Competition, Cartels, & Sodium Ion Batteries
Plus a little chemistry
Competition breeds success
-Unknown
I’m a fairly competitive person. Whether it be in rooting for my favorite sports teams (my hometown Philadelphia sports teams are doing well while my lifelong Detroit teams are not so I’m conveniently rooting for the former at the moment), chess (my rating is up to 680 which is pretty good for me), or MarioParty, I can get into it. And sometimes having a competitive nature can become contentious, which I don’t particularly like, but it can drive you to become better. This was the case for me in sports growing up, not that I became particularly good at my sports but I did get better, and perhaps tricked me into living an active lifestyle!
Similarly in economics, competition is seen as a good thing. The theory goes that competing firms producing the same good will keep undercutting each other in price to gain market share until profits equalize in equilibrium at 0. Monopolies, on the other hand are bad seen as a bad thing because they can artificially inflate the price of a good to collect monopolistic rents, at the expense of the consumer. But what happens when a group of firms, which are supposed to be competing, end up colluding with each other and increase profits?
This type of action is called a cartel, or more formally, a cartel is a group of actors in a market that colludes to increase profits. Perhaps the most famous cartel is OPEC, or the Organization of Petroleum Exporting Countries, which agrees on production targets which in turn affects the price of oil. This past week OPEC agreed to cut production likely due to the recent banking crisis and fears of recession in order to keep the price of oil above $80.
OPEC wants to limit the production of oil to raise the price and generate more profits for oil producing countries. However, there is a balancing act here, where the increase increase in price might hurt the global economy and leads to less profits for oil producing countries.
On the micro scale, if you are relatively inelastic with your demand for oil, you end up just having higher costs and so you cannot spend in other areas of the economy. If you are relatively elastic, and can afford to drive less when prices increase and end up reducing demand for oil, and perhaps other things that go along with driving (like repairs, soda and candy at the gas station, or may avoid entirely that road trip you were planning). Either way, the economy would slow down and may even go into recession if the price increases too much.
So in essence, OPEC has the power to throw the global economy into recession, but chooses not to in order to maximize profits. It’s not quite what happened during the oil embargo in the 70’s where there were lines at gas stations and designated days based on license plates, but limiting production would have the same directional effect of raising prices, causing high levels of inflation.
Lithium might follow suit
Currently, demand for lithium is extremely high due to the increasing number of applications from electric vehicles to electronics and stationary energy units, and so as a result the price has also been high. The problem seems not to be the scarcity of lithium, but rather that mining companies can’t extract it quickly enough. In addition, about 60-70% of lithium and cobalt is controlled by Chinese companies per the IEA.
The high price of lithium has incentivized more development of cheaper sodium ion batteries. The idea being that lithium is relatively scarce and difficult to extract, and sodium is relatively abundant (can just let seawater evaporate or dig out of the earth’s crust) so it would be much cheaper to manufacture. And the two Alkali metals are very similar in their chemical properties, you can see they are right above each other (elements 3 and 11) on the periodic table, and as long as battery technology progressed enough to have similar capacities and discharging rates it would be a simple swap and work with the rest of the electric vehicle or device.
Sodium ion batteries have been under development, a paper in 2020 by KM Abraham investigates lithium ion vs sodium batteries, and finds that the performance of sodium ion batteries, which, although are much cheaper, do not perform as well as lithium, but might not be too far off.
Fast forward to 2023, it seems that sodium batteries have commercialized to the point of implementation in an electric vehicle. Specifically, Chinese auto manufacturer BVD has announced it will be launching it’s sodium-ion battery electric vehicle, the seagull, this month. Priced at around $11,000 it could fundamentally change EVs and how much we are willing to spend on cars.
Now, I disagree with Moser’s point above that we need to implement distance based road pricing, we might as well tax other things than driving and let people drive as much as they want, but that is besides the point.
Could Sodium Batteries challenge lithium?
Since Musk’s famous lithium tweet in 2022, lithium prices have fallen, and there is speculation that the threat of sodium ion batteries has caused it.
Similar to how OPEC manipulates the production of oil to influence the price, the lithium industry might be responding to the potential of sodium ion batteries by cutting its price. Of course they don’t have the capability to organize and either speed up or ramp down production like the cartel would, but it is unclear the degree to which lithium mining companies have monopolistic pricing power.
Now, I don’t actually believe this, a lot of other things have happened in the last few years that could have influenced the price of lithium besides the introduction of sodium ion batteries, like the sales of electric vehicles coming in short of expectations last year. But nonetheless, if sodium ion battery technology does continue to improve and potential replace the matured lithium-ion battery industry, it means that both lithium prices and prices of cars could substantially decrease.
But the question may become where these prices decrease. If the US, which has lagged China in EV development, simply refuses to catch up and especially on sodium ion technology, we could be stuck with more expensive, high emission internal combustion engine vehicles while the rest of the world buys cheap, environmentally friendly vehicles from China. And not because we couldn’t import them, but because we choose not to for political reasons. The number of Chinese cars on US roads today is effectively 0, and that isn’t because they can’t compete with American companies.
To remedy this, the US could import already established EVs from China, or further develop their own sodium-based EV industry. If not, and we stay married to gas guzzling SUVs and oversized pickup trucks, the American consumer and environment would be the losers of this competition.