Carmakers and the Cobalt Supply Conundrum - Part 2

Asia is where the electric vehicle (EV) boom is well and truly underway: China is the world’s biggest market for EV cars in sales, while Japanese brands are in the vanguard of EV technology.

Over a million EVs were sold in China in 2018 — more than double the amount sold in the US.

One of the most important resources that goes into battery technology is cobalt. This metal ensures that lithium-ion batteries are safer and more stable, but issues with price, accessibility, volume and ethics in mining means it’s a difficult resource to nail down.

While market watchers, speculators and investors are keeping their eyes on exploration and development of mines that could feed into massively increasing demand for these metals, further downstream, carmakers are looking to secure their supply lines of these critical resources.

Previously, the Investing News Network looked at what American and European carmakers are doing to secure their supplies, and now, we take a look at carmakers in China, Korea and Japan, where businesses appear to enjoy more government support seemingly across the board, as Beijing and Tokyo seek to maintain their respective countries’ lead in EV adoption and EV tech.

Japanese carmakers

Renault-Nissan-Mitsubishi

This Franco-Japanese alliance has existed in one way or another since 1999, when Renault (OTC Pink:RNLSY,EPA:RNO) bought into Nissan (OTC Pink:NSANY,TSE:7201) and Nissan — which is the larger company — returned the favor. Mitsubishi (OTC Pink:MMTOF,TSE:8058) joined the two in 2017. 

What began as an alliance to salvage financial prospects has morphed into an arrangement where all three companies share research, development, manufacturing and business operations. This means that they are now sharing EV technology, and all three have alternative energy models on offer around the world.

Nissan is part of a Japanese government push to secure cobalt supply, while Renault has historically audited its cobalt supply chain for signs of child labor.

Renault also has its own policy of procurement when it comes to cobalt, expecting its suppliers to do their own due diligence and “inform Groupe Renault whether the minerals included in the materials or component parts are conflict-affected or high-risk minerals.”

Toyota

Toyota (NYSE:TM,TSE:7203) was an early mover when it comes to alternative energy vehicles, with its hybrid Prius models taking center stage early on. Today, Toyota’s hybrid offerings make up huge portions of fleet markets around the world, from taxis in North America and Australia to car sharing programs.

The company is surprisingly stubborn about EVs, however, with its top brass regularly throwing shade on all-electric offerings. At the Detroit Auto Show, Toyota’s North America president, Jim Lentz, mused, “(The auto industry has) overstated our belief EVs will take over the world.”

Despite that attitude, Toyota was one of three Japanese companies that signed up for a Tokyo-led initiative to secure cobalt supply for batteries in 2018.

The cobalt procurement body is intended to ensure that Japanese manufacturers have a secure and stable supply of the vital commodity in response to moves by China to do the same.

Toyota is also in partnership with Panasonic (OTC Pink:PCRFF,TSE:6752) for some of its batteries. There are reports the two could form a joint venture to develop more batteries in 2020.

Meanwhile, Toyota continues to talk about its hydrogen fuel cell technology, with the company now making deals to spread it to China through partnerships.

Honda

Like Toyota, Honda (NYSE:HMC) is another Japanese carmaker with a first-mover history and portfolio of alternative energy vehicles. Its Insight hybrid has been in production since 2006, and it also has its Clarity model, which is available in electric, fuel cell and hybrid configurations.

Honda also signed on to the aforementioned initiative by the Japanese government, though for the most part the company appears to be prioritizing what it can do with EV technology, rather than focusing on the supply chain itself.

That’s not to say it isn’t cognizant of the market, though. Honda officials noted the overall cost of cobalt and its effect on EV production at the African Mining Indaba in February, and Honda signed on to an ethical sourcing pledge way back in 2017.

Mazda

Mazda (OTC Pink:MZDAF,TSE:7261) is an unusual case in that the company has not fully embraced alternative energy vehicles, preferring instead to opt for increasing efficiency of its current technology, which it has said will keep the company competitive while it waits for EV infrastructure to lock into place.

In 2019, however, the company finally revealed that it is indeed working on EV models, which will be released to markets in 2020, though it has been dabbling in EV tech since 2009.

The carmaker has been silent on its lithium-ion battery supply, and therefore silent on where it’s getting its cobalt and how — though it has been named as a company considering joining the same cobalt procurement body that Toyota and Honda are already a part of.

Korean carmakers

Hyundai

South Korea’s largest carmaker, Hyundai Motor Company (OTC Pink:HYMPF,KRX:005380) has eight alternative energy vehicles on its corporate website and is pushing hard to be a major player in the space.

In late 2017, the then head of Hyundai’s Eco-Technology Development Center, Ki-Sang Lee, told reporters that the company believed battery prices would level off from a sharp fall in cost due to supply constraints, and revealed that the company relied on external suppliers for its materials but hoped to develop its batteries in house eventually.

The batteries used by Hyundai come from major companies like LG Chem (OTC Pink:LGCLF,KRX:051910) and SK Innovation (KRX:096770) — two Korean companies that are, coincidently, suing each other over trade secrets as of March 1.

Despite being the second largest carmaker in Korea and a major player in foreign markets, Kia Motors (OTC Pink:KIMTF,KRX:000270) is minority owned by Hyundai, which holds a 38.88 percent stake in the company. Kia also uses the same suppliers of batteries.

Chinese carmakers

Unlike the carmakers in the US, Europe and Japan, Chinese carmakers tend to be a different kettle of fish — not only are many of them state owned, they are also often working with technology from joint ventures signed with western companies.

On top of that, the Chinese government has more levers to pull when it comes to pushing the development of EV tech, regularly making forays into the space to shift its economy — and its environment — in a more environmentally friendly direction and away from the internal combustion engine.

The world’s largest economy is well on its way to being a world leader when it comes to the future of the automotive industry — if it isn’t already.

China is dominating the supply chain when it comes to battery metals, including cobalt, something that has been noticed by analysts and market watchers.

Geely is a privately held, high-profile Chinese carmaker that owns the Swedish car brand Volvo. Together with Volvo, it controls Lynk & Co as well as Polestar, an entirely EV-focused brand.

Geely has agreements with Chinese lithium-ion battery maker Contemporary Amperex Technology (CATL), which produces low-cobalt batteries in the Fujian province for multiple carmakers.

CATL is one of the world’s largest lithium-ion battery producers, and has agreements in place for cobalt sourced from various producers in the Democratic Republic of Congo.

The company has its own commitments to “neither tolerate nor by any means profit” from “the worst forms of child labor” in the extraction, transport and trade of minerals.

The battery maker also has deals in place with SAIC Motor (SHA:600104), which has joint venture agreements with General Motors (NYSE:GM) and Volkswagen (OTC Pink:VLKAF,FWB:VOW).

SAIC forms one of the “big four” of the Chinese automotive industry along with Chang’an (SZSE:000625), Dongfeng (OTC Pink:DNFGF,SHA:600006) and FAW (SZSE:000800) — all of which are state-owned companies, and all of which have agreements with CATL.

There are also plenty of China-based startups in the EV space, including the privately held Byton and the publicly traded NIO (NYSE:NIO). Both brands are hoping to take the fight to Tesla (NASDAQ:TSLA) in the US and other western markets.

What binds all Chinese-based brands together is that they have Chinese government initiatives to lock down cobalt all over the world and feed its growing EV market, meaning procurement is not a concern for the individual brands.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.