Dear all,
Another important point relating to China was raised in the Benchmark conference that I'd love to get some of your thoughts and critiques on.
It was agreed that China has now reached saturation levels within its local EV industry and it now needs to push export sales into the Western market (I think roughly 52% of their domestic car sales are now EVs).
I was thinking this morning that this would greatly reduces China's ability to control lithium supply and pricing as it gives the power to the West where we have more policy control over our markets and growth potential.
My thought process is that it's a lot easier for China to control supply (and therefore lithium pricing) when it's able to produce such large quantities to sell in an unrestricted domestic market to its own people. However, because its reached saturation levels, two (2) things are likely occur.
1. China will lose control over the sales processes in Western countries where they face the possibility of tariffs on the import of their EV's to make western products more favourable. While we'd rather see a lower-cost western-made EV, some restrictions on Chinese EVs seem likely as the current geopolitical position in the West is determined to win the EV arms race and strengthen its position in the renewables industry.
- It is very clear that both America and Australia want mid-stream processing facilities here in WA, acknowledging that while we might not achieve cost parity with China, it will still be competitive in pricing and more importantly in our mutual interests for winning the battery arms race. Notwithstanding this, Elon Musk loves to do his own thing and Tesla has already recently built a lithium refinery in Texas to begin competing with China in this regard utilising some differences in newer innovative technology... but outside of the US I think a bulk of mid-stream processing plants will occur here in WA as we look to capitalise on the profits made in the chemical refining processes. Down-stream processing (battery making) looks unlikely at this stage, but the WA Government has mentioned they're open to the possibility, but after we see our mid-stream processing capabilities first - this makes sense.
- It was pointed out in the conference that both Trump & Harris are a lot more similar on this issue that we perceive. Whilst Trump has said a lot of rhetoric on being pro-ICE vehicles, this is VERY likely to change as he has pledged to appoint Elon to his US Government Efficiency Commission and I just don't see them allowing China to win in the EV space. Further, Harris picking up from Biden's inflation reduction act and being very active on achieving net-zero targets, I think either presidency will be good for the West in the EV space at the cost of China.
2. After China reaching saturation levels, their local demand will naturally slow or potentially drop requiring Chinese lithium companies to reduce the lithium supply from their vertically integrated mines. I don't think they will be able to (easily) sell their lithium to the West because the Chinese mines are largely unprofitable and only operate because they rely on profits being made further downstream. If their downstream production is cut, upstream must also be cut to avoid losses. Without China being able to rely on downstream profits, any excess supply to the market will need to be sold at a commercially realistic price (above their AISC costs) strengthening support for pricing in the commodity. I think this will become increasingly difficult for China as the West further develops its mid-stream capabilities too.
It's hard to say, but all-in-all China losing control over the supply chains can only be beneficial to the West. I remain very optimistic on how the future will align to accomodate for Australian lithium producers.
Keen to hear everyone else thoughts? Have I got this wrong? Do you agree?
Cheers,
CK
(20min delay)