“China is out there and is trying to win every race globally. The West must do everything it can to subvert its efforts and find alternative nations to work with,” David Zaikin- CEO of Key Elements Group, alumnus and founder of the Mining Club at the London Business School- Inside Sources, March 2021
It’s not like anyone in the global heavy industry sector can say that we didn’t see this coming. Here at Resource Erectors, we’re not quite ready to concede “control of our destiny” to the Chinese just yet as PBS author Llewellyn King suggests in the ominously dramatic title of his 2021 Inside Source article, How China’s Rare Earths Monopoly Controls Our Destiny.
Using the Global 500 list as a benchmark, the US and China still pack about equal punch, though the weird hybrid of “communist capitalism” has OEMs in the rest of the world looking to develop green resources without falling under the unpredictable Chinese red thumb.
We’ll forgive the engineering layman Llewellyn King’s naive reference to enhanced refrigerator magnets making wind turbines “economically feasible”. Enhanced magnets or not, most wind turbines in use today will be headed for the scrap heap in 10 years or so, according to Italy’s largest energy company CEO, Enel’s Nicola Rossi.
Greensters the world over are already wringing their hands and gnashing their teeth over the landfill problems wind turbine farms cause. But even with those inefficient quixotic windy contraptions ruled out, truly sustainable green tech still faces the challenges of breaking free from Red China’s monopolies on the energy supply chain.
The Green Transition in Red China
Even before the world undertook the ambitious green transition, long before Mao Tse Tung and communist domination, the traditional Chinese mindset pertaining to the universal hierarchy has always been; Heaven, China, and everybody else in the world on the bottom rung.
Now, 21st Century Communist China wants to be the dominant nation with the power to dish out the entire green energy pie. After the supply chain disruptions experienced in the covid era, the world has never been more concerned about Red China’s ability to deliver. Many private enterprises were routinely shut down and later “nationalized for their own good” at the whim of the government with a Draconian and very convenient “covid zero” policy.
That same “benevolent” communist government would then control the bankrupt operations with bailouts, nationalizing private enterprises when they inevitably failed. In the meantime, red state-owned medical supply companies profiteered by producing and distributing mandatory “essential covid supplies”.
Nevertheless, China already has a near monopoly on 4 of the 17 rare earth minerals so critical for EV manufacturing, smartphones, computers, electronics, and energy storage.
Economic trends in China in 2022 were troubling, especially when nationalized state-owned enterprises don’t necessarily prioritize high-profit margins as the primary key performance indicator. This, in the nation that produces 95% of the world’s most essential rare earth minerals is a shaky business practice indeed.
Red Flags and the Emerging Chinese Monopolies
According to the informative article at CSIS, (Center for Strategic and International Studies) Fortune Favors the State-Owned: Three Years of Chinese Dominance on the Global 500 List by Qin (Maya) Mei, of the Trustee Chair in Chinese Business and Economics:
- China had the most companies on the Global 500 List Since 2020
- With an average profit margin and return on assets at a feeble 4.5% and 1.9% respectively, China has the lowest average profit margin and return on assets among all countries that have more than 10 companies on the 2022 Global 500 list.
- Poorly performing Chinese companies had one key characteristic in common. They were all SOEs, short for “State-Owned Enterprises”.
As usual, our man Elon Musk is right in the middle of things, but even Elon himself can’t avoid getting stuck in the crossfire between capitalism and profit vs politics and communism.
Will Elon Musk and Tesla’s Strategic LFP Pivot to China Backfire?
“China has become a key manufacturing center for Austin, Texas-based Tesla, with the Shanghai factory churning out over 710,000 cars in 2022, or around 52 percent of the company’s worldwide output.” – Tesla China plant expansion in doubt- Automotive News Europe
The Tesla CEO in 2021 predicted that the company’s battery production will consist of two-thirds iron-based and one-third nickel-based. “And this is actually good because there’s plenty of iron in the world,” Musk proclaimed.
Musk’s comments are right in line with China’s automotive sector. With an enormous consumer market for EVs in the smog-laden urban centers of China, and the critical LFP battery supply chain shortened by locating manufacturing operations at the source, Musk has figuratively moved the essential mineral mountain to Mohammed as it were.
Politics vs Profit in Red China
By slashing production in Tesla’s California plant and enhancing the Tesla “mega-facility” in Shanghai, Musk has also placed his interests at the mercy of the unpredictable communist government, where politics frequently trumps profit.
Until the Cobalt Red controversy about inhumane conditions in the infamous cobalt mines of the Congo caught the green world’s attention, battery chemistries outside of China have always been nickel-based and cobalt reliant, such as nickel-manganese-cobalt (NMC) and nickel-cobalt-aluminum (NCA).
These nickel-based cells are attractive to automakers for their higher energy density, so equipment manufacturers (OEMs) can improve the range of their batteries.
But Musk’s shift to LFP, and the move to China with plans to double the Shanghai based plant’s capacity to crank out 2 million green cars are allegedly facing some serious red opposition in 2023. Giga Shanghai is Tesla’s largest plant in the world, producing the Model 3 sedan and the Model Y crossover, with a current annual capacity of about 1.1 million vehicles.
Phase 3 Delays at Giga Shanghai
Why is communist China apparently poised to hammer its own green thumb?
Phase 3 of the Tesla Shanghai plant expansion in 2023 may be in peril due to Musk’s own diverse enterprises and Red China’s inherent communist paranoia.
These include the communist state’s concerns about Musk’s StarLink data satellites, an internet access platform that would allow future Tesla drivers in China to bypass the notorious Great Data Firewall of China.
Musk says that Tesla has no intention of providing StarLink in Type 3s now rolling out from the Shanghai operation, but apparently the Red carpet rolled out for him back in 2019 isn’t as welcoming as it used to be. In 2023, Model 3 sales in China have so far been significantly lower than the surge in sales experienced in 2021.
For the full year 2022, 124,456 Model 3 units were sold in China, down 17.52 percent from 150,890 units in 2021, according to data from the CPCA monitored by CnEVPost.
Tesla Shanghai’s recent production shutdowns this year for the Chinese New Year were 2 days longer than the legal holiday, and another shutdown later caused layoffs for “upgrades for the factory to begin rolling out a revamped version of the Model 3 in the Chinese market”.
That’s the official story, but is it coming from Tesla or the communist overseers of China? It’s all part of the risk/reward equation for Tesla and OEMs the world over, all playing for survival on the politically biased monopoly board of communist China.
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