'Made in China 2025' forges ahead with EV dominance in sight
From batteries to motors and finished cars, China expands footprint
SHANGHAI -- As the Sino-U.S. trade war morphs into a fight for technological supremacy between the world's two biggest economies, Washington is focused on delaying -- if not outright derailing -- Beijing's "Made in China 2025" initiative.And from Macro Polo:
It is unclear whether the U.S. will succeed. But China clearly is forging ahead quietly with the 10 goals of the initiative, chief among which involves becoming an indispensable source of electric vehicle technology such as batteries and drive motors.
"Production of EVs without Chinese-made parts is no longer possible," said Hidetoshi Kadota of Nissan Motor's joint venture in China, Dongfeng Nissan. Kadota heads Dongfeng Nissan's development team for the Sylphy Zero Emission, the Japanese automaker's strategically important electric vehicle for the Chinese market.
Nissan is a pioneer in the field, having released the world's first globally mass-produced electric vehicle -- the Leaf -- in 2010, a project in which Kadota was involved.
"At that time, all parts were made in Japan," said Kadota, speaking at the Shanghai International Automobile Industry Exhibition in April.
But times have changed. For the Sylphy, Nissan uses batteries made by Chinese manufacturer Contemporary Amperex Technology Ltd., known as CATL.
Batteries account for nearly one-third of an electric vehicle's cost, and Chinese batteries dominate the market.
"No companies can compete with Chinese makers in the production scale and cost of EV batteries," said Shinichi Murakami, head of the technical center at Dongfeng Nissan.
In the Government Work Report presented to the National People's Congress in March, Chinese Premier Li Keqiang underlined the importance Beijing places on adopting clean-energy vehicles. The premier has repeatedly stressed this point.
Beijing debuted the Made in China 2025 effort in March 2015 and featured it prominently until drawing Washington's ire as part of the larger trade dispute. Li's 2019 report made no mention of the initiative, raising speculation that Beijing may not want to incite China hawks in the U.S. further....MUCH MORE
Prologue
Throughout much of the 20th century, commodities like steel, cement, and oil powered industrialization across the global economy. Such commodities underpinned the infrastructure, housing, and auto booms that propelled growth in Europe, North America, and emerging markets, particularly in China and Asia more broadly.
Now, as we approach the third decade of the 21st century, the world is experiencing another industrial revolution driven by computing power, digital technology, and renewable energy. The maturation and scalability of these foundational technologies will continue to transform growth and consumption patterns, as well as reorganize global production and supply chains.
A new set of products today could play as important a role as oil or steel did during the previous industrial revolution. None of these products are “new” per se, but their ascent as a result of new applications and advancements has created demand and competition for vital resources and inputs. These dynamics have catalyzed companies and countries to carve out advantages in these new industries.
To explore this future, we have created a digital book that offers an in-depth and interactive look at the supply chains of three intermediate products that we believe are not only crucial drivers of growth, but also important for understanding key aspects of the global economy.
These products may even come to resemble commodities, though not in the strict definitional sense. Instead, each product could take on commodity-like characteristics after intense competition, massive scaling, and wide commercial adoption drive down its price and turn it into essentially an “undifferentiated good.”
Digging into the supply chains of these products is key to understanding how and where these industries are likely to concentrate. Having supplier clusters is vital to sustaining manufacturing and industrial ecosystems within a single market. Detroit prospered for so long not simply because it was the home of the “Big Three” auto manufacturers but also because an integrated supply chain grew up around them.
Such economic agglomeration strongly influences the location and structure of midstream and downstream supply chains, which tend to gravitate toward where end demand is robust. Getting a handle on the dispersion of supply chains can in turn yield insight into what markets have competitive advantages in potentially dominating key inputs that power the global economy.
Indeed, the spoils of tomorrow’s economy will go to those who master the supply chains today. Markets and firms that build credible and reliable supply chains for these products will likely become leading players in their industries, able to exert more geo-economic leverage in the decades ahead.
This transformation is happening at a time of rising economic populism, when some governments, particularly of advanced economies, have become skeptical of globalized supply chains. Some influential voices even argue for the reshoring of all manufacturing production. But populist politics is at odds with the economics of agglomeration and the reality that high-tech goods require complex supply chains—many of which have long since migrated to Asia.
Each chapter of this digital book first makes a case for why a product will become economically significant as a result of technological changes, industry dynamics, and potential end-demand. They then dissect the product’s supply chain—from upstream to downstream—by mapping, as expansively as possible, the location of resources, processing, and assembly. Finally, they will examine specific company cases, and draw conclusions on supply chain risks, productive policy interventions, and which countries appear to be moving toward dominance in the industry.
We begin with the lithium-ion battery in Chapter 1 and will unveil the subjects of Chapter 2 and Chapter 3 over the coming months. Finally, we will conclude with insights and reflections about what these new high-tech inputs, and their associated supply chains, might mean for the global economy, especially in the context of US-China economic competition.
We welcome your feedback. For questions or comments, please contact Damien Ma (dma@paulsoninstitute.org); Houze Song (hsong@paulsoninstitute.org); and Neil Thomas (nthomas@paulsoninstitute.org).
Big Picture: The Rise of Lithium-ion Batteries
The lithium-ion (li-ion) battery is set to play an outsized role in our economic future. Their high-energy density, long recharging cycles, and lightweight structure make them well-suited to deliver electricity on the go.
As this future materializes, the economic importance of li-ion batteries will rise accordingly. It is therefore important that businesses, policymakers, and consumers know how li-ion batteries work, where they are made, and whether their supply chains run the risk of overconcentration or disruption.
We begin by tracing the current li-ion battery market and make a case for why the adoption of EVs will determine the battery market’s future.
Sources of Rising Demand
Li-ion batteries have three primary demand drivers: consumer electronics, energy storage, and transportation. Consumer electronics were the initial driver of li-ion battery commercialization. Battery demand from continued adoption of smartphones, laptops, and other digital devices is projected to rise from 26 GWh in 2015 to 54 GWh in 2025. However, Bloomberg predicts that the dollar value of this energy market will fall over the same period.***As advances in li-ion battery technology continue to improve the efficiency of energy storage, the cost of storing renewable energy could decrease significantly, possibly to the point that renewables reach grid-parity with traditional energy sources. Since one of the main problems of renewable energy like solar is its intermittency, having reliable storage capacity would make renewable energy far more attractive to consumers and governments by mitigating supply disruptions. Bloomberg New Energy Finance (BNEF) predicts that energy storage demand for li-ion batteries will explode from 1 GWh in 2016 to 200 GWh in 2030.....MUCH MORE
Deconstructing the Li-ion Battery
Look inside a li-ion battery (based on Panasonic’s battery for Tesla) by clicking on the names of each component.....****The li-ion battery was invented by John B. Goodenough in 1980 but was eventually patented and commercialized by the Sony corporation of Japan in the early 1990s. Unfortunately, Goodenough did not get much reward for the commercial success of his invention.
Li-ion is currently the preferred battery for many products because lithium is the lightest metal and has excellent electrochemical properties. Li-ion batteries have high energy density and are considered chemically stable, unlike previous lithium-metal based batteries.
The different types of li-ion battery are determined by their specific chemistries. But they share the same basic structure and components....
Key Inputs of Li-ion Batteries
Making the Battery: the Upstream, Midstream, and Downstream Supply Chain
