QBE Asia warns of global EV battery supply chain risks
Despite the large growth potential of the electric vehicles (EV) market, QBE, an insurer, warns of associated geopolitical risks surrounding lithium-ion batteries, which powers EVs, in its report titled “Lithium-Ion batteries: increased adoption, overlooked risks”.
The growth of EV sales globally soared over the last two years. In 2023, the total number of EVs sold was 14 million units, a 35% increase from 2022, when the sales were up by 55% from 2021, according to the report released last month.
The report also pointed out that battery storage capacity in the US almost quadrupled to 20.7 gigawatt (GW) in 2024, and in Europe it more than doubled to 10.1 GW.
Under the European Green Deal climate policy framework, the target is 95 GW by 2050.
However, investors also need to take significant risks into account. The report outlined that China’s dominance in the industry, combined with geopolitical competition, may cause disruptions and operational risks for businesses.
China is the major player in the market, taking a share of 76% of the global electric vehicle market in October, according to the country’s automotive trade body.
Other countries in Asia such as South Korea and India are also catching up, even at a slow pace.
South Korea’s sales of hybrid EV models jumped by 46% in the first quarter of 2024, while India is likely to see strong state support to drive EV sales, according to the report by QBE.
The Indian government plans to boost EV sales to 30% by 2030, which currently sits at 2%.
“The ongoing energy transition is currently one of the most dynamic investment spaces worldwide,” noted the report.
“The batteries sector, which is a key aspect of this, will certainly evolve in the coming years. Geopolitical landscape and market incentives, among other factors, will drive innovation, along with the risks associated with batteries – and fast.”
SHIFT TO JAPAN AND SOUTH KOREA
Chinese EV makers are grappling with challenges ranging from reduction in profits to higher tariffs. This has paved way for other competitors such as Japan and South Korea, both of which are major battery makers globally, accounting for 49% and 16% of the market shares respectively outside of China, as noted in a report published in June by Natixis, a French investment bank.
Since the cutback of government subsidies in 2023, Chinese EVs have been engaged in fierce price wars, facing shrinking profit margins, according to the Natixis report.
What’s more, the second largest economy’s domestic demand and exports cannot absorb the surge in manufacturing capacity, both of which have showed signs of peaks, Natixis’s report said.
And the manufacturing powerhouse also faces global resistance to its green technology.
The United States in May said it would impose 100% tariff on Chinese EVs, and the tarriff on lithium-ion batteries from China would rise to 25% from 7.5%..
In October, the European Union introduced countervailing duties of up to 45% on EV imports from China over a period of five years.
“I think Europe, with the bankruptcy of Northvolt, will be very careful with subsidies, so there will be less institutional investment, but there will be a lot in Japan and in South Korea,”said Alicia Garcia Herrero, chief economist of Asia Pacific at Natixis.
Last month, Northvolt, a Sweden based battery maker specializing in lithium-ion batteries for EVs filed for bankruptcy. It was considred the most developed battery manufacturer on the continent.