Chinese firms build EV battery material supply chain overseas

On 1 December, China began an export licensing system for graphite, a battery material equipped for pure electric vehicles (EVs). On the other hand, since 2023, Chinese companies have indicated that they have invested RMB 100 billion in overseas production of battery materials. It has also been argued that China may only give a green light to Chinese companies overseas in terms of exports. This is to counteract the US-led encirclement network against China in the high-tech sector.

China’s export licensing system, which targets graphite, is based on measures introduced such as the Export Control Law of the People’s Republic of China, which strengthens the management of exports of strategic goods and other goods. Chinese companies will not be able to export graphite without being examined and licensed by the relevant authorities.

China’s Ministry of Commerce spokeswoman Shu Juting said on 30 November that no applications had been received yet. Although it depends on future applications, as long as no company ever applies, China will not issue an export licence and graphite exports will be reduced to zero.

Graphite is used as the negative electrode material for on-board batteries, an indispensable material for pure electric vehicles. According to the U.S. Geological Survey (USGS), China accounts for 65% of the world’s graphite production. Chinese companies are believed to hold more than 80% of the share of anode materials for on-board batteries.

In August this year, China introduced an export licensing system for semiconductor materials such as gallium, and since November it has tightened controls by requiring rare earth exporters to declare the types of rare earths they use and the destinations to which they export them. These developments are taking place against the backdrop of China’s goal of becoming an EV powerhouse, as it seeks to establish a global EV supply chain centred on its own companies, both within China and abroad.

Vigorous Efforts to Build Supply Chains

In order to achieve this goal, Chinese companies have started to build overseas factories in the field of battery materials such as anode materials. Ningbo Shanshan Corporation, a well-known EV material company, announced in September that it would build an anode material factory in Finland. The investment amount is up to 1.28 billion euros. It aims to put into mass production two years later.

Zheng Ju, chairman of the company, said at an international conference on 29 November that new energy vehicles are a national strategy that China has taken the lead in establishing in order to achieve an automotive powerhouse. With strong support from national policies and sustained efforts from upstream and downstream enterprises in the industry, China has established a relatively structurally complete and synergistically developed industrial chain system to promote and lead the global energy transformation.

China’s large-scale negative electrode material enterprise Shanghai PuTaiLai New Energy Technology Co. also announced in May that it would build a factory in Sweden. The investment amount reached up to 15.7 billion Swedish kronor. According to Chinese media reports, in the field of battery materials, a total of 17 Chinese companies have indicated the construction of factories in 22 places overseas so far this year, with a combined investment of more than 100 billion yuan.

The German plant of Ningde Times New Energy Technology (CATL), which is already among the world’s No. 1 in the field of on-board batteries, went into operation in December 2022. The global share of Chinese companies in this field reaches about 60%. According to Chinese media, large Chinese battery companies have either launched factories or are building and planning factories in about 30 locations.

Chinese Premier Li Qiang visited the first “China International Supply Chain Promotion Expo” on 28 November. At the opening ceremony, Li Qiang expressed his clear opposition to protectionism and various forms of ‘decoupling and breaking the chain’, and expressed his opposition to the decoupling of international supply chains. At the same time, he said that “China will integrate more deeply into the global industrial chain supply chain system and actively participate in international cooperation in the field of green development”. According to the source, Li Qiang affirmed the integration of Chinese enterprises into the world and the construction of supply chains on their own.

Japanese companies speed up securing sourcing locations outside China

Regarding the implementation of an export licensing system for graphite, China’s position is that it does not target any specific country or region (Ministry of Commerce of China). However, people in foreign governments have expressed concern that “foreign companies may be excluded from exporting raw materials, etc., and Chinese companies’ overseas factories may be prioritised”.

In fact, China’s exports of graphite for negative electrode materials to Sweden, where emerging battery maker Northvolt is headquartered, have been halted for about three years until the end of 2022. This has reportedly affected the company’s sourcing of negative electrode materials. In contrast, Chinese companies involved in battery production in Europe are sourcing normally.

The Chinese government has promoted its own companies to enter Sweden to build negative electrode material factories, and the local government has approved the construction. “Chinese companies are promoting the construction of the supply chain, and the dependence of European companies on Chinese companies has been strengthened,” the source pointed out.

A Japanese company executive said, “Japanese companies are accelerating efforts to secure procurement sites (for graphite) outside of China.” Panasonic Holdings is promoting joint research with a Canadian graphite company for mass production of anode materials, stepping up the issue of easing dependence on China.

Against the backdrop of the U.S. semiconductor-related sanctions against China and the friction between China and Europe over EV exports, China’s series of export controls on EV materials are also being used as a “card” for countermeasures.

The European Union (EU) has begun an investigation into whether Chinese EVs are being sold at low prices through subsidies, unfairly hindering competition, and European businesspeople have said that “export controls can be interpreted as a check on the EU investigation”.

Trade statistics from China’s General Administration of Customs show that the export performance of the varieties that became the subject of export approvals from 1 December reached $8.4 billion in 2022, doubling in the last three years. The background is the expansion of EV-based demand. If the supply suddenly stops, companies in other countries may be forced to change their strategies.