Sun, Aug 04, 2024 page9

• China looms over EV maker’s graphite deal

  • By Liam Denning / Bloomberg Opinion
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  Graphite, the stuff in pencils, does not typically feature in thrillers; that is reserved for the likes of uranium and gold. So, one does not expect a senator talking about it at a somewhat obscure press conference to lead with the line: “The dictators are on the march.”

  That was US Senator Dan Sullivan of Alaska, a Republican who sits on the US Senate’s Armed Services Committee. He was speaking in a nondescript meeting room at Capitol Hill last week at the announcement of a deal between Graphite One Inc, a start-up conducting a feasibility study on a major graphite deposit in Alaska — the largest in North America — and Lucid Group Inc, a maker of high-end electric vehicles (EV).

  As a commercial agreement, this is a crucial step for two companies with big ambitions, but still with much to prove. Sullivan was reminding the audience of the deal’s wider significance.

  Thousands of miles away in the skies over the Bering Sea, US and Canadian fighter jets had intercepted a combined Russian-Chinese bomber patrol in international airspace close to Alaska, the first time those two countries had conducted such a joint drill on North America’s Arctic doorstep, he said just the night before.

  Graphite, prized for its inertness, is at the center of the tightening convergence between control of critical minerals, the energy transition and national security.

  A form of carbon, graphite is the largest ingredient by weight in an EV battery, constituting most of the anode (the electrode that takes in and holds lithium ions during charging and releases them when energy is needed). It also has defense applications — such as in components for the jet engines that power interceptors.

  China’s grip on the global graphite supply chain, in terms of production and refining, is the tightest of all the major critical minerals needed for batteries. The US has not mined graphite for many decades. The deal between Graphite One and Lucid marks the first time a US source of graphite would be supplying a US manufacturer of electric vehicles.

  Even as it conducts the feasibility study on its deposit in Alaska — with the aid of a grant from the Pentagon, notably — Graphite One also plans to develop a plant in Ohio making synthetic graphite (derived from petrochemicals). Meanwhile, Lucid aims to launch a sub-US$50,000 electric sports utility vehicle (SUV) in two years in order to scale up production and stem losses. However, all US EV makers face the prospect of tightening conditions on crucial subsidies for batteries — thereby raising their cost — when current waivers on using materials sourced from China expire in 2027. By agreeing, conditionally, to take one-fifth of the Ohio plant’s phase 1 output, Lucid helps a potential domestic supplier in its effort to secure project financing. Graphite One’s shares jumped by one-third on Thursday, when the announcement came.

  Energy transition was certainly a theme of the various speeches in that meeting room on Thursday. However, it was not the dominant one. The entire Alaskan congressional delegation was there. Besides Sullivan, US Senator Lisa Murkowski, brandishing a lump of Alaskan graphite at the lectern — a signature flourish of hers these days — and US Representative from Alaska Mary Peltola, a Democrat, also intertwined themes of climate security and national security.

  Given the yawning gap in Republican and Democratic positions on energy transition, it would be premature to play up the bipartisan aspect here. However, the conflation of reshoring production, including for clean tech and its inputs, with meeting China’s strategic challenge seems to be catching on both sides of the aisle. It is something you would find not just across the Alaska delegation, but also in the White House’s green strategy and an effort by US Republican Senator Bill Cassidy of Louisiana to contain China and boost US exports via carbon — sorry, “pollution” — tariffs.

  However, as current waivers from local content requirements for graphite demonstrate, extricating supply chains from China while simultaneously boosting take-up of clean technologies presents an enormous dilemma. Viewed simply through the prism of cost, competing with Chinese producers enjoying a two-decade head start and Beijing’s industrial policy is almost impossible to justify, especially to commercially-minded bankers. Yet the strategic challenge presented by China, especially in tandem with an outright hostile Russia, cannot be brushed aside.

  Hence, building the US critical minerals and clean tech supply chain necessarily entails a mixture of strategic government backing and private funding to get it off the ground. Disparate as they seem, there is a direct, and darkening, line between that stand-off in the skies near Alaska and Graphite One’s deal with Lucid, and not only because of the uncanny timing. The transition of our global energy system and the transition to a new era of geopolitical contest are increasingly inseparable.

  Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited the Wall Street Journal’s “Heard on the Street” column and wrote the Financial Times’ “Lex” column.
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