Ep60 Batteries and geopolitics: the race for battery supremacy, ft Tim Bush, UBS

In this 60th episode of our podcast we talk with Tim Bush, an analyst at UBS and a top expert in batteries and energy, about the fast-changing world of battery production. Tim provides a clear view of the global battery industry's complex challenges and opportunities. Tim‘s insights include China leading the way with lower costs and big capacity, and the US and Europe facing tough choices as they try to build their own battery supply chains while dealing with China's dominance. Tim highlights the game-changing potential of solid-state batteries, which promise safer and more efficient power. The conversation also covers the struggles of European carmakers as they shift to electric vehicles and the rapid improvements in Chinese EV technology. This conversation gives a clear view of the global battery industry's challenges and opportunities.

ABOUT TIM: Tim Bush is based in Seoul and heads UBS Global Battery Research. He is also responsible for Korea EV supply chain corporate coverage. He has almost 20 years of experience covering Alternative Energy. He joined UBS from BAML in 2015. Notable research includes UBS Battery Teardown series. UBS has analyzed nickel and iron batteries from all incumbents in this signature bi-annual report. Tim holds degrees from Cornell University / NYU Stern and is fluent in Mandarin Chinese.

FEEDBACK: Email Host | HOST, PRODUCTION, ARTWORK: Joseph Jacobelli | MUSIC: Ep0-29 The Open Goldberg Variations, Kimiko Ishizaka Ep30-50 Orchestra Gli Armonici – Tomaso Albinoni, Op.07, Concerto 04 per archi in Sol - III. Allegro. | Ep51 – Brandenburg Concerto No. 4 in G, Movement I (Allegro), BWV 1049 Kevin MacLeod. Licensed under Creative Commons: By Attribution 4.0 License

Transcript

Ep60 Batteries and geopolitics: the race for battery supremacy, ft Tim Bush, UBS

 PLEASE NOTE: AUTOMATICALLY GENERATED TRANSCRIPT MAY CONTAIN ERRORS. FOR ACCURACY, RELY ON THE ORIGINAL RECORDING.

Joseph Jacobelli: Today our guest is an old friend of mine and ex-colleague, Tim Bush at UBS. And Tim, why don't we start a little bit with, you sharing a little bit of your background, something beyond maybe your formal BIO.

Tim Bush: Sure Joseph.

So I think, I guess my, the interesting bit about my entry into the, the energy transition in the battery space is that it actually started with refining oil, refining and petrochemicals. So I joined UBS to cover pet chem and refining about 10 years ago. And the Korean, the Korean battery makers all had their, at that time, sort of emerging battery companies embedded in the refiners, in the Pet Chem companies. And as those businesses became profitable, they were split or spun-out and. IPO'ed. Mm-hmm. Still in the process of IPOing. So I kind of, entered the, the battery industry from Pet Chem and refining from, businesses that at least in 2015, if you looked at the market value of these, these refiners and Pet Chem companies, these businesses would only carry, into a sum of the parts valuation maybe, 2 billion, 3 billion US dollars. And today, I think LG Energy Solution anyway is worth 50 billion US dollars. Mm-hmm. So that, that’s kind of how I've, I guess you could say I kind of grew up with the industry over the past decade. 

Joseph Jacobelli: Great. And, and also a couple of important things about your background is that you've been, in Asia for most of your adult life, we wanted to emphasize that. So you, you've been around the block a couple of times. Now I, I, if we could move on to kind of the current state of things, Tim could you perhaps provide a brief picture of the current landscape for battery production and deployment?

Obviously in China, which is, the, the principal kind of engine, but also for the rest of the Asia Pacific region.

Tim Bush: I think for, for China, we have a situation of, over capacity for battery production market consolidation with the world's largest battery maker, CATL, having, well over a, a 50% share of the domestic market and the second largest player, BYD.

Is for that. Second largest battery maker is BYD, but they're primarily producing batteries for their own use. And I guess we're kind of in a, in a phase of the market where, kind of second tier players are beginning to scale and those second-tier battery makers, so for example, maybe like CALB that's listed in Hong Kong are, more targeting the energy storage space than the EV space. And I think that, one of the biggest debates for the Chinese battery makers, at least investment debates are to what extent can the Chinese over capacity get exported? The, the, the cost of production in China is, is considerably lower, 30 to 50% lower than in Europe or North America. And that's because of obviously land labour, utilities, proximity to the supply chain. Basically all the upstream materials are located in China as well as some, some other subsidies. And clearly China would very much like to. Export their overcapacity into Europe and the us that would be the most profitable thing to do.

But in the case of both Europe and the US, they have their own plans for building out an onshore supply chain. So I think in Europe, the, the main question is, is, how. Long can China export into Europe? And how big of a footprint do the Chinese battery makers, build in Europe? Not just for the battery capacity, but for everything upstream.

So things like lithium refining and cathode and anode graphite and so on. And then in the case of the United States, as Biden exited, you had a situation where, almost very little daylight for the Chinese to have any footprint at all in the EV battery space.

Right? And then in the case of energy storage, which is pretty much where, where the Chinese have all of their market share, we have tariffs taking effect at the end of this year, going all the way up to 36%. And I guess there's questions. Do those tariffs go further? And now we're kind of what, 37, 38 days into the Trump administration.

We've seen some signs of, how Trump is viewing China as it relates to the EV supply chain. And so far, it seems like an even more hawkish stance relative to the Biden administration. And I think you've seen that very recently with the America First Investment executive order that Trump announced which is basically has identified China as a foreign adversary and looking to restrict Chinese investment in critical industries and technologies in the US.

Joseph Jacobelli: Before we get back into North America and Western Europe relationship with, with Asia just a couple more supplement questions on, on the Asia Pacific and, China and, and the rest of Asia. One question is: doesn't China have a big potential market with its neighbours.

I'm thinking of Southeast Asia is no small place with 600 million people. Australia is doing an enormous amount in terms of adding energy storage, although it's a relatively smaller market with whatever it was, 50 gigawatts of installed capacity, in total generation capacity. So a little bit smaller.

But how do you see. Kind of like, could, could Asia be a big immediate market for, for China? 

Tim Bush: I think on the energy storage side, yes. I think that India is a question mark. BYD had looked to enter the India market, and I think that they were denied permission for the licensing that they needed.

And I think that there's some fairly strong views in the Indian government that they don't necessarily want China dependency as it relates to batteries. 

So I think that India would be probably one of the biggest markets in Asia. And to what extent China can have share there is a, is an open question. We see Indian firms generally trying to partner with either the Koreans or the Japanese. And I think, I think we had the Hyundai IPO in India, they, IPO, the Indian business and Japanese OEMs also have a pretty large footprint in India. But of course.

If India chooses to go with the Koreans and Japanese, it's going to be at a higher cost. And then for Southeast Asia I would say that electrification is probably, lagging other, other major markets mainly because of charging infrastructure. I think charging infrastructure is a significant hurdle in a lot of places in Southeast Asia.

Joseph Jacobelli: Still on the subject of Asia, meaning at least on the production side, meaning China to some extent Korea as well. What do you see in terms of cost curve for existing battery technology over the next, five, 10 years? 

Tim Bush: I think that China right now is, let's say a 50 to $55 a kilowatt hour.

For LFP, so there's really, two dominant types of batteries. One is lithium iron phosphate, and the other is NCM or a battery that uses nickel and cobalt. I. For the LFP batteries, I think China's probably at $55 or so a kilowatt hour. And for NCM, they're probably at, 70 a dollar a kilowatt hour level.

And then the other places that we have production is Korea. Where the, well, well, the LFP part of this is easy because we really don't have any commercial LFP production outside of China today. In a meaningful scale anywhere. So we can put LFP to the side and your comparison would be the $70 a kilowatt hour of NCM in China relative to maybe 90 to $95 kilowatt hour in Korea.

And I would say probably higher for Japan. And one place where there's emerging battery capacity is Indonesia. Hyundai and LG Energy Solution started a, a 10 gigawatt-hour JV last year that would supply about a hundred thousand vehicles. So fairly small in scale but I believe CATL is also scaling battery capacity in Indonesia.

And we see the supply chain scaling in Indonesia. So, for example, the cathode and the rationale there is that that's, where most of the world's Nick Nickel supply growth is, is coming from. And nickel smelting into class one nickel, which goes into batteries. So the Koreans have and Chinese, the Chinese obviously own the majority of the nickel smelting assets in Indonesia.

And so they've, with, with CATL have stood up some battery capacities. And then you have the LG Energy Hyundai JV, I would guess is probably slightly lower in cost relative to Korea. Or around the same, because the scale's not quite there. In general, we need to see about 20 to 30 gigawatt- hour to get the benefits of scale.

So existing capacities are only at 10, so they're kind of subscale? 

Joseph Jacobelli: Mm. And do you expect that over the next, five. 10 years, the cost curve of existing technologies will come down further. 

Tim Bush: I think that if you looked at the cost structure at this point, the, the materials that go into the battery.

So the, the lithium and the case of NCM, the nickel, the cobalt, the graphite electrolyte and plastic for separator is accounting for more than 80% of the cost structure. So in some ways, we saw battery prices actually rise in 2022, significantly rise. And the reason for that was the, the metals prices, I mean, lithium went as high as a hundred I think a hundred 110 US dollars a kilo. And today it's at $11, right? So what we could say is that I think that at it on a constant material in metals, price. We will continue to continue to see cost down some level of cost down, let's say three to 5% CAGR type cost down on the existing technology.

And we're beginning to see scaling of, it's called Next Generation Technology in China, which I guess is semi solid state and then onto solid state. And I think there, there probably will be with time. There'll be, room to further cost down from where we are today. 

Joseph Jacobelli: Could, could you talk a little bit more about new tech and new materials?

Tim Bush: So, I guess with New Tech, the, the rationale with solid state is I've probably seen that we've had. Some battery safety issues whether that's energy storage or, recalls like we've seen with Samsung SDI, having to recall a number of, I think battery systems for, for the Jeep.

The, the first rationale I guess of upgrading the existing lithium-ion battery technology is the safety. And so that's the main issue with lithium-ion battery is, we're using liquid as electrolyte. And when you have a, a thermal runaway situation or a safety situation that that liquid electrolyte catches fire and can often cause chain reaction among all the battery cells.

So the, the one thing, like the main rationale around solid state is to eliminate the illiquid electrolyte and replace it with a solid. And if we could do this, we would be significantly reducing the safety risk. In addition to that, the energy density, I guess one of the constraints we have in using a liquid electrolyte is that one of the ways that we bring the cost down is to increase the energy that the battery produces per unit of weight or per kg.

That's called energy density. And one of the hard limits that we've come to with the existing. Liquid electrolyte technology is that if energy density goes higher, that causes the operating temperature, the temperature of the battery when it charges and discharges to go higher, and that increases the risk of a thermal event.

So by eliminating the liquid electrolyte and going to a solid, not only would we, mitigate the safety risk around the electrolyte, we would also be able to probably increase the energy density by 50%. So that would mean that, let's say a battery system today, a typical battery system in a Tesla weigh about 400 kg.

That's what the entire, the, the batteries as well as the housing that the battery's going to, that's what it weighs per vehicle. And the total vehicle waits about. Maybe 1800 to 2000 kilos. So it's a pretty big share of the total vehicle weight. Well, if we went to solid state, we might be able to halve the weight of the battery system.

We might be able to take it from, let's say, 400 kg to 250 kg while having identical energy output. 

So obviously that's going to increase the by lightning, the vehicle, you're going to increase the range. Per kilowatt hour of battery because you're just simply moving less weight. And of course you're going to be using a lot less, less of all of those materials that I mentioned.

Right. So there is a kind of you're having to process less lithium and, and nickel and aluminium foil and copper foil and, synthetic and natural graphite to get. A unit of energy. So it does have a lot of benefits. In general, there's three tech paths in terms of solid-state batteries that are being pursued.

One is displacing the liquid electrolyte with a plastic; they call that polymer solid state. The second is displacing the liquid electrolyte with a ceramic. A good example of this would be QuantumScape. That's the listed company in the US that VW has a stake in. And then what I see in Asia, what I see, CATL and LG in the Japanese doing is something called sulphide.

So they're, they're looking to displace it with yeah, sulphide material. So each of those three solid state materials have, let's say puts and takes around them in terms of cost and manufacturability. But so far it looks like, I think, I think the real, if I look at the past five years for solid state, five years ago, there was no real convergence around those materials that like what material we're going to displace the liquid electrolyte with, right? So you had a lot of companies that were pursuing all different types of materials and now we've really seen this kind of convergence to sulphide. So I think that probably sulphide is winning, right?

We're seeing upstream companies like Idemetsu in Japan, signing an agreement with Toyota. So we're seeing upstream companies start to scale this material. And I think the remaining the outstanding question that we have around solid state, some of these vehicles that will be on the road, that I think Toyota is talking about 2027, 2028 is the other part of solid-state technology is changing the, the anode. So today the anode, it's the, you could call it the negative part of the battery is using synthetic and natural graphite, some blend of these materials. Mm-hmm. But the energy I. The energy density of that graphite is, is relatively low. So now that we have a solid electrolyte, we can use a much more energetic material on the anode.

That's how we're going to bring the overall energy density of the battery up. So the question that remains to me is what will that material be? Are we going to blend some silicon? There's a lot of startup companies in the US that are pursuing silicon anode. Are we going to blend some of the silicon in with the, with the graphite?

Are we going to use carbon nano structure with silicon so that we could have much higher amount of silicon in the anode? Or are we going to do something like lithium metal? Which so, so there's still, I guess like on the anode side of it, I don't think we've had convergence and in fact, we don't even necessarily know what the anode material will be in some of the first solid state electric vehicles that get launched in the West.

So the companies are holding that, I guess you could call it trade secret fairly close to their, holding it close at the moment. 

Joseph Jacobelli: Got it. That was, I. Incredibly clear and I'm really waiting for the solid-state battery cars to, to get into the market so I can upgrade my electric vehicle. Moving on to a couple of very hot issues. 

So there's geopolitical turbulences that have caused, key regions to develop their own onshore material supply chains and production strategies, especially North America and, and western Europe now in North America pre current administration, you had the Inflation Reduction Act, which created a credible path to build a mine to motor independent China free supply chain. But a recent flood of executive orders has created some uncertainties. Could, could you talk a little bit about that?

Could you talk about, the current administration, what, what have we seen in terms of legislation, executive orders and tariff wise that would provide insight into an IRA policy continuity. And what are the implications of changes to incentives? It's a, it's a loaded of questions. Sorry. 

Tim Bush: For the create EV supply chain or companies that are investing into the us there's kind of three, three, I guess two subsidies and, and one is kind of a, an administration position that are really important.

So I think on the position, how does the, the Biden administration had basically. Not just through tariffs, but through designating some Chinese companies as foreign entity of concern. They created real hard restrictions that not only prevented Chinese battery makers from entering the US market, but in some cases anything that went into the battery that geographically touched China could not go into the US battery supply chain.

And that includes. The overseas subsidiaries of Chinese private entities. Mm. So that resulted in a situation where not only would Korean and Japanese and maybe Tesla have the majority of battery market share, but they would also have a pretty large share in all of the materials that, went into the battery and we even started to have conversations about, could there be two tier pricing with what we call, US compliant lithium or whatever, right?

Mm-hmm. And, and, and, because of scarcity for some of these materials. So I guess like one question that we had is, will the, will the Trump administration have, believe that and, and I think the Biden administration's stance was. Batteries are about energy security and the US is probably one of the largest oil producers and they are not going to trade energy independence with ICE, right?

For energy, dependence in EVs. And so they are effectively kind of view this through the lens of energy security. I guess we've seen some early signs, I think I meant mentioned the executive order, which was the, I think, America First investment policy, which would, which would definitely put seem to put restrictions on Chinese investment into the US for infrastructure, so presumably energy storage, that's, utility scale energy storage that's getting hooked into the grid. You know, we have seen some Chinese batteries and military bases get removed because of some of these concerns. So yeah, I mean, I think ultimately, we're looking to see kind of what.

What's the final stance in terms of tariffs? That's a, that's a fairly easy question to answer because Trump is adding an incremental 10% on top of the tariffs that already existed for lithium-ion batteries, which was 26%. So now we're at 36%. And then on the subsidy side, you have this $7,500 consumer credit.

So if certain conditions are meant from the consumer, so this is like income level. So, let's say you make less than 250,000 and your vehicle costs less than 80,000, then you're going to get a $7,500 or up to a $7,500 tax credit. If you buy an EV. And if you buy a used EV, you will get a 4,000 credit.

And so this was what's going to kind of stimulate the demand and all of the China restrictions about when I mentioned about nothing could geographically touch China, I. Well, that was all about getting the $7,500 credit. So if you, the, the, in order for an OEM to be able to get that credit, they needed to have a China free supply chain.

Well, so far, we've already seen I think they're calling it the Elite Vehicle Act which was co-sponsored by sort of basically 14 senators, republican senators that have brought forward this bill. Two weeks ago that would eliminate the $7,500 consumer credit. And I think that Trump has made it pretty clear that he also wants through executive order on day one, that he wants to get rid of this credit.

So our base crate case is that this credit ultimately does get eliminated. And of course that's going to result in. In the, the, the steepness of the EV adoption curve is going to be flatter without this credit. So I think previously when we thought the credit was going to exist, we thought that US EV penetration would be like 40% or above 40% by 2030.

And now we think it will be 30%, so basically a 10-percentage point delta. And I think that more or less there's consensus that this credit is going to go. So now the most, the, the credit that everyone is looking for insights on is the production credit. Now, I mentioned that battery cell costs could be, depending on where it's made, it could be in the US anyway.

We think it's above a hundred dollars a kilowatt hour. Well, the value of the production credit, this is per unit of production, not unit of capacity is $45 a kilowatt hour. Let's say that the US does get to a hundred dollars a kilowatt hour. You're talking about a credit that almost counts for half of the cost.

And I think that that's why when this was announced after 2022, you just saw this huge amount of capacities get announced. All of these joint ventures between, Stellantis and Samsung and Stellantis, and. LG Energy, and more or less every major OEM with a large footprint in the US announced some type of JV or North America supply agreement with a dedicated capacity for that OEM.

Sometime after IRA. Now, if that production credit is eliminated, I think you could end up seeing as much of a third of the announced capacity get pushed or cancelled. So e everybody is looking for insight. It also, the production credit doesn't just apply to batteries. It also applies to, I think, solar and, and some other alternative energy.

So it, the, the elimination of the credit will have implications that go beyond just batteries. Our base cases that it remains, I think interestingly, we've, the, the Elite Vehicle Act looks to remove the consumer credit, but it makes no mention of the production credit. And in fact, there's also this other bill that was introduced called the No Gotion Act.

Gotion is a Chinese battery maker that also assumes that the production credit continues to remain and, and that act specifically restricts. Chinese entities from receiving the credit. So there are some Chinese battery makers that were building capacity in the US like Gotion, which is the No Gotion Act, but also AESC.

And the licensing agreement between Ford and CATL and that bill, the No Gotion Act would disallow those capacities, not just those that have Chinese ownership, but even contract manufacturing or licensing. From receiving the credit. So I guess that's some kind of, kind of indication that there's an assumption among Republicans that the credit continues to exist.

I guess the next thing to watch will be the, the budget reconciliation process. And I think that, and, and that might be a path for them to eliminate some of the funding to these programs. 

Joseph Jacobelli: Understood. Just a supplemental question on, on, on the US I, isn't there a risk, I mean, if you kind of hampering these incentives to EV batteries and energy storage batteries, et cetera in the us, could that hinder the development of the sector in the US and wouldn't, in such a case, wouldn't the US even fall further behind compared to say, China. 

Tim Bush: I, I agree. And it would also really hurt the US' credibility. You know, companies have already deployed capital and some of these, these capacities are already under, well under construction and coming online this year.

So if they just, it really would kind of raise the risk of, if you're, if you're making an investment decision around. Some kind of policy that, the, these subsidies are supposed to go to 2030 with like a sun setting to 2032, and, then all of a sudden you kind of have to think, well, from administration to administration, now I have to add this additional le layer of risk.

And I guess the one observation I have is, is that. Obviously, we have all this flood of inf, noise coming out of the Trump administration, tariffs on countries, on aluminium steel, and you know, it's when, when the inflation reduction Act passed, I think in the, in the summer of 2022, it was very clear that, that they, they had a framework of what they wanted to do, which was the, what this law passed, but they didn't really understand the nitty gritty of the supply chain, including how much of the supply chain was in China. So for the next two years, we ended up having a series of executive orders and clarifications from the Department of Energy and IRS to, to define all of these terms and to create waivers of certain materials where we couldn't relocate them quickly enough outside of the US and a number of other, what is the definition of a foreign entity of concern and how do we think about the overseas subsidiaries of Chinese entities and what makes an entity private versus public?

Like all of this were definitions that came subsequent to the passing of the law. So I tend to think that perhaps. And a lot of the big announcements we have, Trump's, he's put his people, at the head of some of these, let's say the Department of Energy, and it's going to take some time for them to kind of figure these things out.

So maybe some of these things that, initially in the early days they do, they don't necessarily understand the implications. You know, to companies that, because in the end, Trump is also about building America and I, I kind of look at the Inflation Reduction Act and a lot of the policies that I mentioned probably mostly about reshoring manufacturing capacities into the US.

So, does Trump realize that let's say if he goes after the Green New Deal or certain parts of the Green New Deal it's going to cost investment and jobs. And by the way, almost all of the IRA related investment is in red states. Yes, 

Joseph Jacobelli: Republican states, right? Yeah. 

Tim Bush: So if all of a sudden, and, and of course, midterm elections are coming and a third of the Senate seats will be up for grabs.

And so, I think, I think we should, not overreact to some of the policies in the first 38, 39 days of the administration. Some of the big announcements that we're seeing and probably kind of realize that we end up coming with something maybe a little in the middle. 

Joseph Jacobelli: Got it. Moving on to the Europe Asia Link. The EU onshore supply chain built up is more of a stick approach relative to the US, right? And demand is created through the curtailing of CO2 emissions. And ultimately, and the 2035 internal combustion engine ban there is increasing evidence of policy push out in the EU as legacy OEMs are struggling to make the transition. So could you, could you talk a little bit about that as well as the net zero Industry Act and critical raw Materials Act set, which set various 2030 self-sufficient ban benchmarks? 

Tim Bush: Sure, sure. Sure Joseph, thanks for that question. Yeah, a lot of the, this is a big year for 2025 is a big year around CO2 emissions.

And, Europe, in order to meet the increased CO2 emission standard that Europe has set this year, some automakers like VW would have to increase their EV sales by, as much as 60% year over year unit growth, right? So these, one, the kind of tightening of the CO2 emission standards is the first, is what's, right now forcing an increase of EVs in the mix.

Then in 2035 you have the flat-out internal combustion engine vehicle ban. Now I think what we've seen is, we've had the elections in Germany. The winning party is less favourable to a lot of these initiatives and may look to re renegotiate. And actually in Europe there is some re-evaluation of the 2025 CO2 emission standards.

So there is the possibility that instead of having to meet the 25, instead of having to calculate this in a single year, we could bundle it over the next four years. So the total amount of CO2 emissions that these OEMs need to achieve doesn't change, but they have a longer time to do it. And that just means that they need to put more vehicles into later years. So that's one uncertainty. 

And then increasingly around that 2035 ICE band, there's some kind of view that maybe plugin hybrid electric vehicles could remain after 2035. And, and so that's another uncertainty. But, but largely I think the electrification that we've had in Europe has been through these, through these emission standards.

So it's kind of the stick approach. And one of the reasons that European OEMs are pushing back is because the vehicles that these companies have, one, they're, they're not largely making money on these vehicles. Hmm. And two, the consumer reception of the Gen one. You know, EVs that were made in Europe has not been all that strong.

Joseph Jacobelli: Yes. 

Tim Bush: You know, I think that, in a way these Gen one vehicles in Europe will look like iPhone one. Yes. And, for the first couple of generations of iPhone, it was kind of like this must have thing, right? Because the incremental, like, the improvement from iPhone one to two, to three to four was just... you can remember, right? And I think that yes, yes. We're, we're having the second generation of EVs getting launched in Europe this year. And I think, that, that they will get considerably better. But I think of course, the other issue is that European OEMs are losing market share in China.

Really fast. And that's hurting their profitability. And so at the exact same time that their profits are under pressure in China, they're being forced to sell more electric vehicles in Europe where they're losing money or the profitability is significantly lower than ICE, right? Mm-hmm. This is what's leading to like, let's say, the layoffs that you've heard about with VW or the shutting of factories in Germany for the first time ever. So, the European, OEMs are facing very challenging environment right now and they don't really want to add billions of euros of fines because they couldn't meet the 2025 emission standards on top of all the other pressures that they're facing.

And then I guess like in terms of China's role in all of this is at the moment the Koreans built, most of the scaled capacity, battery capacity in Europe today is with the Koreans, and most of it is in Poland and Hungary. But there's a large cost differential with China. I would say that the cost of making a battery in Europe is 90 to a hundred dollars a kilowatt hour versus the landed costs from China to Europe of let's say 60 or 65.

Mm-hmm. Hmm. So of course the European, like facing all of these pressures, especially around the profitability of EVs, they very much want to be, increasing import from China, and I guess perhaps taking less batteries from the Koreans in Europe. And that's leading to a situation where the utilization of the Korean battery capacities in Europe is below 50% last year.

As Chinese imports lower cost imports displace production in Europe, but at the same time, Europe has this net zero industry act where they've given themselves a benchmark that 90% of the batteries that go into electric vehicles by 2030 get made in Europe. Mm-hmm. So it's like a real funny situation where like the existing scaled capacity you have at Europe, in Europe are operating at below 50% utilization.

You're increasing your import dependency or taking more batteries from China, and you put tariffs on Chinese EVs which kind of caused the, the, the China battery maker or the China EV supply chain enthusiasm to build capacity in Europe to wane, right? Like, we're not going to help you build out a European supply chain if you're going to tariff our EVs.

So I think that Europe is kind of this. You know, you could have a lot of outcomes, right? You could have them say, what, we can't be, we can't have 90% of the batteries. Oh, and the final point is, is that like a solution that I think Europe saw was European new entrants like Northvolt and PowerCo, which is the battery arm of, of VW or ACC or a number of others.

And now the largest and most promising of those startups HA, has just filed for bankruptcy. Right. So now like this, 

Joseph Jacobelli: yeah, I was going to ask you about Northvolt actually. 

Tim Bush: Right. So, so now, like, I think, and, and at the same time as ACC and Powerco are scaling back their own capacity ambitions. So the idea that the path to European, like onshore batteries is coming with European new entrant just doesn't, no longer seems credible.

So either, they, maybe they could JV with the Koreans or JV with the Chinese. But, either way, it's going to cost more to make a battery in Europe than it is in China. So there’s, a number of, I think, I think kind of, what, what, what share will Chinese imports have in 2030?

Is a, a real, big question. We think they'll probably still going to have, like on the current path that we're on, we think that imports will account for half of battery. European battery demand. Mm. But of course, that contrasts to the benchmark that imports can only account for 10%. So we have this kind of a number of let's say inconsistencies.

Joseph Jacobelli: In terms of the evolution of Chinese EVs. And you're, you're obviously a lot closer to the subject than I am. But I mean, the improvements in terms of the quality of what you get is absolutely astounding and , what is available in Europe right now is already pretty good and what's coming such brands as MG is absolutely incredible as well in terms of like the internal electronics and what, what you can do with a car and the range, et cetera, et cetera.

All of that at prices, which despite the current tariffs are still quite attractive. So, and, and one, one final point is, it used to be that people are worried about range. There's this range anxiety. But as EV charging infrastructure is slowly but surely improving in a, in a variety of countries, that that doesn't seem to be the primary concern.

And maybe the primary concern is simply price. You know, what can I get for 20,000 euros, 30,000 euros, 40,000 euro for a car? How do you see the improvement in the quality of what the Chinese makers can offer in terms to consumers in Europe? 

Tim Bush: I mean, what I can say is that a lot of the European and maybe the US OEMs have been stuck in the internal combustion engine world where, you are kind of already at a mature technology.

Launching a new vehicle platform once every five years is, acceptable, right? You have some refreshes, but in terms of a new platform, you do it every five years. And that's the way they approached electric vehicles. So, the, the, the ID series vehicle that VW. Launched the like ID three or ID two that they launched in ID three that they, and four that they launched in 2020 is still more or less the same vehicle that's being sold today.

I mean, without Right. Any meaningful changes. Mm-hmm. Mm-hmm. Mm-hmm. Whereas like BYD and Tesla have realized that this is a new technology, and we need to be iterating. Mm-hmm. So every year they're iterating, making iterative improvements and, I can't speak to the infotainment system. I can mainly speak to the battery and how the battery is integrated into the chassis of the vehicle.

Mm-hmm. And what I can say is, at least around the battery, like the Chinese, in terms of integrating the battery into the, into the vehicle, they're, that they've more or less every year, they've kind of made upgrades, they've taken weight out, they've, they went from sort of cell to pack, to cell to body, to cell to chassis, and meanwhile, the European OEMs are still largely in the technology of like battery to vehicle integration that China had mm-hmm. In 2018. Mm-hmm. Mm-hmm. Mm-hmm. 2018, 2019. So to me, this is like, and, and so if I look at among the traditional OEMs, who is doing it a little better? Obviously, Tesla is doing a similar, similar iteration, iterating each year and Hyundai is another company. And I think part of the reason that Hyundai can do this is that they have a captive battery pack maker in Hyundai Mobis. So they have the ability to produce the battery system in-house, whereas the traditional OEMs are relying on, tier one, tier two auto parts suppliers.

Joseph Jacobelli: Understood. Well, I can testify that the Chinese vehicle infotainment is pretty awesome. But anyway Tim, I really, really, really appreciate, all of the insights and the clarity with which you've explained some incredibly, incredibly complex issues and, and technologies.

Do you have any kind of final remarks or key takeaways before we wrap it up? 

Tim Bush: I mean, I think, I think, Joseph, you really, touched on, the key issues that, from Yeah. That, that, from policy to, to battery tech. So it was a very good. 60 minutes. We covered a lot of ground, so thank you for, for hosting.

Joseph Jacobelli: No, and thank you very, very much for your time, Tim. I really appreciate it. And yeah, and, and hopefully we can do this again, maybe sometime next year and see all of the changes which will have happened, which is something I think pretty sure. 

Tim Bush: I would love to. 

Joseph Jacobelli: Thank you so much.

Thank you for listening to this episode of the Asia Climate Finance Podcast. Please note that the Asia Climate Finance Podcast is presented for educational purposes only. All information in the podcast must not be construed as investment advice. Always consult a licenced investment professional before making investment decisions. The views and opinions expressed by our guests are personal and may not represent those of current or previous employers.