Sharing the post carbon economy means building a resilient EV supply chain

Brazil China Economy & Business Energy & Environment Energy Transitions European Union G20 India International Markets Japan Korea Trade United States and Canada

Report September 9, 2024

Sharing the post carbon economy means building a resilient EV supply chain

By Sarah Bauerle Danzman

Executive summary
The EV transition as an economic security challenge
The G20 as a forum for EV policy dialogue
The current global EV supply chain: Six insights
From insight to policy dialogue: A blueprint for G20 action
Conclusion
Appendix

Executive summary

Wide-scale electric vehicle (EV) adoption creates substantial economic opportunities as well as complex threats to G20 economies. G20 countries account for over 90 percent of final production and 86 percent of value-added in global demand for automobiles—both internal combustion engine (ICE) vehicles and EVs. Their path toward EV production, however, has been uneven, with five companies capturing 55 percent of this rapidly growing market in 2023.

The EV supply chain also has serious vulnerabilities stemming from overconcentration of the upstream value chain for battery production. China’s market dominance over certain critical minerals—especially cobalt, lithium, and rare earth elements refining—and battery components has made other major economies feel vulnerable to potential supply chain disruptions. These fears are heightened by the PRC’s export ban on technologies related to the refinement and processing of these minerals as well as the country’s history of sanctioning other nations by imposing de facto bans on critical mineral exports. Countries such as the United States have responded to these threats with discriminatory industrial policies of their own, potentially creating defensive spirals even among otherwise friendly nations that believe they need to secure critical mineral autonomy because they cannot count on trading partners to fulfill their battery input needs as demand for such goods accelerates.

Until now, most policy discussions around EV supply chains have either been economy-specific—for example, the US EV supply chain, the EU EV supply chain, the Chinese EV supply chain—or have focused on the ways in which these three major economies’ EV transitions threaten one another. However, the collective challenges and opportunities of the electric mobility revolution extend beyond the “big three” economies, and demand dialogue among and solutions from a more inclusive set of players.

Collaboration among G20 economies can increase supply chain resilience, provide sustainable development and employment opportunities across G20 economies and beyond, and deliver on international commitments to achieve carbon neutrality. At the same time, the EV transition raises substantial questions of economic and national security, including how to ensure dominant positions in key parts of the supply chain are not used coercively, how to encourage rapid advancement of EV technology while continuing to safeguard related innovation that has military and surveillance applications, how to rapidly build charging infrastructure (Indonesia, for example, has only 700 public charging stations), and how to protect the vast amount of data that EVs collect against improper use. And, as governments embrace industrial policies to better position their economies for this major industrial transition, they run the risk of seeding unproductive subsidies wars, generating oversupply that creates profitability problems for private industry, and hurting diplomatic relations between allies and partners.

This report advances the policy discussion by compiling trade, investment, and EV industrial policy data across the G20 to illustrate six key insights:

EV production is more concentrated—both in terms of production site and the nationality of who owns production—than production of ICE vehicles.
The rapid pace of Chinese EV export growth has the potential to threaten other G20 members’ ability to transition their legacy ICE industry to EV manufacturing.
Even as G20 countries work to build domestic EV battery capabilities, their reliance on Chinese upstream battery inputs has grown.
Rather than facilitate the development of regional manufacturing clusters, Chinese EV-related foreign direct investment (FDI) across the G20 has largely reinforced its centrality to the battery supply chain.
G20 economies are rapidly expanding EV-related industrial policies that are uncoordinated and may be operating at cross-purposes.
The build-out of EV charging infrastructure is desperately needed to boost EV adoption, but it will also stoke contention as countries disagree over procurement policies and data security.

This report recommends that the G20:

Implement a task force on the electric vehicle transition to facilitate dialogue around key, transnational issues related to EV production and wide-scale adoption. It should also examine how to ensure the benefits of the EV industry are widely shared among diverse economies and that the related decline in the legacy ICE industry is managed in a manner that avoids long-term economic displacement, poverty, and political instability.

Build on the framework introduced in the May 2023 G7 Leaders Statement on Economic Resilience and Economic Security, and commit to cooperating on critical mineral supply chain resilience, especially by agreeing to refrain from restricting trading partners’ access to critical minerals, raw or processed, or to technologies for extracting or processing these critical minerals.

Jointly monitor critical mineral production, stockpiles, and prices; and coordinate on price stabilization efforts intended to ensure diversified ownership and supply of raw and processed critical minerals.

Develop a framework to limit the profligate invocation of national security exceptions in the justification of trade, investment, and industrial policy measures related to EVs and their supply chains. Overuse of national security justifications risks undermining the rules-based, nondiscriminatory, free, fair, open, inclusive, equitable, sustainable, and transparent multilateral trading system with the WTO at its core to which the G20 reaffirmed its commitment in 2022.

Support and advance efforts to set shared digital privacy and safety standards for connected vehicles, especially with respect to whether and how public charging infrastructure collects, analyzes, stores, and provides access to EV data.

Facilitate ongoing dialogue about the composition and distribution of EV supply chains, including by regularly sharing information on country governments’ production and consumer supports and proactively addressing concerns about potential overcapacity and trade dumping.

The EV transition as an economic security challenge

Perhaps no single item more fully instantiates the opportunities and challenges of the emerging “economic security” consensus than an electric vehicle (EV). EVs incorporate advanced battery storage technology and substantially more semiconductors than internal combustion engine (ICE) vehicles¹—in addition to advanced integrated circuits to power artificial intelligence (AI) applications and sensors for autonomous driving and related safety features. Advanced steel, including electric steel, is also an important component of the EV supply chain. The push to increase battery electric vehicles’ (BEV) range and to reduce charging times also prompts EV manufacturers to continually innovate to secure efficiency gains across semiconductors, systems, and battery technology. All these technological developments rely on collecting and analyzing mountains of data produced by EVs. Moreover, while EVs will propel technological innovation, contribute to carbon neutrality, and create new sources of employment, they also present threats related to dual-use technology leakage, surveillance, and cyber sabotage and to players in the ICE supply chain who will no longer be relevant.

It is in this context that EVs—and the industrial policies governments are pursuing related to their development, manufacture, and adoption—are generating friction among major economies, including among allies. While semiconductor policy is also high on the policy agendas of most major economies, issues around integrated circuits are more easily understood through a national security lens. EV policy, on the other hand, touches on matters of security, industrial competition, climate change adaptation, infrastructure, and populist job programs. Trade-offs abound between climate and affordability goals and policy priorities rooted in security, self-sufficiency, and economic competitiveness. Initially governments viewed the EV transition as a market-making opportunity and focused public policy on subsidizing the consumer costs associated with EV adoption, but now more governments are expanding “behind the border” industrial policy subsidies to support domestic EV production as well as “at the border” tariff and non-tariff barriers to trade.

The urgent need for multilateral dialogue on these issues is clear. As Chinese exports expand rapidly, G20 countries working to help legacy auto manufacturers transition to EV production cannot afford to let cheap imports prevent domestic producers from developing EV manufacturing capabilities. An uncoordinated, expansive use of industrial policy is likely to create even more economic, political, and diplomatic challenges. Subsidy wars are distortive and expensive, tariffs raise costs and frequently lead to retaliation that can spill over into other industries, and expanding charging infrastructure will stress the current rules and practices around public procurement. They also only work for wealth countries with large internal markets with the fiscal resources to subsidize their auto industries, the local markets to support them, and diversified trade profiles that can weather trade retaliation from China.

What’s more, concerns about research and development integrity, intellectual property rights enforcement, and leakage of dual-use battery and autonomous driving technologies serve to heighten existing concerns over corporate espionage, critical technology leakage, and defense supply chain integrity. And, each of these issues threatens to complicate, delay, and add to the cost of a massive transition from high-carbon to low-carbon mobility systems. Despite the urgent need for discussion, standard setting, and mutually agreed upon rules to coordinate mutually beneficial cross-border research, development, production, and trade, multilateral institutions are poorly equipped to address these multi-layered concerns. The WTO system has been badly weakened by the absence of a working appellate body and by the continued disagreement among WTO members over whether national security exceptions are justiciable.

Even if the appellate body were fully functional, the structure of WTO dispute settlement is not well suited to resolving trade challenges that arise in the context of rapid technological change. That is, governments increasingly view the EV transition as one requiring a rapid response, not necessarily to facilitate widespread consumer adoption of such vehicles, but instead to ensure that their industrial base and largest auto manufacturers can be competitive in the domestic and global EV markets. The WTO system of identifying a harm before initiating a protracted legal process of restitution offers little help to countries worried that without swift and preventive action their auto manufacturing capacity—and its substantial contribution to GDP and employment—will be decimated by cheap imports.

The emergence and growth of the EV sector presents fundamental, complex policy choices that demand a degree of global governance. Lessons learned from, and institutional arrangements designed to meet, the challenges of EVs can then be transferred to other areas that straddle today’s most pressing geoeconomic issues: climate transition, national security, economic dependence and coercion, emerging technologies, economic competitiveness, and job creation.

The G20 as a forum for EV policy dialogue

There is no shortage of commentary on electric vehicle and battery supply chains. These tend to focus on fears within the United States and the European Union (EU) of a “China Shock 2.0,” in which Chinese EV companies’ overcapacity-driven exporting undercuts the major incumbent car manufactures, drives them into irrelevance, and guts the domestic automobile industrial base. It is for this reason that the United States, the EU, and a few other G20 economies recently substantially increased tariffs on Chinese-made electric vehicles.

The promises and challenges inherent in the EV transition are not limited to G7 economies. As an increasing number of countries develop policies to address their concerns, the economic and security implications of an EV supply chain dominated by China cannot be accomplished through a series of national-level policies implemented in isolation and without consultation, coordination, and compromise.

The G20 is the country grouping best able to bring the most relevant actors to the table. Collectively, G20 countries represent 80 percent of global world product, 75 percent of global trade, and 66 percent of global population. At the same time, 18 countries plus two regional bodies is a manageable number of capitals for effective policy dialogue and coordination. The grouping is trans-regional and contains some of the most important EV consumer markets—both mature auto markets and the largest emerging ones—and producer markets, including the biggest auto manufacturers, the largest emerging EV manufacturers, and the countries where the majority of the battery supply chain (beyond mineral extraction) takes place. This makes the G20 the smallest grouping of countries that represents the largest set of governments, corporate actors, and civil society relevant to the development of the EV industry and the managed decline of the ICE industry.

Trade data illustrates the importance of G20 markets in driving the global automobile industry. The G20, inclusive of the EU, represents 86 percent of value added in global demand for all automobiles—ICE and EVs—and over 90 percent of all vehicle sales.² Table 1 provides details about the role of G20 economies as both major producers and consumers of automobiles. The data combines statistics on traditional ICE vehicles with production and sales of EVs. Most G20 countries’ automotive sectors are both substantial drivers of their broader economies and also are highly integrated globally. Only China, Japan, India, and the EU single market have less than 20 percent foreign content on a value-added basis.³

The G20 also dominates the global market for vehicles: It accounts for over 86 percent of value-added in total global vehicle demand and exports roughly 7 percent of vehicles it produces (approximately 5.3 million) to non-G20 economies. It is also practically self-sufficient as a bloc, with less than 2 percent of value added in G20 final demand for vehicles coming from outside the economic club.

As the G20 transitions to low- and no-emission vehicles, it will have to manage a shift in industrial production that will inevitably create winners and losers. Car manufacturers and suppliers that can deftly switch from producing inputs to ICE vehicles to EV inputs will enjoy substantial economic opportunities, but not all suppliers will successfully manage this transition.

The G20 is the appropriate forum where component governments can discuss, possibly coordinate, and build governance expectations for how to manage this transition in ways that minimize trade, security, and diplomacy frictions while responding to the urgency of climate change, the importance of equitable and shared growth, and the need for cooperative international trade during the mobility transition in the face of increased wariness of economic interdependence.

G20-driven solutions will require hard conversations, tough bargaining, and deft diplomatic solutions. As is discussed further below, G20 countries are geopolitically divided on how to adapt to an EV future. Many domestic policy solutions generate costs for other G20 economies. But, an EV transition without G20 coordination would be chaotic, generate substantial domestic economic costs that could jeopardize global growth as well as domestic political stability, and further erode global economic governance. An inclusive EV future that works for all will require the G20 to find shared solutions and shared expectations about how governments will work to guide their countries toward a post-carbon economy.

The current global EV supply chain: Six insights

There is no lack of research and commentary on the challenges and opportunities created by the EV transition for major economies. What has been largely missing from this conversation, however, is a focus on how the EV trade, investment, and industrial policy spaces create challenges for the G20 as a whole. Below, we examine a range of data to extract six insights into how thinking about the G20 holistically reveals policy challenges that should be addressed through comprehensive strategic dialogues within the grouping.

Insight 1: EV production is more concentrated than ICE production.

The EV market, similar to the ICE industry, is dominated by five economies: China, the EU, Japan, South Korea, and the United States. As Figure 1 reports, the top 20 auto manufacturers by annual revenue are all headquartered within these five markets. But, the emerging EV production network is much more concentrated within a few companies compared to the ICE industry. According to estimates of global market share, BYD and Tesla accounted for roughly 35 percent of the global market for plug-in vehicles in 2023. These two brands, plus VW, Geely-Volvo, and SAIC (including its joint venture with GM), manufactured 55 percent of all battery-powered electric vehicles sold in 2023.

Because EV assembly is concentrated among a few global brands, most EV imports come from just a handful of economies.⁴ Figure 2 underscores the extent of this concentration by showing exports of battery electric vehicles (BEVs) from the five dominant countries to all G-20 economies in 2020 and in 2023.⁵ The number of imported BEVs across G20 economies increased by over 400 percent over this four-year period. Chinese EVs, in particular, have become an important component of imports not only in the EU and UK, but also in many other G20 economies, including Australia, Brazil, and Canada. Figures 3 and 4 illustrate that among smaller markets, there are important differences in EV import composition. Brazil and India both experienced a sharp increase in EV imports starting in 2020-21, but Brazil has become far more reliant on Chinese EV imports, while India has maintained a greater balance between Chinese, Korean, and EU imports.

Insight 2: The rapid pace of Chinese EV exports threatens EV industrial capacity in other G20 economies

G20 countries cannot afford to cede the global EV market to China. And for countries outside of the G7, they are the least able to mount an effective, unilateral defense because they have less fiscal capacity to support their auto industries, are more vulnerable to retaliation if they impose protective tariffs against Chinese EVs, and have smaller domestic markets to attract market-seeking FDI.

With the recent and rapid growth of EV exports, major exporting countries have displayed markedly different patterns in their overall growth and distribution of overseas sales. China’s EV exports, for instance, have risen sharply from a base of almost zero in 2020, with over half of its 2023 exports destined for the EU market (Figure 5). By contrast, the EU’s export trajectory has been more gradual, with EV sales more evenly distributed across G20 markets (Figure 6). The United States has seen more export volatility, with the value of its EV exports falling below its 2019 peak, largely due to declining sales to the EU and China (Figure 7).

Economies with major auto production and consumer markets are equipped to support their auto brands’ shift from ICE to EV production and to retain a substantial proportion of domestic vehicle manufacturing. They have the necessary resources and market size, even in the context of global overcapacity, but it is less certain that emerging markets will be able to weather such storms. As Figures 3 and 4 illustrate, rapid penetration of EVs into smaller and emerging economies is taking place. Research on EV adoption shows that widespread transition from ICE to EVs requires that EVs be made more affordable,⁶ and Chinese EVs are much less expensive, on average, than EVs produced in other major auto manufacturing economies. But, there are concerns that inexpensive Chinese EVs—bolstered by substantial subsidization—will displace sales of domestically produced autos and prevent local industry from transitioning from ICE manufacturing to EV manufacturing. In the past, a number of emerging markets, including Brazil, Argentina, Turkey, Mexico, and Indonesia, built their domestic car industries primarily by attracting FDI from global brand leaders. However, since Chinese car manufacturers have substantial overcapacity in China-based plants, the commercial rationale for offshoring production to these other countries is less clear. Indeed, as Table 2 reports, according to Rhodium data on Chinese FDI in the EV sector, less than 9 percent of Chinese EV-related FDI to G20 economies has been in vehicle assembly or component manufacturing. If emerging economies within the G20 were to be boxed out of the global EV manufacturing ecosystem, it could carry profoundly negative consequences because most of these countries’ GDPs are heavily reliant on the auto manufacturing industry. Approximately 4 percent of Indonesia’s GDP is attributable to the auto industry. In Mexico, the auto industry accounts for 3.6 percent of the country’s GDP and 18 percent of manufacturing output. In 2018, Brazilian officials estimated that the industry amounted to 4 percent of its GDP at and 22 percent of manufacturing output.

Insight 3: G20 economies remain dependent on the Chinese EV battery supply chain

Much of the commentary about the EV supply chain emphasizes China’s enormous market dominance in the upstream battery value chain.⁷ Chinese firms dominate every stage of the battery manufacturing supply chain—from extraction and processing to battery parts and battery packs. Figure 8 illustrates the reliance of G20 economies on China for batteries, a dependency that has increased in recent years.⁸ Figures 9 and 10 provide an even starker illustration of the growing reliance on imported Chinese batteries in emerging G20 economies like Brazil and India.

Many governments have issued policies to encourage domestic EV battery production (see Insight 5), but upstream trade in battery supply chain inputs is even more concentrated, both in terms of suppliers and buyers. As Figure 11 shows, most trade in processed minerals is highly concentrated in China, South Korea, Japan, and the EU. China is also the dominant supplier—not surprising given the fact that China controls at least 60 percent of the processed critical mineral market.⁹ Even as other countries become more important in trade of intermediate battery materials, China’s continued dominance in mineral refining is a critical chokepoint that has not been adequately addressed. Figure 12 illustrates this dynamic: South Korea has emerged as an important global exporter of battery materials, but it remains heavily reliant on China’s mineral processing input. Figures 13 and 14 show that Brazil and India’s imports of battery materials are more diversified than their imports of batteries, but this obscures how much of their battery material production is in turn dependent on Chinese processed minerals.

Insight 4: Chinese EV FDI may exacerbate concentration of industrial production and control

As previously mentioned, emerging economies have fostered domestic auto manufacturing through a combination of policies that include incentivizing FDI from major global car brands. One path to building local EV industrial capacity is by attracting FDI across the EV value chain—especially from Chinese car manufacturers that have rapidly developed high quality EVs that can compete on price and on quality. Figure 15 provides information on the value of Chinese EV-related FDI across the G20 from 2014 through 2023. It shows that Chinese FDI is aimed primarily at the battery supply chain rather than assembly and component part manufacturing. Across Argentina, Australia, Brazil, and Indonesia, these investments are concentrated in mining and refining and processing of mined materials, which may help diversify the site of critical mineral production but not who owns and controls these resources. China has concentrated its investments in the EU/EEA, the United States, Canada, South Korea, and Indonesia in battery manufacturing and related materials manufacturing.

While these investments help to transfer important technology and process innovation to these host economies, policymakers debate whether such investments also help to diversify the EV and battery supply chain or simply maintain China’s ownership dominance. The issue is particularly thorny when policymakers look at Chinese investments in countries with which they have preferential trade agreements. For example, does Chinese investment in Central and Eastern Europe battery plants help the EU become less reliant on Chinese EV battery imports? Or, do such investments make them more dependent on the continued interest of Chinese companies to maintain operations—and the unencumbered flow of related goods—in their economies?

Ensuring that a local industry does not become too dominated by companies from one foreign country has emerged as a key topic in discussions related to investment screening policies. Indeed, the United States’ keen interest in Mexico developing its own investment screening mechanism is directly linked to concerns that China may attempt to use Mexico as an export processing base through which to serve the North American market while avoiding US tariffs on Chinese batteries and EVs. However, as Figure 16 illustrates, almost all Chinese investment in the EV industry has been through greenfield FDI, and most investment screening mechanisms review only cross-border mergers and acquisitions.

Insight 5: G20 EV industrial policies are increasingly in conflict

Table 3 provides an overview of the industrial policies G20 economies have developed in recent years to support their EV industry.¹⁰ It is clear that countries differ quite a bit in terms of how much they prioritize and protect domestic manufacturing of EVs versus focusing on widespread EV adoption for climate change purposes. On the extremes, Australia’s EV policies are almost entirely geared toward adoption as they no longer have a domestic vehicle manufacturing industry to protect, while Argentina has an industrial policy designed to spur development of a domestic EV industry primarily for export, doing little to underwrite a domestic market for EVs. The data reveals that most G20 economies are using industrial policy to build capacity across the entire EV supply chain rather than to specialize in one component of it, and that a substantial number of these economies are crafting policies to support exports. Some are also willing to use tariffs to protect their EV vulnerabilities, which is in stark contrast to just a few years ago when many countries kept EV tariffs low to stimulate adoption. For example, Brazil set its EV tariffs at zero from 2015 through the end of 2023, when it allowed most favored nation (MFN) EV tariff rates to move up to 35 percent. Moreover, while almost all G20 countries have industrial policies for critical minerals and their processing, there are growing concerns that uncoordinated efforts to boost domestic production will make it harder to achieve supply chain diversification. For example, because Indonesia accounts for over 60 percent of nickel mining, its ban on unrefined nickel exports means that other countries cannot effectively build up diverse nickel refining facilities due to their inability to source adequate supplies of nickel ore from refining facilities located elsewhere. As governments across the G20 race to bring more mining and refining facilities online, they risk creating price instability that can make it challenging for the industry to stay commercially viable. Declines in critical mineral pricing in 2023 illustrate how uncoordinated industrial policy can backfire by increasing supply too quickly, thereby making new mines commercially unviable.

Insight 6: The charging infrastructure build-out will create discord over procurement policy and national security

Table 3 also shares data on the number of publicly available EV charging stations each G20 member possessed in 2023.¹¹ According to the International Energy Association, charging availability in most G20 countries remains low. Argentina has only 1,300 stations, and Indonesia has 700. The paucity of stations is a binding constraint to EV adoption.¹² At the same time, EV charging is data intensive and data intrusive. Just as 5G wireless infrastructure build-outs caused consternation over trusted (and untrusted) suppliers, data security, and what constitutes a level playing field when competing for government procurement, EV charging will spark the same policy fights. And these concerns will be further heightened by government directives regarding the security of connected cars, such as the Biden administration’s recent executive order seeking to protect against national security risks.¹³ Disagreements over EV data security and privacy will no doubt spill over into trade disputes when governments can point to data security concerns as a justification to prohibit vehicle imports they deem to be insufficiently secure.

From insight to policy dialogue: A blueprint for G20 action

The insights above provide a clear argument for why the G20 needs to engage in comprehensive dialogues to manage the complex challenges and opportunities of the EV transition. While different G20 working groups touch on issues related to EVs, such as the energy transition, climate change, employment, and trade and investment, there is no group with the G20 structure that is focused on EVs directly. This should change. The G20 should implement a task force on the electric vehicle transition to facilitate working- and high-level dialogue around key, transnational issues related to the production and wide-scale adoption of electric mobility as well as how to effectively ensure the benefits of the EV industry are widely shared among diverse economies and that the related decline in the legacy ICE industry is managed to avoid long-term economic displacement, poverty, and political instability. This task force should focus its efforts around three primary objectives:

Objective 1: Foster resilient critical mineral & battery supply chains

As described above, reducing dependence on Chinese battery materials, parts, and finished products has become a central component of many G20 economies’ EV industrial policies. Relying on Chinese supply creates multiple risks. The COVID pandemic and supply chain shocks exposed the fragility of overly geographically concentrated supply chains to exogenously determined disruptions. Moreover, the Chinese government has a history of using its control over this supply chokepoint as leverage for economic coercion. For example, China likely restricted Japanese access to rare earth minerals during a dispute over territorial waters in 2010.¹⁴ More recently, in retaliation for the United States imposing increasingly restrictive export controls on advanced semiconductor and supercomputing technologies, China placed its own export controls on several critical minerals (gallium, germanium, and graphite) in 2023. Concerns over the likelihood that the Chinese government could cut off access to essential battery inputs have heightened as sanctions and export controls levied against Russia for its invasion of Ukraine have reinvigorated discussions in Western capitals about economic war plans in the event of threat escalation across the Taiwan Strait and a retaliatory response from China.¹⁵

Coordinating critical mineral investment to avoid price volatility

Diversifying supply is challenging on multiple fronts and requires discussion and coordination among trade partners. First, as governments work to incentivize new mining and processing projects, there are legitimate concerns over the commercial viability of critical mineral plants over volatile price cycles. According to the International Energy Agency’s market outlook, prices for key critical minerals declined in 2023, which reduced investment in mining and processing projects. This price drop likely resulted from the swift build-up in uncoordinated industrial policies that rapidly increased supply. Commercial actors simply cannot make sound long-term strategic decisions in the face of such uncertainty. While the political and security arguments for investing in diverse sources, even if inefficient, are clear to governments, commercial actors will face market pressures to prioritize efficiency rather than maintain redundancy in their supply chains. When commercial actors can’t step in, state-backed actors can, confident their government will provide adequate price and budget supports to bolster weak commodity prices.

As a grouping, the G20 should provide an ongoing forum through which members can jointly monitor globally critical mineral production, stockpiles, and prices. Information sharing, particularly between strategic competitors such as the United States and China, will be challenging. However, providing an opportunity for governments to discuss industry trends as well as how members’ actions are affecting the long-term viability of each one’s mining and processing industries can help to address concerns quickly and multilaterally. Some have advocated for the creation of various clubs to develop allied solutions to price volatility such as price insurance or a critical minerals buying club. These smaller-N solutions may play an important role in solving the challenges of critical mineral supply chain diversification, but dialogue among all major players—even those with whom disagreement is likely and cooperation most challenging—is necessary.

Security of supply and access concerns

Because governments increasingly see access to critical minerals as a security of supply issue, the G20 should engage in dialogues intended to reassure countries they can rely on trade partners to provide continued access to these inputs. Without credible assurances that governments won’t exploit interdependency to extract policy concessions, and that they won’t hoard or ration supplies in response to extreme circumstances (similar to what happened during the pandemic), it will be hard for governments to make good on their desire to diversify supply chains through thicker trade networks and not retreat to self-reliance.

To strengthen trust in security of supply across the G20, its members should build on the framework introduced in the May 2023 G7 Leaders Statement on Economic Resilience and Economic Security and commit to cooperating on critical mineral supply chain resilience, especially by agreeing to refrain from restricting trading partners’ access to critical minerals, raw or processed, or to technologies to extract or process these critical minerals during peacetime.

Like many emerging technologies, EVs, their batteries, and their component parts and systems have both commercial and military applications. The US Department of Defense, for example, is investing in research and development to make EV technologies fit for battlefield requirements, especially around figuring out battery solutions that can be sustained in combat operations.¹⁶ In some of these areas, restricting access to such technologies for national security reasons may be justified. However, because EVs are so central to a post-carbon industrial transition, governments should be very cautious to avoid over-restricting the proliferation of technologies that can aid the speed of electric mobility adoption. For example, China retains export restrictions on technologies related to the processing of critical minerals for use in batteries, a technology that can be used for military purposes but is also of general use to the commercial EV supply chain. Similarly, as larger G20 economies roll out substantial research and development support for EV technology breakthroughs, concerns over research security may create barriers to disseminating technologies that are foundational to the EV supply chain. As a result, smaller, less wealthy countries, with modest domestic markets and fewer government resources to support research, are the ones most likely to be left behind when such technologies are tightly controlled.

The G20 should therefore hold dialogues aimed at developing a framework to limit the invocation of national security exceptions in justifying trade, investment, and industrial policy measures related to EVs and their supply chains. Overuse of national security justifications risks undermining the rules-based, nondiscriminatory, free, fair, open, inclusive, equitable, sustainable, and transparent multilateral trading system to which the G20 reaffirmed its commitment in 2022. Without trust that trade partners will not overuse national security exceptions to restrict or cut off trade in key components of the battery supply chain, governments will be less able to rely on trade diversification for supply chain resilience and instead be pushed toward policies of self-reliance.

In addition, the G20 should support and advance efforts to set shared digital privacy and safety standards for connected vehicles, especially with respect to whether and how public charging infrastructure collects, analyzes, stores, and provides access to EV data. Such standards could help mitigate some of the security concerns related to connected vehicles and the charging infrastructure on which they rely, which in turn, could allow for these issues to be addressed through a regulatory and standard-setting framework, rather than one based on essential security exceptions.

Objective 3: Avoid an industrial policy arms race

The G20 is an ideal forum for countries to engage in proactive dialogues about the trade-distorting effects of industrial policies. While the WTO remains the primary international institution for developing, contesting, and enforcing international trade rules, it is unable to execute these functions on a swift timeframe. The dispute settlement system is currently hampered by the appellate body not being operational—but even if the WTO dispute settlement process were fully functional, it is often unable to address unfair trade practices in time to prevent irreversible harm.

A task force could be the venue for government officials to jointly decide what kinds of industrial policies are considered acceptable and which should be avoided. It could also be a space to discuss controversial topics, such as friendshoring, strategic trade autonomy, and economic security, in a multilateral setting to determine what governments seek to achieve with these policies. To avoid an industrial policy arms race, in which countries’ desire to keep their EV industry competitive lead to ever increasing sizes of subsidies, the G20 task force should facilitate ongoing dialogue about the composition and distribution of EV supply chains; discussions should include shared information on country governments’ production and consumer supports and proactively address concerns about potential overcapacity and trade dumping.

Sticking points

Alongside the three policy objectives, there are three challenges the G20 dialogues recommended above should address and seek to resolve through diplomatic engagement:

Trade and investment restrictions are an obstacle to diversifying critical mineral supply chains: As governments contemplate increasingly aggressive use of export controls, financial sanctions, and entity listings of individuals and their businesses in support of a range of policy objectives, G20 members should consider how such actions may generate unanticipated and undesirable effects in critical mineral supply chains. For example, some in the US Congress are advocating for the use of full blocking sanctions on companies with ties to the PRC’s military. As more countries welcome Chinese FDI to enhance their domestic critical mineral capabilities, to what extent might the more aggressive use of specially designated nationals listings aggravate fragilities in critical mineral chains and generate layoffs and employment challenges in third countries?
Most G20 governments will need foreign investment and technology to build local EV capacity, which makes safeguarding national security and ownership in the industry challenging: Traditionally, governments have been keen to attract investment in emerging technology and manufacturing, as it helps generate employment and facilitate technology transfer, and enables domestic firms to move up industrial value chains. However, as governments become more attuned to overconcentration of ownership in critical supply chains, how should they balance a mandate to attract investment with a desire to prevent foreign companies from overwhelming the ability of domestic firms to develop their own capacities in industries with national security applications? Will the growing incidence of greenfield EV investment by China lead to increased review of these kinds of investments? How should governments evaluate these concerns with respect to outbound investment? Until now, the United States and the EU have been careful to omit battery technology from the list of outbound investment restrictions, but some political leaders have argued for restricting investment in such activities as well.
Location-based rules of origin concepts do not adequately address economic security concerns in a geoeconomic age: Tariff rules are built around a place-of-production concept of economic nationality. That is, what makes a battery Mexican is that it was assembled in Mexico and a certain percentage of its parts were also manufactured in Mexico. But, concerns over ownership in global supply chains complicates this place-of-production definition. As governments prioritize diversification not just of first-tier but also second- and third-tier suppliers, do rules of origin concepts need to change to address concerns that a battery assembled in a Mexican plant owned by a Mexican company generates more diversification in the battery supply chain than a battery assembled in a Mexican plant owned by a Chinese company? How would a change in the definition of economic nationality fundamentally change existing international trade law, and thereby multinational firms’ global operations?

Conclusion

The transition from ICE vehicles to EVs presents substantial opportunities for and threats to the G20 economies. While much of the policy conversation has focused on China’s dominance of the battery supply chain and related critical minerals, as well as their growing dominance in EV exports in the context of substantial domestic over-capacity, it is important for policymakers to expand dialogues beyond bilateral hand-wringing over what Chinese EV dominance means for the United States or the EU and to invite global leaders to grapple with far-reaching policy challenges that affect a broad community of nations. It is also vital that the dialogues take place not only among close friends but also among countries with differing views and preferences for how to resolve shared challenges tied to the electric mobility transition.

This policy report advances the discussion in three ways:

Establishes a reason why the G20 is an important forum for policy dialogues around the EV transition and related issues of supply chains, national security considerations, and supportive infrastructure.
Amasses data across various sources to provide intuitions about key features of the current EV trade and investment supply chain, as well as emerging trends in industrial policies designed to bolster domestic transitions from ICE to EV manufacturing.
Provides a set of core areas over which G20 dialogues should focus, along with a set of policy recommendations as well as thorny problems that will need sustained conversations to adjudicate.

As the G20 looks forward to South Africa’s 2025 presidency and the United States’ presidency in 2026, leaders will need to identify the group’s key priorities in the coming years. Attending to the multi-layered policy challenges posed by electric vehicles could generate real progress on a host of issues that are central to G20 economies and the global community: industrial transitions, supply chain resilience, climate change, national security, data privacy, critical infrastructure, trade, and investment policy. While existing G20 working groups may touch on EV policy from various angles, there is no single group that is devoted to this issue. And because EVs touch on so many of the G20’s concerns, the topic deserves a dedicated task force to promote meaningful dialogue across disparate G20 members in the service of reaching a mutual understanding of these contentious issues and agreement on how to effectively manage them.

Appendix

About the author

Sarah Bauerle Danzman is a resident senior fellow with the GeoEconomics Center’s Economic Statecraft Initiative. She is also an associate professor of international studies at Indiana University Bloomington where she specializes in the political economy of international investment and finance. From 2019 to 2020, she was a Council on Foreign Relations international affairs fellow, working in the US Department of State as a policy advisor and foreign investment security case analyst in the Office of Investment Affairs.

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