On October 20, 2023, the Chinese Ministry of Commerce announced that it would restrict the export of the types of graphite used in military and EV applications. Today China is the source of 60% of all natural graphite production and 90% of all synthetic graphite production. News of the Chinese move sent shockwaves through the EV community and probably through the U.S. military as well. Lithium-ion batteries used in EV’s and in military applications require large amounts of battery-grade graphite.
Although the restriction of Chinese graphite may cause a short-term disruption in the supply of battery-grade graphite in North America, that restriction may be a long-term blessing. The real threat is not that the Chinese will continue to restrict their export of graphite. Rather it is that the Chinese will soon change their minds (as they have in the past with export restrictions) and flood the North American market with graphite. That flood would predictably bankrupt any North American company that makes a major investment today in the graphite market. The resulting paralysis of domestic graphite investment is the real threat.
As I have often said at NAATBatt meetings, every business has two problems: a balance sheet problem and an income statement problem. The government is great at helping businesses solve their balance sheet problems. A large grant or large loan does wonders for a company’s asset value. But companies cannot survive long-term unless they can use those assets, whether government-funded or not, to produce repeatable income and profits. Here the government has been of less assistance.
The restriction of Chinese graphite exports should be a call to action. But the action should not be the government spending more money to build domestic graphite plants. The focus should instead be on ensuring a floor price for battery-grade graphite made in North America that cannot be undercut by the Chinese or by anyone else. If American industry had that assurance, it could do what it needs to do to build a sustainable supply of battery-grade graphite in North America. And it could probably do it in short order. All the government would need to do is get out of the way.
The Chinese graphite export restrictions are part of an ongoing tit-for-tat battle over trade policy between China and much of the developed world. That battle is regrettable. But this particular battle is well-timed in that it has not occurred during a time of crisis. North America has the ability, the resources and the know-how necessary to meet this challenge. Let us resolve to look back on this event in two or three years and thank the Chinese Ministry of Commerce for spurring us action.