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Excavators and drillers at work in an open pit at Tenke Fungurume, a copper and cobalt mine 110 km (68 miles) northwest of Lubumbashi in Congo's copper-producing south on Jan. 29, 2013.Reuters Staff/Reuters

U.S. President Joe Biden found out the hard way that supply chain obstacles are bad news for Corporate America. He moved fast to hand US$50-billion to the U.S. semiconductor industry after chip shortages began to shut down auto production.

The chip glitch was a wake-up call for car companies, which had been spoiled by the endless supply of everything they needed to keep their assembly lines rolling – steel, aluminum, copper, rubber, glass, plastic, electronics. Even when their purchasing managers squeezed prices, the supplies kept coming. America the bountiful!

What Mr. Biden and automakers may not fully realize is that the chip shortage may just be the start of their supply problems. That’s because all the auto biggies are converting their fleets to electric power, which essentially means they are becoming battery companies. The economic and strategic risks of this move are enormous.

Since cobalt is an essential component of lithium-ion batteries, automakers will become beholden to the Democratic Republic of the Congo (DRC), where 75 per cent of the world’s cobalt is mined, and to the Chinese mining companies that dominate the metal’s production in that country. Switzerland’s Glencore may be the single biggest cobalt miner in the DRC, but it is the Chinese companies that are coming on strong and seem intent on taking over the global cobalt industry.

Chinese companies already account for 55 per cent of the DRC’s cobalt production; the figure would be 90 per cent if Glencore were to sell its cobalt mines to them (there is no indication Glencore is looking for a buyer, since cobalt is at the very heart of its “clean” metals mining empire, but everything has its price). China also controls most of the world’s cobalt refining.

China’s long-term game plan for cobalt is only now coming into focus.

About 20 years ago, China launched its so-called “Going Out” strategy to secure natural resources to feed its phenomenal industrial growth. Inevitably, its state-owned companies landed in resource-rich Sub-Saharan Africa. At the time, Western mining companies were fleeing the volatile region; China was happy to fill the hole.

One of its biggest cobalt moves came in 2015, when China Molybdenum, known as Moly, bought a 56-per-cent stake in the DRC’s Tenke Fungurume mine, one of Africa’s biggest copper and cobalt producers, from U.S. copper giant Freeport-McMoRan. In December, Freeport sold a 95-per-cent share of its Kisanfu copper-cobalt mine in the DRC to Moly for US$550-million. The two purchases turned Moly, the world’s largest tungsten producer, into the second-largest name in the cobalt business.

But that wasn’t the end of the DRC cobalt story for Moly. Earlier this month, CATL, China’s state-controlled battery champion, paid US$137.5-million for a one-quarter stake in the Moly subsidiary that owns the Kisanfu mine. The deal sent a minor shockwave through the auto industry. Here was a battery maker so concerned with the security of cobalt supply that it actually bought into a mine that will produce much of that supply.

CATL’s vertical integration move – owning the raw material used to make the products it sells to customers – was savvy. It guarantees the security of its cobalt supply, which means competitors can be deprived of it. Ownership also provides a hedge in case prices rise (cobalt is up 50 per cent since the start of the year).

For non-Chinese battery and EV makers, China’s near lock on the global cobalt market (and rising market share in nickel, another crucial metal for EV production) presents a potential nightmare.

EV makers such as Tesla have been reducing the amount of cobalt in their car batteries, but the metal cannot be eliminated – not until a breakthrough technology is developed. At the same time, EV production is soaring. In 2020, global production climbed 43 per cent, to more than three million vehicles. Deloitte forecast last year that EV sales would rise by a compound annual rate of 29 per cent for the next decade, reaching more than 31 million cars by 2030.

In other words, demand for cobalt will be relentless, and there is no easy fix. Lack of raw materials is not constraining chip production; manufacturing bottlenecks are the problem, and they can be fixed. But neither the EV companies nor Mr. Biden can conjure extra cobalt supplies out of thin air.

The supply constraints may force Western automakers to make radical corporate moves. Already, Glencore is supplying cobalt directly to EV and battery makers, cutting out the middlemen. To ensure even greater security of supply, they might have to do what CATL did – take a stake in a cobalt mine. An extension of that strategy could see them buy into cobalt mining companies.

A business called Glencore-Volkswagen or Glencore-Ford may seem ridiculous today, but is not out of the question as China tightens its grip on the global cobalt market. Were that to happen, automakers would go full circle. A century ago, Henry Ford was so obsessed with security of supply that he bought the coal mines, the railroads, the timberlands, the sawmills, the glassworks and even the freighters that kept Ford Motor Co. factories filled with the raw materials they needed. China’s near stranglehold on the cobalt market might trigger a similar strategy.