Lithium

The Global Race for Battery Dominance and the New Energy Revolution

Bednarski, Lukasz, Bednarski, Lukasz

• Publisher: Hurst Publishers
• Year: 2021
• Print ISBN: 9781787385634
• eBook ISBN: 9781787386730
• Topic: Politics & International Relations
• Subtopic: Environment & Energy Policy
• Index: Politics & International Relations

A global energy revolution is unfolding before our eyes: ever-growing numbers of electric vehicles on our roads, laptops that last all day on a single charge and solar panels on our roofs, all reliant on lithium-ion batteries. This revolution is happening at breath-taking speed, with the potential to completely transform key industries and the way we live.

For the first time in history, we can now actually store this green energy we talk so much about. Often referred to as ‘the new oil’, lithium allows large amounts of energy to be squeezed into a very small space. Demand is soaring, and the lithium business is full of drama: bitter rivalries, shady deals and exceptionally talented visionaries such as Elon Musk, who is building lithium battery giga-factories across the world.

This book travels from the salt lakes of the Tibetan plateau, where Chinese government–linked companies extract lithium, to Argentina, Chile and Bolivia, which hold the world’s biggest resources of the mineral. It reveals superpowers’ struggle to secure strategic supplies, and the astonishing efforts of lone-wolf inventors and entrepreneurs. Lithium also explores the environmental impact of lithium extraction, the limits to battery electrification, and lithium battery recycling as the way forward.

1

CHINA

A TREND MAKER

China was once a source of innovation: it created paper, gunpowder, the printing press and the compass. When Xi Jinping took power in 2012, he gave a famous speech in Beijing’s National Museum of China, outlining the goal of national rejuvenation for China.¹ A key part of this rejuvenation was reverting back to the idea of Chinese people as original thinkers.

China needs innovation to make a qualitative leap and change the structure of its economy. The aim is to transition from being the world’s factory to becoming the world’s high-tech powerhouse. China’s observers who listen to long, ideology-pervaded Communist Party leadership speeches have a habit of counting the words and phrases that are repeated the most, to interpret the message. ‘Innovation’ happens to be a word that was bounced around by CCP members particularly often in the last years. Another word that statistically ranks high is ‘environment’ (‘shengtai’), used in reference to pollution problems.²

The battery is an innovation that helps to solve environmental problems by storing electricity produced from renewable sources and deploying it wherever it is needed. It is also a key element in three out of ten strategic industries that China pushes to develop under the Made in China 2025 plan, which only equals in importance the more publicized Belt and Road Initiative. These three strategic industries are green energy (including green vehicles), power equipment and new materials.³ Two of the three are self-explanatory, while new materials may require some additional clarification. The modern lithium-ion battery would not be possible without a new generation of chemicals. Cathode and anode materials constitute the heart and soul of the battery, guaranteeing the level of performance that was beyond reach of EV manufacturers only a decade ago. The Chevrolet Volt, a brainchild of General Motors, was supposed to start the EV revolution in the US as early as 2011.⁴ If the Volt had been successful, this book would not start with China. Mass sales of the Volt would have spurred the development of battery materials in the US. The lithium mines that were supposed to be developed by 2020 in Nevada, North and South Carolina, South Dakota and California would already be there, running at capacity and spitting out the new oil. It wouldn’t be only Californians’ privilege to enjoy a dense network of chargers.

But what the Volt lacked was an advanced battery chemistry, the cathode and anode material that would allow it to travel more than 40 miles (64km) on a single charge.⁵ According to the AAA Foundation for Traffic Safety, Americans drive on average 31.5 miles a day.⁶ The 40 miles limit for the Volt triggered a range anxiety that still lingers in the psyche of US consumers, even if current driving ranges of up to 500km (300 miles) seem to be sufficient for EV mass adoption.

In China, the electric revolution took place gradually, rooted not in widespread adoption of EVs but in the increasing popularity of electric bikes.⁷ Katie Melua’s inspiration for the song ‘Nine Million Bicycles in Beijing’, which became a hit throughout the world in 2015, came from her visit to the city.⁸ For a long time, visits to China, much like visits to Vietnam nowadays, left an impression of cities humming with bikes, the affordability of which made them more popular than cars.

The beginnings of the electric bike industry can be traced back to the 1960s, when it was supported by Mao. Surprisingly, it found its niche among other segments of the centrally planned economy, which was otherwise focused on heavy industries such as coal, cement, fertilizer and steel production.

Nevertheless, electric bikes in the 60s were not very successful. The end of the 70s and the beginning of the 80s was a time when the imbalance between the level of development of the light and the heavy industries in China started to be acutely felt. Beijing was often flooded with acid rain, thanks to the concentration of cement and steel production in its vicinity, while within the city itself, there wasn’t as much as a pencil factory.

For the first time, the party allowed enterprises to address market needs outside of centralized plans. In this ambience of opening, dreams of Chinese-produced electric bikes were revived, but fell flat after some initial engineering efforts due to lack of components. The project also received a lukewarm reception from the government.

Early electric bikes were not powered by lithium-ion batteries, as these were only brought on the market in the 90s, by Sony and Asahi Kasei, a chemical company. Instead, they ran on lead acid batteries, the same that help to ignite engines of conventionally powered cars. But the idea of a battery-powered means of transportation was planted in the Chinese engineering community, and was clearly supported by underlying strong consumer interest. It waited for more economic freedom and better battery technology to bloom. The leap in performance from lead acid to lithium-ion batteries was gigantic. The range of 32km (20 miles) could be achieved on a battery that was six times smaller. The growth in sales volume reflected the technological improvement, with sales skyrocketing from 56,000 units in 1998 to over 21 million in 2008.⁹ The demand generated for lithium-ion batteries through successful bike sales created revenue streams for companies, which amassed capital to later turn into EV and battery powerhouses.

The car market has also been growing explosively in China, ever since the mid-80s. Even if China’s GDP per capita in 1985 was a meagre $294, car imports have been booming, especially those from Japan.¹⁰ Much like other communist countries, China, despite the poverty of most of its citizens, still possessed a wealthy elite mostly connected to the Party. After China spent $3 billion on cars in 1985, its leaders started to worry about a deficit induced by car imports.¹¹ They introduced a set of measures, starting from stricter currency controls to make it more difficult to buy cars in yens or dollars, and ending with a decree almost completely prohibiting car imports for a period of two years.¹²

While deploying defensive measures, they counter-attacked to benefit China’s own automotive industry. But since the technology was not there to even build decent electric bikes, they started a process that continues to this day in some segments of high-tech, where Chinese capabilities are not yet on par with the rest of the world. Foreign automakers, seeing the success of Japanese in China, were salivating at the thought of accessing a market of 1 billion people. Heavy import restrictions checked this dream. But there was a way out: if you wanted to sell cars in China, you had to produce them there, in joint venture with Chinese partners. Companies such as Volkswagen, Citroen, Peugeot and DaimlerChrysler went for the opportunity. This type of joint venture started the know-how transfer to China, even if Western automakers protected themselves as much as they could to keep Chinese partners in the dark, for instance through assuming a strategy of importing ready-made parts kits which required only a simple assembly on site.

The strategy, however imperfect, worked. It has since been successfully repeated many times over, for instance in the solar and wind energy generation industries. But the automotive industry has been a pioneer in this scheme. China still tries to apply it now, with semiconductors or with AI, but the world has become more cautious of the trade-offs involved. The US started to refer to this practice during the Trump administration as stealing trade secrets, and it became one of the leading causes for a trade war. China continues to see it as a transparent and fair arrangement: it is the price of accessing China’s enormous market, with its growing demand. But the recipe for China’s success in spurring their own industries does not end with sharing arrangements. The other part of the equation is state aid. Once the technology transfer is complete, China starts its systematic financial support to the whole industry, support from which even China-based foreign firms tend to be excluded. Considering how deep Chinese state coffers are, the strategy allows China, in time, not only to drive out foreign competition from the domestic market, but also to corner them on the global stage. This is precisely what happened with solar panels. At some point, China started to require that its big municipal solar projects only use solar panels that are at least 80 per cent made in China.¹³ Foreign companies moved to produce in China, establishing joint ventures and sharing the technology. Then China started to heavily subsidize its own solar companies, including production for exports. Now, eight out of the world’s ten largest solar panel manufacturers are Chinese, and China holds over 60 per cent¹⁴ of the global market share.¹⁵

Most of the automotive companies that achieved early success in China were not privately held. Chang’an Automobile Group, now belonging to so-called ‘Big Four’ domestic automakers, is a spin-off from a defence company¹⁶ with long traditions, having supplied arms during the Sino-Japanese War in 1937. Chang’an continues to operate as a wholly owned subsidiary of China Weaponry Equipment. After achieving success with conventionally powered cars, it pledged to completely phase out their sales in 2025, and to turn 100 per cent electric.¹⁷ State-owned arms companies selling eco-friendly EVs might baffle Western Sustainable Funds managers, but this does not raise any eyebrows in China. Another important player on the Chinese automobile market, Jiangxi Changhe Automobile was until 2010 a subsidiary of Aviation Industry Corporation of China, maker of military aircraft.¹⁸ Changhe learned to make cars through a joint venture with Suzuki. Even now, if you look at Changhe’s newest models, some see ‘Suzuki’ influences. Changhe is also turning electric, but with less zest than Chang’an, as it is still hoping to conquer frontier markets such as Myanmar, Laos and Nicaragua with its gasoil and diesel-powered offering. Another large automaker, Hafei, also started out as a subsidiary of the same military aircraft company, so there is a pattern here.¹⁹

The rest of China’s automakers that accomplished an early success were or still are state-owned enterprises, with the notable exceptions of Geely (which started as a fridge maker)²⁰ and Great Wall Motors. Chery, with close to half a million sales in 2019, was co-founded by a group of apparatchiks from Anhui province in the late 90s. Until 2003, it had in fact been operating illegally, as it did not have the required license to produce passenger cars.²¹ The Wall Street Journal in 2007 described its organizational culture as ‘an odd hybrid of Communist state enterprise and entrepreneurial start-up’.²² Chery has received a lot of criticism for allegedly copying elements from other auto-making brands. GM-Daewoo even took Chery to court, which resulted in a high-profile case where the vice-director of China’s State Intellectual Property Office publicly defended the company.²³

It is not surprising that in a country where opportunities to get investors had been strictly limited in the past (as there were no venture capital funds in China in the 80s or early 90s), capital intensive projects, such as building cars, were likely to happen only in strict cooperation with the government. The defence sector has been a driver of innovation in the United States and pretty much everywhere else, and building cars at that time in China was in fact innovative.

The development path of the Chinese automotive industry is typical for capitalism with Chinese characteristics. First, the party sees a strategic need to develop a sector of industry to address macroeconomic imbalances. If knowledge transfer is needed, a mix of coercive and incentivizing legislation is drafted to help execute it. Once the know-how is there, subsidies kick-in. But since so many of the key market players are state owned or affiliated with the party either through politically involved executives or through financing dependent on the state, the decision to involve the company in a state-promoted industry is not simply based on economic calculation.

Anywhere else in the world, large corporations evaluate new projects based on opportunity costs and benefits as well as on internal rates of return. But the ‘Chinese dream’, unlike the American dream, is, as Xi Jinping pointed out, collective, and the executives of state-owned companies need to factor this into their investment decisions. It allows China to move fast and change the structure of its economy according to the government’s vision. Naturally, such a top-down approach to economic development also results in excess capacities, market bubbles and sometimes products of questionable quality. China’s EV, battery and lithium industries have also not managed to avoid these types of problems.

The government, seeing the success of electric bikes on the market, was even more eager to bet on the development of the EV industry early on. There were a number of good reasons to do that. Besides reducing pollution in the cities, the development of the EV industry in China had the potential to spin-off a whole new segment of the economy in which China could get a competitive advantage on a global scale. This would start with mining and chemical processing, but also involve pushing new technologies forward, such as lithium-ion batteries or autonomous driving. The development of a new energy industry can be traced back to the 863 programme. On 3 March 1986—86/3 in Chinese notation—a group of four Chinese physicists sent a letter to Deng Xiaoping. The four were Wang Daheng, Wang Ganchang, Yang Jiachi, and Chen Fangyun,²⁴ who had made their names in dual (civilian plus military) use research, including nuclear and satellite applications. Deng Xiaoping was China’s true statesman, who is often referred to as the architect of modern China. He is perhaps best known for China’s Special Economic Zones experiment, in which he introduced a market economy and foreign investments in specially designated coastal areas—thus in effect sandboxing a capitalist experiment in China. Its success, which included cities such as Shenzhen, paved the way for countrywide economic reforms.

Within the letter, the scientists outlined a ‘State High-Tech Development Plan’ to stimulate the development of advanced technologies in several focus areas in order to make China independent from economic reliance on foreign powers. Deng Xiaoping was so enthusiastic about the plan that he made a decision to endorse it within two days. He wrote to his party colleagues: ‘Quick decision should be made on this matter without any delay’.²⁵ History books often state that the plan had been inspired by Ronald Regan’s Strategic Defense Initiative proposed in 1983, later dubbed the ‘Star Wars’ plan. But this is a very Western-centric view, as any direct comparison between 863 and Star Wars seems far-fetched. Star Wars was about the development of an anti-missile system to protect the US from a nuclear attack, especially from the Soviet Union. It gave stimuli and funds for development of many cutting-edge and often fantastical technologies, such as laser beam weapons. But despite its conducive effect on the high-tech industry in the US, it had one well-defined goal and a specific military application.

This is very unlike the 863 plan, which starts by acknowledging that China is a developing nation and thus cannot allow itself to disperse its scientific focus. It further declares that there are only a number of focal areas where China should spend the funds and develop talent to close the gap with the outside world. 863 goes on to state that China stands a chance to position itself as a leader in entirely new areas of technology, where competition is not yet so strong, if it enters them soon enough. Among seven initial areas, two are directly related to battery production—new materials and energy.²⁶ The 863 plan was scheduled to run in nine five-year periods, for a total duration of forty-five years. It ended in 2016—earlier than intended—while being replaced with a number of other initiatives. The 863 plan concentrated on advancing basic research, with potential for commercia...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Contents
• Introduction
• 1. China: A Trend Maker
• 2. Struggle for Global Dominance
• 3. Lithium Triangle
• 4. Saudi Arabia of Lithium
• 5. Are We Really Making the World a Better Place?
• 6. Urban Mining
• 7. Bright Green Future
• Acknowledgements
• Notes
• Index