Western companies seek to reduce China's dominance through investment in synthetic graphite

Companies in the United States and Europe have chosen a new way to tackle China's dominance in graphite supplies, an important component in most electric vehicle batteries. They are investing in synthetic graphite production, but experts say it will be an uphill battle, Reuters reported.

Synthetic graphite was developed in the late 19th century, but it was only in the past decade that it began to be used in electric vehicles. Its use is growing rapidly. By 2025, synthetic graphite could account for as much as two-thirds of the electric vehicle battery anode market, estimates Benchmark Mineral Intelligence. Each electric vehicle requires an average of 50 to 100 kilograms of graphite for its battery anodes, or negative electrodes. That is roughly twice the amount of lithium required.

The synthetic graphite market will grow by more than 90 percent over the next five years, according to research firm Mordor Intelligence. Its value is expected to reach USD 4.2 billion (CZK 96.3 billion) in 2028. However, companies looking to move in this direction face enormous competition from China, which processes more than 90 percent of the world's natural graphite, used in virtually all electric vehicle anodes. Chinese battery-materials giants such as BTR and Shanshan are also investing hundreds of millions of dollars to increase synthetic graphite production.

The introduction of synthetic graphite into the battery supply chain “is mature and commercially successful in China,” said Victoria Hugill, an analyst at British research firm Rho Motion. Chinese producers control a significant share of the small but growing synthetic graphite market. But two factors are driving the arrival of new companies such as US-based Anovion, Australia's Novonix and Norway's Vianode, Hugill noted.

One factor is that it is easier to set up a synthetic graphite plant than to bring new natural graphite mines into operation. Producers can take advantage of incentives in the Inflation Reduction Act (IRA), passed last year, if production takes place in the United States or in partner countries in the North American free trade zone. And new plants do not need to be located near a graphite mine, Hugill said.

Anovion is building an USD 800 million synthetic graphite plant in Georgia, while Novonix is building one in Tennessee for USD 160 million. Both companies will benefit from US government incentives. However, building new synthetic graphite production plants requires enormous investment even with government incentives, Novonix CEO Chris Burns noted.

Vianode, owned by Norsk Hydro and battery manufacturer Elkem, plans to build synthetic graphite plants in Europe and North America. By 2030, it aims to have plants with enough capacity for two million electric vehicle batteries. Former Hydro executive Hans Erik Vatne points out that the company's synthetic graphite production process is powered by renewable energy and has a carbon footprint 90 percent lower than that of graphite from China. Vianode's approach thus addresses concerns that the synthetic graphite production process, traditionally based on fossil fuels, is unsustainable.

Vatne also cites faster charging and longer battery life as advantages of synthetic graphite. Other experts add that synthetic graphite is generally purer and offers more predictable performance than natural graphite. Vatne is currently interim chair of Vianode's board.

The price gap between the two materials has narrowed significantly this year. This is prompting manufacturers to blend more synthetic material into battery anodes. Anode costs account for less than ten percent of the cost of an electric vehicle battery cell.

China will continue to dominate the synthetic graphite market, according to research firm Fastmarkets. By 2030, its production is estimated to rise to two million tonnes from around 1.6 million tonnes this year.

“The reality is that China will be the biggest player in this market for the next ten to twenty years,” Burns said.