AYABONGA CAWE: Test for SA carmakers as EU votes on Chinese EV tariffs

Short of orders and cash, with creditors scrambling for a plan, Swedish battery maker Northvolt needed to raise $737m to make its payroll this month, something of a let-down for all the European capital that has been ploughed into the battery “giga-fab” on the European common market’s doorstep.

It is a lesson on an age-old economic problem — overproduction, not only in Sweden, but across the interwoven global economic relationships that define the existing and new technological platforms producing the products we all use daily.

The classical economists foresaw this. As Karl Marx observed in his critique of David Ricardo’s ideas, the characteristic features of an economic crisis often involve interruptions in the realisation of value in converting commodities back to money, as with supply chain blockages, wars or just producing too much stuff compared with the prevailing distribution of, and ability to earn and spend, money.

“[There] is a superabundance of all means of reproduction,” Marx suggested, “and a superabundance of all kinds of unsold commodities on the market.” This state of play results in “bankrupt capitalists” and “destitute starving workers”.

A crisis of overproduction easily becomes a crisis for workers, shareholders and bankers too. Lenders gave Northvolt $5bn in funding to expand its gigafactory in January. The lenders — including Deutsche, Siemens, BNP Paribas and JPMorgan Chase — not only had that money “on the line” but also had to contend with 6,000 people on the payroll.

Ominous signs followed the announcement of factory closures by Volkswagen, Northvolt’s main shareholder and one of its main customers, arising similarly from capacity underutilisation. BMW is also reported to have cancelled a planned $2.2bn order from Northvolt in June. 

As this drama unfolded, Beijing and Brussels agreed to intensify discussions to avert the tariffs EU Commission president Ursula von der Leyen had warned might arise from the outcome of a European anti-subsidy probe into electric vehicles. China has offered a price undertaking (“a commitment to raise prices on EV exports it sells into the EU, above a particular level”) in line with World Trade Organisation anti-dumping rules.

Whether this tête-à-tête will lead to a favourable outcome for Beijing remains to be seen. European legislators vote on Wednesday on whether to slap tariffs on nearly half of all Chinese-made EVs sold in the common market.

Northvolt has paused production of cathode active materials going into lithium-ion batteries, opting to import the materials from China or South Korea instead.

Chinese battery-makers are intensely focused on not only expanding markets abroad but intensifying investment in research & development. CATL grew its R&D investment spending by a multiple of eight in 2018-23. Last year it spent $2.5bn on innovation as China announced plans to expand capacity by 5.8 terawatt hours, almost double the existing global capacity.

As Beijing’s trade negotiators work to eke out a deal, these mounting inventories in battery capabilities and successfully clearing them to be sold elsewhere lies at the centre of China resolving what many see as a deflationary episode in that economy.

These developments complicate SA’s evolving policy landscape. The European market, where nearly half of our auto exports go, has shown stagnant EV sales growth. It is the same export market on which a domestic business case for battery component fabrication and assembly in SA has been reliant. Accessing the European market depends on ensuring just less than two-thirds of value addition is within the region, but also that there is demand.

What happens in Brussels over the next few days will not only signal to what degree European money will continue to underwrite the losses at Northvolt. It may also frame whether one of our main auto-industrial policy assumptions holds — that of a European market ready to receive vehicles and components made in SA. 

• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.