A major decision out of China is likely to have sweeping consequences for electric vehicle (EV) makers. In a clear effort to retain its global supply-chain dominance, the nation has placed severe restrictions on graphite exports. This is exactly what U.S. automakers don’t want to see, as it will lead to higher battery production costs. While Chinese companies in the space could easily receive a boost from this policy, EV stocks in the U.S. and Europe are likely to take a hit.
At a time when economic conditions are already volatile, this type of complication stands to cast further doubt over the EV sector’s growth prospects. The policy will begin taking effect on Dec. 1 and before then, momentum for EV stocks will likely be negative as investors approach automakers with caution.
Does this news mean that investors should take the opportunity to offload EV positions before things take a turn for the worse? Let’s dive deeper into China’s recent decision.
What’s Happening With EV Stocks?
The EV sector has been facing more problems than just China’s new graphite export policy. For one, Tesla (NASDAQ:TSLA) reported disappointing third-quarter earnings this week, casting doubt over the industry. Other EV stocks have struggled as well, facing pressure from slumping demand for highly priced vehicles. Now, the prospect of rising graphite costs threatens to push prices up at a time when they should be going down.
EV makers won’t be able to skate around this new policy too easily. China is the world’s leading producer and exporter of graphite and the material is a key component in EV batteries. Earlier this week, in an interview with Autoweek, Graphex Technologies CEO John DeMaio stated:
“On a total component basis for an EV battery, graphite is about 25% to 28% of the whole thing. It’s by far the largest component by volume and mass in the battery. And people don’t realize that a lithium-ion battery is sometimes up to 15 times more graphite than lithium. It’s really the unsung player.”
This leaves automakers between a rock and a hard place. If they want to keep putting EVs on the road, they’ll need to keep importing graphite and raising vehicle costs to stay competitive. Barron’s reports that Tesla has signed a graphite supply deal with Australia-based Magnis Energy Technologies (OTCMKTS:MNSEF). That may help Tesla a bit. But unless they can do the same, other EV names will be in for a difficult road ahead. An already-complicated economic landscape for the sector is likely about to get worse.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
