Asia EV and green sectors need to navigate around US-China rare earth row by focusing on technology
A US-China trade fight over electric vehicle (EV) battery technology is threatening Asia's nascent clean energy industries even as the United Nations pledges to triple renewable energy output globally by 2030 as outlined in its recent Cop28 climate conference.
China said last week it will curb the export of technologies including the processing of rare earths and magnets, which are key to the manufacture of green products such as EVs and wind turbines. Beijing's move comes as the White House is reportedly weighing imposing higher tariffs on EVs to curb China's dominance in the EV sector - China is the world's largest EV manufacturer as well as the sales market for the vehicles.
The trade row between the world's two largest economies spells bad news for Asia's fledgling clean energy industries.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
While the new rules imposed by China - the world's most dominant rare earth supplier - will not affect shipments, the restrictions could create hurdles for other countries by adding to the costs of developing technology to grow their green industries.
If the US were to impose EV-related tariff hikes against China and in turn worsen their trade row, Asian firms would be adversely affected as many of them are dependent on Chinese technology and parts for EVs, and this could also lead to a reduction in sales in the crucial American market.
Many Asian EV firms and related industries need to ramp up production and sales over the coming years for green technology to become commercially viable. Lack of access to key materials and markets could spell doom to their ambitions.
EV battery technologies are important not just to steer the world away from fossil fuel-driven cars. They also have an impact on the development of renewable industries such as solar and wind, and efficient electricity transmission.
"The pledge from 120 nations at the start of Cop28 to triple the output of global renewable energy by 2030 thrusts the humble [EV] battery and related grid infrastructure into the spotlight - ready or not," says Chris Cote, vice-president for sector and thematic research at MSCI ESG & Climate Research. "Our research shows that for every dollar spent expanding wind and solar, 80 cents of additional investment is needed for supporting technologies."
Cumulatively, this would mean investments of US$1 trillion for the manufacturing of batteries used in EVs and renewables like wind and solar alone by 2030, more than four times that of developing transmission and distribution infrastructure, Cote said.
While the projection seems ambitious, the bright prospects of China's EV market appear to support the global transition towards clean energy.
Half of China's new passenger vehicle sales will be electric by 2026, according to a Bloomberg report. Globally, this proportion will rise to 16 per cent by next year from 10 per cent in 2022, Moody's data shows. China's EV sales will also displace around 300,000 barrels of oil in 2024, according to ANZ's data.
For now, Asian countries with ambitions to grow their EV and green industries will have to find ways to navigate around the supply challenges arising from the US-China row.
One way is for them to maintain cordial trade ties with both economic giants to minimise supply disruptions. But as the pandemic had shown, when global supply chains were upended due to China's strict Covid-19 restrictions, Asian economies should look to build self-reliant green industries including for EVs.
For instance, Indonesia has been encouraging international companies to develop its huge nickel reserves for the manufacturing of EVs, while India has announced EV production-linked incentives.
These economies face numerous challenges in developing their EV and green industries. It will require an array of measures such as manufacturing incentives, tax rebates and supportive policies.
Developing technology in the different industries is another area. For instance, the supply of lithium-ion batteries - the mainstay for EVs - is not expected to meet surging demand in the next few years. Some EV companies are already looking beyond lithium and exploring using more abundant minerals like sodium to manufacture batteries.
Innovation is and will remain the name of the game. Those who fail to focus on technology will continue to be vulnerable to trade politics and whims of major suppliers for many years to come.
This article originally appeared on the South China Morning Post (SCMP).
Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.
