China’s Ministry of Commerce on Friday curbed exports of graphite, a critical mineral used in the production of lithium-ion batteries for electric vehicles (EVs), which could accelerate a shortage of the mineral as EV demand soars worldwide.

The move, attributed to national security concerns, comes just days after the U.S. imposed new restrictions on exports of high-tech semiconductor chips to Chinese companies and their overseas units, escalating a trade war that has been brewing since 2018.

A shortage of graphite could present problems for EV makers worldwide, particularly at a time when consumer demand for EVs is booming. In 2020, the World Bank forecast graphite demand could soar 500% over the next three decades as EVs and other clean energy technologies become more widely adopted.1

As such, EV makers like Tesla (TSLA), Rivian (RIVN), and Lucid Motors (LCID), along with traditional automakers that have developed their own EV models in recent years, could be at risk of production shortages. Kearney, a consulting firm, has warned that EV makers will need to drastically curb their reliance on Chinese graphite to reduce the risk of shortages and qualify for U.S. government subsidies.2

Counterpoint Research’s Ivan Lamb said in an email that the latest export curbs are simply an extension of measures “that have already been in place.” He mentioned that graphite export controls are a common practice enacted by governments around the world, a practice not limited to China.

The main concern, according to Lamb, is a spike in graphite prices.

“We believe that the average price of graphite will continue to rise in the future due to supply and demand imbalances, including Russia, which was once one of the major graphite suppliers before the Russia-Ukraine war,” he said.

China Dominates Graphite Production

China is the world’s biggest producer of graphite, and last year accounted for close to two-thirds of global production of the critical mineral, according to the U.S. Geological Survey.3 China may also account for all but 2% of global production of spherical graphite, the final synthetic form of graphite used in battery anodes.4

Graphite is a critical component in the production process of lithium-ion batteries used in EVs. Refined, spherical graphite is the sole material used in the batteries’ anodes, or the part of the battery that generates a negative charge.56

Amid escalating tensions with China and with potential shortages looming, U.S. government officials have sought to create incentives for domestic production of graphite and other critical minerals used in clean energy technologies. The Inflation Reduction Act, signed into law last year, provides a 10% tax credit to domestic producers of graphite and other minerals used in clean energy applications.7

In July, the Defense Department entered into a $37.5 billion contract with Alaska-based mine operator Graphite One, to boost the company’s supply-chain capabilities and increase domestic graphite production.8