A “Chinese storm” is looming over Europe’s growing electric vehicle sector, Renault Chairman Jean-Dominique Senard said, as Asia’s superpower dominates key raw materials to make batteries for zero emission cars.
China’s recent decision to restrict exports of two metals — gallium and germanium — used in semiconductors and EVs should raise red flags for European leaders as it shows the continent’s over-reliance on China and the need to build a costly supply chain, Senard said.
“When I talk about a Chinese storm, I’m talking about the strong pressure today related to Chinese (electric) vehicle imports into Europe,” Senard said.
“We are capable of making electric vehicles, but we are fighting to ensure the safety of our supplies,” he said, adding that China’s EV industry and supply chain for raw materials resulted from years of investments that would cost billions of euros to replicate.
‘War of metals’
“China — and no one can blame them for that — is putting its hand on mines and especially on the transformation of metals used to build batteries,” Senard said. “The war of the future will be a war of metals.”
China is the dominant global producer of both metals, and accounts for 94 percent of the world’s gallium production, according to the UK Critical Minerals Intelligence Centre.
China’s export restrictions are escalating a technology war with the U.S., potentially causing more disruption to global supply chains. Europe finds itself in the middle of the dispute, compelling it to look for alternatives in the worst-case-scenario.
“If there is a real geopolitical crisis, the damage to battery factories solely powered by products coming from outside will be considerable,” Senard warned. “That’s the issue.”
The development of alternative fuels such as synthetic e-fuels and hydrogen would be crucial in the event of a sudden shortage of batteries due to a dearth of raw materials, Senard said. “As any careful manufacturer would do… we are looking for alternatives to avoid paralyzing the country if, for example, we run out of batteries.”
VW ‘ready to deal with curbs’
Volkswagen, which relies on gallium and germanium for automotive products, said it was “ready to take measures together with its partners if necessary” but did not elaborate.
The metals will play a role in future autonomous driving functions, a VW spokesperson said on Thursday.
Exports said alternative sources of gallium cannot be brought on stream before the restrictions take effect next month and existing supplies will only last for a period of months.
“Inventories outside of China are nothing more than maybe six months at best, so this will bite fairly quickly,” said Alastair Neill, director at the Critical Minerals Institute.
Setting up a facility would take a couple of years and require investment which might not be rewarded if China changes its stance in the meantime, he added.
“The challenge is if you go down that road and then China brings off the ban, you may be stuck with a white elephant,” Neill said.
Germanium is used in high-speed computer chips, plastics, and in military applications such as night-vision devices, as well as satellite imagery sensors. Gallium is used in radar and radio communication devices, satellites and LEDs.
Chipmakers see no immediate impact
Some larger chip manufacturers view China’s export controls on gallium as more of a warning shot about what economic pain the country could inflict. But if prices rise as restrictions take hold companies would have another reason to shift supply chains.
Taiwan’s WIN Semiconductors, which uses gallium for optoelectronic devices, told Reuters only a “small number” of substrates are purchased from China, with most of its supplies coming from Germany and Japan.
Taiwan’s TSMC, the world’s largest contract chipmaker, said it does not expect any direct impact on its production from the moves.
Chipmaker NXP Semiconductors sees no material impact on its business. NXP makes some chips for the auto and communications sectors using gallium or germanium.
Bloomberg contributed to this report