In critical mineral markets, vertical integration is often not an option to curb potential uncertainty. Integration (“make”) and “contracting” with upstream suppliers are often complicated and costly and subject to a lack of the institutional trust that protects long-term business relationships. The other option is to write incomplete complicated contracts using incentives, bureaucracy, and monitoring based on laws and enforcement. However, companies can respond to a small-number oligopolistic supply market structure with increased vertical integration and control of mineral production. A lack of alternatives leads to dependency, vulnerability, and strategic uncertainty. When EV manufacturers rely solely on a few suppliers, they also build upstream specific capital tailored to the supply chain technology, knowledge, and capital. Small-number bargaining makes it costly for EV companies to leave or switch to other supplier host countries. The IEA projected that the average EV needs more than 200 kg of minerals, which is five times as much as conventional cars. For instance, the World Bank estimated that the production of essential minerals, like cobalt, graphite, and lithium, will have to increase by more than 450% by 2050 to meet the demand for battery capacity to cover the growth of the markets for EVs and other green technology products. Therefore, the increasingly concentrated global markets for critical minerals to replace carbon emission technology with electrification have created a need to rethink strategic repositioning and governance structures. The concentration of fewer, larger, and more powerful suppliers of critical minerals has the potential to exploit their dominant bargaining positions and expose vulnerable buyers in the EV industry to potential opportunism. The scarcity of minerals like cobalt, which occurs in only a few countries, is forcing EV manufacturers into an oligopolistic “small-number” strategic problem of power and dependency. Car companies, like energy supply systems, are struggling to find a sustainable alternative source of critical minerals to supply their increasing electric vehicle (EV) production. Consequently, the value of relationship trust that previously drove strategic decisions evaporated and the new reality of power and dependency, not trust, characterizes the green transition of energy and transportation. The Ukraine war led to a sudden disruptive change of the east–west security architecture that fundamentally exposed the power dependency structure in supply chains organizing the exchange of critical resources. However, a short time ago, trade was an approach to achieving peace and the development of democracy in the USA and Europe through “Wandel durch Annäherung” (“change through rapprochement”) politics and the surging business relationship with China following its membership of the World Trade Organization (WTO) in 2001. Countries, supply chains, and companies should examine the geopolitical risk and strategic uncertainty associated with different green energy sources and technology.ĭuring the aftermath of the Ukraine invasion, countries around the world have cut their trade relationship with Russia. Thus, the circular economy will reduce but not eliminate geopolitical risk. However, closed-loop recycling cannot compensate for the short-run growth in the electric vehicle markets. Substitution and closed-loop technology also reduce resource dependency and geopolitical risk. We suggest strategies like vertical control of supply chains, specific technology and infrastructure investments, innovation of other green energy sources, and exploration of critical minerals in other countries. The surging resource dependency on China, Russia’s most important strategic partner, intensifies the geopolitical risk to the green transition. Transportation sector electrification might therefore increase Europe’s and the USA’s resource dependency on totalitarian, corrupt, and unstable countries. Furthermore, at least 70% of cobalt, graphite, and rare earth element resources are in corrupt or very corrupt states. China, a strategic partner of Russia, has a dominant power position in both graphite and rare earth elements and is a dominant player in the processing of copper, nickel, cobalt, lithium, and rare earth elements. Our analysis indicates that the markets for scarce and critical minerals, like cobalt, graphite, lithium, and rare earth elements, are in a highly concentrated number of countries. Consequently, access to the critical minerals for electrification has become an important strategic issue in the electric vehicle industry. A prime sector subject to electrification is the transportation sector. Following the invasion of Ukraine, there is a call to replace Russian gas and oil with green electric energy.
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