China’s export restrictions on heavy rare earths and permanent magnets have garnered the majority of the public’s attention, but a new set of restrictions on battery supply chain technology signal a turning point. The April restrictions on rare earths were a continuation of China’s past approach, focusing on dual-use applications and minerals with small markets. But Beijing’s decision in July to implement export licensing requirements on lithium-ion cathode active materials and lithium extraction technologies marks the start of a new era. The age of economic warfare has now come for the energy transition.
In a move initially proposed in early January, China’s Ministry of Commerce, in coordination with the Ministry of Science and Technology, formally added a series of advanced critical minerals and battery supply chain technologies to the “Catalogue of Technologies Prohibited and Restricted from Export from China.” The most impactful are export-licensing requirements on technologies necessary to produce next generation lithium-iron phosphate (LFP) and lithium manganese iron phosphate (LMFP) cathode active materials along with technologies for direct lithium extraction. Cathode active materials are a core component of a lithium-ion battery that determines its energy density, performance, and cost.
China dominates the global lithium-ion battery supply chain, with particularly overwhelming control over LFP technologies. Chinese companies produce nearly 99 percent of the world’s LFP cathode materials and lead in LFP cell manufacturing, driven by strong domestic demand for affordable electric vehicles. LFP, instead of nickel-manganese-cobalt (NMC), is now the chemistry of choice in the world’s largest EV market. In the context of these restrictions, Chinese companies are also the only companies that have started to produce next-generation LFP cathode active material. Next-generation LFP material significantly increases the energy density of LFP batteries.
The higher density allows vehicles to compete with NMC batteries, which have higher energy density, on driving range, without the added cost of additional raw materials like nickel and cobalt. The result is a “best of both worlds” solution: lower-cost EVs with superior performance.China’s export restrictions on next-generation battery technologies allow Beijing to dictate the global market as these innovations are commercialized. By limiting access to the best LFP technology, Beijing can slow the development of foreign competitors while forcing them to rely on Chinese imports – effectively reinforcing its dominance in the battery supply chain.
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