The transition to electric vehicles is happening faster than expected. Legacy auto companies are struggling to compete with Chinese manufacturers who dominate the EV market. The latest move by China’s government, banning the export of high-quality graphite, critical input for EV batteries, puts pressure on US companies Tesla and Rivian.
China now restricts the export of 80% of the world’s graphite, a crucial component in EV batteries. This move is also seen as retaliation against President-elect Trump’s threat to impose an additional 10% tariff on Chinese goods. The ban affects all US auto manufacturers, making it difficult for them to access critical materials.
According to Professor Michael Lenox of Darden School of Business, industries typically follow a technology S-curve, where performance and cost issues limit adoption at the beginning. As technology improves, the new technology replaces the incumbent one rapidly. Electric vehicles have benefited from a significant decrease in lithium-ion battery prices over the last decade, making them more viable.
The total cost of ownership for EVs is now lower than that of internal combustion engines due to lower fuel/electricity costs, maintenance, and taxes. The number of new electric vehicles sold worldwide has experienced exponential growth based on “merit.” However, not all types of electric vehicles will succeed in the market.
Legacy auto companies like GM and Ford are struggling with plug-in hybrid technology, which is being quickly replaced by battery-powered electric vehicles as range improves. The pure-play EV is simpler to assemble, requiring less labor and automation.
The US may be at a disadvantage in retaining leadership in the EV industry due to China’s dominance in the lithium battery supply chain. Chinese companies control 60-85% of the market for critical components like cathodes, anodes, and separators.
Tesla is well-positioned for long-term leadership in the EV market, with its Model Y being the top-selling vehicle worldwide. However, Chinese manufacturers like BYD are gaining traction, with their Seagull model competing at the highest luxury level. BYD’s dominance in the market is due to its low pricing strategy and ability to improve quality over time.
As tensions between the US and China escalate, the US EV industry may face significant challenges in retaining its leadership position.
Source: https://www.forbes.com/sites/stevebanker/2024/12/10/rare-earth-ban-fuels-doubt-about-the-viability-of-the-us-auto-industry