Question

The demand for electric cars created demand for the batteries to power them. Cobalt is a key mineral used to produce batteries. The source of 54% of cobalt is the Congo. Cobalt is mined by industrial miners and freelancers. Freelancers include children. These miners rarely wear masks and they often face crippling injuries. These working conditions are a concern for wholesalers who are trying to buy more cobalt from industrial miners who have greater control over the production process. Cobalt prices increased more than 230% since the end of 2015. China is a major purchaser of cobalt. Electric vehicles and battery production are part of a government-sponsored push in China. The government provides subsidies to battery makers. China's dominance of the cobalt supply chain is an advantage. The demand for batteries for electric vehicles face a fragmented supply chain and production. The Chinese want to be at the center of battery production. One threat might be technology that could lead to batteries that use less cobalt. As production ramps up supported by the Chinese government, prices might fall as happened in the solar-module market.

CLASSROOM APPLICATION: This is a supply chain story with a twist caused by the Chinese government's support for the electric battery industry. China controls a significant percent of the supply of cobalt which is needed to produce batteries. The government sets targets for Chinese battery manufacturers. Support for production is contingent on the energy density of the battery. China wants to add 150 gigawatt hours of production in the next three to four years which is large compared to Tesla's gigawatt factory in Nevada which will add 35 gigawatt hours by 2020. The ability of battery makers to scale up production supports the electric car industry. In addition to discussing the fragmented supply chain and the role of government subsidies, students can review the trend away from freelance miners to industrial miners. Buyers find industrial miners more socially responsible. Students can diagram the supply chain to understand China's role.

QUESTIONS:

1. Review the problems associated with sourcing cobalt from freelancers for companies that want to be socially responsible. (scroll down to see more questions)

2. Why does the Chinese government identify strategic emerging industries and provide them with production targets and subsidies?

3. (Introductory) How do subsidies affect the market prices? Use solar-panels to illustrate your answer.

4. What are the anticipated production goals in China set by the government and why is their size significant?

5. What are the potential threats to the U.S. electric vehicle industry if China dominates the battery market and cobalt supplies?

Answer 1

1.Review the problems associated with sourcing cobalt from freelancers for companies that want to be socially responsible.

Answer-Freelancers for companies observed two major problems associated with sourcing cobalt:

• Extracting cobalt requires labor efforts and is not easy job and the freelancers doing it are not equipped with any kind of safety gears and masks. This makes them much prone to injuries
• Major of the freelancers are children who are not the right people to do this job as per their age and also significantly, it indicates violation of Child Labor Laws

2. Why does the Chinese government identify strategic emerging industries and provide them with production targets and subsidies?

Answer: Production of electric vehicles are sponsored by the Chinese government and it want to control this new emerging business. It wants to have following advantages with the product targets and subsidies:

• Strategic control over market and become the industry leader
• Providing subsidies will enhance production activities
• It continues to have benefit from the supremacy of supply chain.

3-How do subsidies affect the market prices? Use solar-panels to illustrate your answer.

Answer: Subsidies help to keep the price under control as intervention of the government is the Key. It keeps the prices reduced to the levels people can afford and start using it. Solar panels are promoted by government for the social welfare for reducing the use of non-renewable sources of energy. With subsidies in place, up to 70% subsidies over the cost are available and there is no imbalance created by demand-supply mechanism.

4. What are the anticipated production goals in China set by the government and why is their size significant?

Answer- The anticipated productions set by Chinese government are 330% higher than US (Tesla factory of Nevada) and are 150 gigawatts of production.

As the percentage speaks for itself, the numbers are really significant for China to:

• Be the market leader
• Establish control
• Revenue

5.What are the potential threats to the U.S. electric vehicle industry if China dominates the battery market and cobalt supplies?

Answer: Following are the potential threats to the U.S. electric vehicle industry if China dominates the battery market and cobalt supplies:

• Production scale of electric cars will be lower in US
• Ongoing trade-wars have tiff situations and this move will put US on backfoot
• US will not enjoy the perks of new technology of production as China holds major cobalt supplies