.

audioZHOUYiou31788430244: So now let's talk about deep sea mining. The International Sea. Authority failed to meet this deadline to enact regulation on deep sea mining. This has generated a lot of media coverage recently on the sector. So Harry, could you explain to our listeners what is Deep Sea Mining, or more specifically, what is Dredge?

Also can you share your thoughts on whether deep sea mining is worthwhile? Exploring as a means of meeting the wall demand for transitional metals while limiting its potential impact on the environment.

Henry: So Deep sea mineral extraction is, in the spotlight at the moment. Because we're getting closer to a time where we could see it begin. This is three different Sort of roots. But what most people are followed, focused on is the polymetallic nodules on the seabed.

And these you know, according to the companies can just be literally picked up from the seabed and then processed into battery materials. And the interesting thing is they do contain all in one nodule a lot of the battery minerals manganese Cobol, nickel, et cetera.

So unlike a land-based mine, where you may just have one mineral, they contain a few in one nodule. So the issue is that the International Seabed Authority, which is a United Nations body that was set up as part of the Law of the Sea set up in 1994 to come up with rules.

To allow deep sea extraction, it's still working on these rules. And they they finished their most recent meeting last month and they've decided to extend the deadline and possibly by 2025, have final rules. but in international waters, which is what they look after know, deep sea extraction can't really go ahead till these rules are all agreed.

They're quite complicated because under the UN Law of the Sea the resources are defined as a common benefit of humankind. And also resource rich countries who mine on land shouldn't be disadvantaged. By deep sea mining. So they need to come up with a mining code that takes that into account.

And also they need to work out royalties because it is defined as a common resource of humankind. Everyone should benefit. So the I s A, the International Sea Belt Authority is set to receive royalties once mining starts. So they need to work out the mining code, the regulations, the royalties et cetera.

But they're getting closer. It looks like 20 24, 20 25, we could see real progress. And what's interesting actually is China has been by all accounts, more active in the most recent discussion in trying to push forward the regulations. And China actually has the most contracts for expiration at the moment.

And they could convert those to exploitation contracts once the rules are. Yes, it looks like it could potentially be becoming, but many people still are calling for a moratorium or for more scientific study. and even big consumer companies have called for moratorium. So whether it's gonna be accepted By everyone is another matter.

We're in a situation where we've already degraded our planet so much, right? We have a biodiversity crisis. We have the ocean's record high temperatures, so are we willing to accept the risks of a deep sea extraction? 'cause nothing is without risks, nothing's without impact when it comes to extraction.

So that's really the question. On the other hand, the companies say that well look at mining on land in Indonesia, that's the biodiverse, hotspot, et cetera. So there's still questions to be answered, but every side has a point. But I think I s a is the right venue. 'cause you've got 168 countries there. It is a international consensus. Once we get the rules approved. So let's see how it develops.

Ben: And when do you think the first operation can start? I mean, if you look at all these companies that have projects do you have in mind a specific year where they will be able to start in operation?

Henry: I 4, 20 25. They're saying they're hoping these regulations will be done. But there is a company called the Metals Company says was a thing that was triggered called the two year rule which is the original rules that were set up when an I s A was set up if the regulations are not done within two years then a company can submit an application and it has to be considered and that two year deadline has passed.

So I think the Metals company is saying they're gonna take more time to do environmental assessments, but next year they could think about submitting application and I think the I s A would have to consider it. All that is to say is the clock is ticking on these regulations and we, because see 2025 that a company starts to begin exploitation or production.

 As I say, it's very complicated discussion. So let's see.

Ben: thanks very much Ari. It was fantastic to have you on the show.

Henry: Thank you so much. I really enjoyed it. Great. Questions. I.