This is Dana Perkins and you're listening to Switched on the B and EF podcast. Today we welcome back to the show the head of Trade and Supply Chains at BNAF, Antoine Wagner Jones. Last year, Antoine came on the show to discuss the complex world of global supply chains and
how the then newly introduced Inflation Reduction Act was impacting them. Well, in a few months that have passed, the IRA has indeed caused a shift in clean tech production alignment in the US and in response, other countries, regions and trading blocks have been making moves of their own. So what is the current state of play, both in and outside of the US and what policies are countries introducing to
ensure that they keep pace with their own clean energy transitions. Well, we're going to come to that, and on today's show we discuss with Antoine a range of topics. We talk about the potential fracturing of these traditional supply chains as countries attempt to onboard their clean tech production and the risks that this may pose for the global net zero targets. Also how countries and areas like the EU have reacted to the inflation reduction Act and then lastly, really can
anyone challenge China's production capacity. If you like this podcast, make sure to subscribe on whatever player you're listening to it on today to receive updates on future episodes, and consider giving us a review on Apple Podcasts or Spotify. We've included several links to BNF research notes on supply chains in today's show notes, and BNF subscribers can access them at BNF on the Bloomberg terminal, at BNF dot com,
or on our mobile app. As a reminder, bn EF does not provide investment or strategy advice, and our full disclaimer is at the end of the show. But right now I get to speak with Antoine about supply chains. Antwin, thank you very much for joining us today.
Thanks Dana, great to be here.
So we're here, We're back. We're talking about supply chains with you on the show, and this is actually a really great time. No, we scheduled this before we knew what was going to happen at the G seven, But at the G seven supply chains featured quite prominently. Can you tell us a little bit about what transpired?
That's right, there was a convening of the G seven in Hiroshima in Japan, and three days ago on the twentieth of May, they issued a communicate, which means that it's a document that outlines their priorities. And what was striking was maybe two things. One was the extent to which supply chains featured and the importance of building out
clean energy manufacturing. And that's something that we've seen piecemeal emerge across these big economies across the world since August of last year with the Inflation Reduction Act being passed by the US, and we also saw a desire to sort of reframe what's being seen as strategic based off with China and not talking about decoupling, but talking about
de risking. And that's very important as well, because a lot of these moves towards reshaping clean energy supply chains are shaped in relationship with China, which dominates the production of clean energies today.
And certainly we're here to talk about clean energy supply chains, but was it all supply chains or specifically clean energy supply chains that were discussed at the G seven.
So energy featured in about a court of the total points that were put out in the various documents that
were issued after the convening. And what's interesting is when they've talked about supply chains, when that was mentioned, it really was mentioned overwhelmingly with relation to either making supply chains more sustainable, so accounting for emissions as part of supply chains, or talking about the on shoring of clean energy supply chains that's implicitly things like batteries, things like solar panels, things like electorallyzers for making hydrogen.
For a very long time, China has dominated in this clean energy equipment manufacturing space and has really driven a lot of the cast of clients in certain industries. And let's use solar as an example. Even though this conversation really has started to shift towards having more local supply chains around the world, is China still the dominant player.
So China still dominates dominates in various areas, and that really ranges from the production of various pieces of equipment, so of solar modules, of the end piece of equipment like battery cells, but it also goes upstream from there, and that dominance is even more accentuated in sort of midstream building blocks to making solar modules for example, like
ingots and wafers. And when it comes to batteries, anodes and cathodes, and then if you go even further up, there's also a lot of refining that's done for things like lithium, for things like cobalts, so metals that are used for making batteries in sort of the mainstream battery chemistries that we're seeing today, and those two are mostly
located in China. And what we've been doing recently at BNF over the last few months is starting to track investments and starting to look at the amounts that's sort of represented that's flowing into new factories that are being brought online across the different sectors that we're looking at. And actually there's this dominance today of manufacturing concentrated within China, but when we look at new facilities new factories that
are being brought online, that's equally striking. And actually what we're seeing in things like for SOL for example, upwards of ninety five percent of new capacity that's coming online that came online last year did so in China. When we look at the battery supply chain too, it was upwards of ninety percent of everything new that came online in terms of capacity came online in China. So that's not just a snapshot in time. It's not just a
picture that we're seeing. Over the last few years, China's dominated, but that's starting to change. Even though we've got all of this talk of shifting supply chains and on shoring things to various countries and friendshuring and near suring, what we're not seeing is that translate into factories coming online just yet to really challenge that dominance of all that concentration of capacity in one country.
And that conversation around enshuring near shoring moving. The supply change largely has to do with the West and then Australia and the beginning you reference the G seven transpiring. At the same time as the G seven, China had a meeting with a number of other countries in Asia, which also serve as an excellent block of countries that
are also so installing renewable energy. Is the domestic market, both in China and then within the rest of the continent going to essentially grow to the point that even with the onshoring and near shoring taking place in other parts of the world, perhaps it doesn't wind down business activities within Asia.
So definitely, domestic markets are really important when it comes to industrial strategy, and that's something that we're sort of
seeing from a number of different angles. One of the reasons why China has been able to scale up the manufacturing of things like batteries, of things like soda, having these really efficient integrated value chains located within its borders is due to having this massive booming local market and then having that be the basis for developing this manufacturing base and then being able to export from that has been really key to to what we've seen play out
over the last couple of decades. And then the presence of countries near China that are also seeing an increase in an uptake of renewable energy of storage of electric vehicles, whether they be two three wheelers or passenger vehicles, is also a big part of the picture, and that's something that we'll see manufacturing emerge in those countries too, and
we are already seeing that. But is also a boon to sort of China being able to leverage its proximity to those markets in continuing to remain one of the big sources of exports in the region.
So you noted that some of the projects haven't really started yet and that we haven't seen these manufacturing facilities really at the scale that they're being talked about, or perhaps are intended in the future. But certainly there are movements in various countries and parts of the world from a policy standpoint, that do very intentionally create an environment where we expect to see this happen in the future.
So let's start with the US. Can you remind us briefly what it is that the Inflation Reduction Act is designed to do in reference to supply chains and manufacturing.
Absolutely, when we talk about a lack of investment in new facilities, that's really in the West, in countries that profess to have this real emphasis on reshowing, on onshoring, manufacturing, supply chains for clean energy, and we haven't seen that translate into commissionings yet into being brought online at scale and anywhere near the scale that we're seeing in China.
And we're continuing to see there. That might change, and that might change just because of what you mentioned just now, which is because of policies like the Inflation Reduction Act, which are all about deploying speeding the energy transition within the US, but are also framed and this is really important as an economic tool as a job creation bill, and as something that really doubles down on localizing the value add and having that accrue as part of the
energy transition, having that value add a crew to the US to the domestic market. So what's resulted is this policy which not just subsidizes through the form of tax credits, the deployment of things like evs, of things like the production of hydrogen of ccs, but also is very keen
on providing that same support to manufacturing facilities. So you've got tax credits again that are available for manufacturers not just of critical minerals for batteries, but also of various components for whether it's onshore or offshore wind, solar battery making itself really across the board, and it's very compar have been doing so. And then you've got some additional tools which are very much linked to this, such as with some of the investment tax credits which are available
for deploying renewable energy projects. Ten percent for examples, is typically what it's set at. Additional subsidies which are provided when various domestic manufacturing requirements are met. So there's a whole suite of tools that are deployed as part of not just the Inflation Reduction Act, but also piece of legislation that are linked to it, such as the Infrastructure
Bill that was passed earlier by the Biden administration. And that's a pretty powerful arsenal when it comes to really channelling investments into the US, and we've seen a pretty marked response as a result of that. What we're doing
is tracking new EV new battery factory projects. We're doing so in other areas too, but just when we look at EV's and batteries, we see about sixty plus billion dollars of new announcements that have been made since August last year, and really directly as a result of the Inflation Reduction Act. So the IRA has really proven that it's managed to convince developers, investors finances to double their efforts towards funding facilities in the US for manufacturing clean
energy technologies. And that's something that's really speeding up.
And certainly this will drive this onshoring move in the United States. But what about the near shoring aspects? Does the array have a benefit for nearby countries and specifically I'm thinking about Mexico, which has started to emerge as a nearby manufacturing hub.
So there are various bits of the IRA that do allow for near shoring. I think what's important to note is that this is actually quite limited when we talk about the IRA as a whole. There's a number of different production tax credits, investment tax credits that fund clean energy technologies, but there's only really one where this whole near shoring aspect is that relevant, and that's the Electric
Vehicle Tax Credit. So that's five hundred dollars that you're ultimately eligible if you meet both criteria that are set for accessing this tax credit, and part of that can be met via sourcing critical materials from a number of geographies, including countries with which the US is a free trade agreement and that does include North America to Canada and Mexico.
And the other is to assemble manufacture electric vehicles in North America, and that includes Mexico and Canada, and that does represent opportunities not just for free trade agreement countries, but also for of course the countries that are closest and that are most enmeshed in the vehicle supply chains that we have today in the US, and Mexico really has pride of place there as somewhere where it's actually
quite cheap to manufacture. Labor costs are now cheaper than in China, Andres Manuel Lopez Obrador, the Mexican President, is very keen to make good on this. And even though he isn't very keen on building out renewable energy locally within his country, he is keen on building on these kind of opportunities available as a result of near shoring and the IRA having those provisions, So that changes things somewhat.
And what we've also spotted as a trend that's emerged after the IRA is the fact that we've had a number of different governments, a number of different countries come to the US and ask to be included in various bits of this EV tax credit. So, for example, I mentioned that critical material require for materials that are mined or refined in a given region being used for an EV sold in the US, thereby making it eligible for
about half of that tax credit. Well, that's a requirement that's been lobbied for by various regions, such as countries like Japan. So Japan successfully asked to sign a form of free trade agreement that allows for its raw materials to be considered as part of that tax credit Europe, the EU, the European Commission is quite keen to do something similar, but as a whole, that's only one small
part of the overall package. And when it comes to a lot of those subsidies available for domestic manufacturers in the US, those are really focused just on the domestic market. They're not available to other countries, and a real focus of that's part of this policy, which is bringing manufacturing to the US as part of this energy transition that we expect to accelerate as a result of the IRA Well.
So you reference that there are some very limited instances where countries are able to take advantage of the tax credits, but largely this is a domestic conversation, which then leads need who then ask what is the reaction on the part of other countries that perhaps were depending upon trade or even on another side of it in the EU where they were looking to become manufacturing homes of some of these industries. What has the reaction been over in Europe.
So I feel like we're entering a bit of a new phase with the energy transition, where before it was all about carbon budgets domestically quantified you try and hit your goals, you'd clean up your power sector. The spillover
effects would be pretty negligible. Besides providing opportunities for countries like China to emerge as exporters of clean technology, what we're seeing now is something very different, and we've entered a sort of era of policy competition where there's this perceived need to respond to things like the IRA, which a seemingly proven extremely attractive when we look at announced projects and the investment that's flowing to the US right now,
and there are concerns by countries like the member states of the European Union, for example, that they might be left by the wayside. So the EU has targets for building out battery making. It's for the last few years formed big sort of sourcier and alliances and different projects of common European interests, for example, to promote battery making
within its borders. But what the IRA provided was this extremely streamlined system of tax credits, which have no sort of federal budgetary limits to how they can be accessed, are extremely generous and basically blow anything that the European Union is offering out of the water. And that's something that's been really that's been a real concern and has been a point that a lot of clean energy lobby
groups lobby the EU sort of change and revise. So what came of that was the Net Zero Industry Act, and that's a few weeks ago we saw the release of this plan, which really has as a central purpose to respond to the IRA and prove that EU means business, that it's serious, that it has the tools to encourage
the onshoring of manufacturing for clean energy technologies. It does a few things, and unlike the IRA, it actually goes a bit further and sets actual targets that are quantifiable in many cases for building out the manufacture of things like heat pumps, solar technologies, win turbines, batteries. All of those different things have different targets that are set. So for batteries that U wants to meet eighty five percent of domestic demand by twenty thirty, that's about five hundred
and fifty gigg what hours of capacity. That's quite a lot. And having its sight set on that is very clear and sets the direction of travel. Now, whether you fall short is by not really having the same system of subsidies that the US has We've mentioned how streamlined the
tax credits are. Even though there's all this guidance coming out from the US Treasury about how to interpret various bits of them, they're generally there's really good awareness of how they can be accessed and the process for doing so. It's relatively simple. Now when it comes to the EU, what you've got is pretty comparable levels of available funding across the board for clean energy, but a lot of
that isn't going to manufacturing. It's going to things like R and D. It's going to things like deploying technologies, and that's a bit of a weakness. Now the U wants to sort of rejig some of those pots of money and have them flow towards manufacturing. But again there's this issue, which is when the US try to do this in the past, it's struggled with the level of
administrative complexity of some of these schemes. So there's the Innovation Fund, which is one of the main funding schemes that's available for the energy transition writ large, that's something that's funded by carbon credit revenues levied across the EU, and it's actually incredibly difficult and competitive to access that. Lots of money. So we saw a success rate of about two percent for one of the funding rounds for
large projects under the Innovation Fund. That's a lot of time that's wasted by companies putting together proposals applying for that funding. So what you've got in the EU is a really broken up system of various funds, of various pots of money. There's not a great deal of awareness about how to access them. A lot of them aren't funding manufacturing and doing so. When you do figure out where the money is and how to access it is
very competitive. So it is not the sort of basis for giving US a vote of confidence in European industry and seeing it as a real competitor with the IRA. And we've continued to see post this Net Zero Industry Acts, which again sets those impressive targets, is still a proposal,
will be enacted over the next couple of is. We've seen a response, some enthusiasm, but still there's this general narrative that when it comes to competing on these subsidies, the US is far ahead, and a number of different European battery makers such as North Vault, Freyer, even Tesla has said that they'll pivot towards the US, which they see as far more attractive in terms of the incentives that are being offered and away from the EU, and that's a trend that we might receive speed up over
the next few months.
Well, let's rewind a little bit and let's just go back to those targets that you mentioned in the EU specifically, And the reason I want to focus on that is one that the space that we work in has no shortage of targets, but certainly the underpinning mechanisms are something that need to be figured out. These parts of money, this complexity around how to actually go about accessing them. In the EU, are there dedicated funds that are against each of these targets or is it still yet to
be determined how those targets will be met? And the targets just create a statement of intention.
It's a statement of intention. There's a number of funds that are available, the Modernization Fund, the innovation fund I mentioned, there's this mooted creation of a sovereignty fund that's to speed things. But again, many of those funds are not focusing on manufacturing, and some of them aren't even just
focused on the energy transition. So there's this new fund that will be created that will be coming up with the words sovereignty slap to its title, and what that'll be funding is not just keen energy, but things like semiconductors, which are also incredibly capital intensive when it comes to
building out factories for making advanced chips. So there's there's a lack of clarity of purpose, there's an opacity of available schemes, and that means that the EU just seems less nimble, it seems less reactive, it seems less attractive when you're a manufacturer that has a bit of a global footprint and some flexibility about where it can set up shop.
So let's continue moving around the world. One of our recent shows focused on India, which is now the most populous country, and there is a conversation to be had regarding whether or not they are going to emerge also as a manufacturing center for some of these industries. So how has the IRA impacted India's strategy and even more broad how do you see India fitting into this renewable energy, clean energy manufacturing space.
So India's sort of pursuing its own strategy and it's been doing so unlike many other countries pretty consistently for the last couple of years. There's been this stated ambition to build out with a real focus on solar manufacturing, local PV technology production, and there's been a number of tools that have been developed doing so what's really interesting is seeing how that's playing out. So there's this various prongs to this Indian strategy to building out domestic clean
tech manufacturing. One of them is by limiting manufacturers and really barring a whole number of example Chinese solar product manufacturers from being able to compete in auctions where a lot of the subsidy pots of money are available. There's also a pretty hefty tariff for around forty percent that's also levied on various solar product imports. There are also various local content requirements in different subsidy schemes. There are
a number of different measures. But what's happened as a result that is pushing up the costs of building out solo projects in India at a time when the government is implementing an incredibly ambitious plan to speed up a new energy deployment and a shortage of domestically available modules. So a lot of these measures were coming in manufacturers
were aware of it. They stockpiled a lot of equipment in preparation for this coming, but right now there is a lack of available modules, which again is having this inflationary impact on project costs, so is not going terribly well. It is a very determined bid to build out manufacturing in a country that has growing demand, but it does show that when you're really going for broke, it can
be difficult to pull off this on shoring play. And it's interesting because it sort of stands in contrast with the EU, where the EU, in terms of what's proposed now and that may change and become more ambitious, we're not seeing an awful lot of conviction behind those measures and those targets and what's backing them, whereas in India we may have seen policymakers go somewhat too far and actually suffer the consequences of that, which are in free
project costs and actually having those different policies present a barrier to getting the energy transition right. And there's a lesson to be drawn there, and that's finding an equilibrium between trying to head your bets against concentration of manufacturing capacity globally, making sure that value from the energy transition, accrus locally, having political buy in, creating jobs. All of those things need to be balanced with this real need,
which is to keep things economically attractive. And when we're scaling the energy transition at a rapid pace right now, adding additional cost as a result of trying to do things locally of making things less efficient is something that
should be taken really seriously and quantified. And that's part of what we're trying to do at BNF is to work out the impact of various levels of local content, of various onshoing policies to undeployment, but also on overall costs when we look at the energy transition as a whole.
So with India, it seems like it's both regarding manufacturing but also regarding supplying their domestic market. So then let's pivot to a country that is looking to manufacture with the intention to export, and that would be batteries and Indonesia they have been looking at this as a space that they could potentially be going into in that value chain. What are your views regarding Indonesia or potentially other countries that are emerging as battery manufacturing hubs.
So a lot of middle or low income countries are really conscious of this shift and of the opportunity that it holds. So we've seen not just India, but many other countries, and Indonesia is really one of them. And Indonesia is interesting because a lot of the battery grade nickel that's produced, that's used for a lot of the mainstream NMC batteries that have made up a large share of lithiumind batteries deployed in electric vehicles over the last few years. A lot of that is mined in Indonesia.
So initially the government tried to do a few things. It restricted exports. What it wanted was for more of that nickel to be refined to be processed within its borders. That's one move, but there's also real focus on trying to attract battery makers to set up facilities for various parts of the battery value chain, but notably battery cell facilities. For again, having those big capital intensive projects built within Indonesia,
hiring Indonesians and producing value locally. That's difficult to pull off because of a number of different factors, and one of them is low local demand. So Indonesia is a market where we do see two to three wheelers electrifying quite rapidly in the shortter, midterm, but in terms of overall having that local demand to scale that manufacturing base is maybe not the best suited in terms of locations.
The cost of finance is a bit higher than elsewhere, and what we're not seeing is a massive amount of interest comparable to what we've seen in the US, for
example post diarray. So there's some real hurdles. What's interesting is that when you see countries like the US, regions like the EU recognizing that there's this tension, that there's these policies that could be seen as distortive in terms of subsidies being provided not just by the US but by other rich countries too, and that might mean that
many of these poorer countries lose out. So trying to sort of where that circle can be done in a number of different ways, and what the US is doing, for example, the Biden administration has been very vocal about trying to help and support countries to move up the value chain and to build out, for example, smelting facilities or refineries for battery metals across regions like Southeast Asia sub Saharan Africa, and that's a very important move of
some real value when it comes to sort of convincing the world that this isn't just about building out local jobs, which it is to some extent, but also about spreading the benefits as widely as possible. And maybe we should be seeing a bit more emphasis on that in many of the policies that are being announced today.
Other than the countries that I've brought up, are there other countries of note that you're watching closely well.
We're looking at countries that have a potential to scale things up quite rapidly and to make a difference. Japan is one. It has a battery industry strategy where it's aiming to build out one hundred and fifty hours of battery cell manufacturing by twenty thirty. There's subsidies being deployed there. South Korea is dispersing billions of dollars in support to
various battery manufacturers locally and within its borders. Canada is finalizing its twenty twenty three budgets, and part of that is going to replicate, to some extent tax incentives that you have as part of the IRA providing a thirty percent manufacturing tax credit to clean energy manufacturers, which is
really consequential and quite big. And you've got a lot of smaller countries like the UK, for example, where we're recording from actually being a bit lost and having an advantage in areas like offshore wind and maybe in ccs certain niches, but really struggling to convince when it comes to putting the money on the table and competing with
the likes of the US. And there is some clarity from leaders, whether it's in Canada or the UK, that those incentives are going to be available, but they're not going to be matching what's available in the US, and that's something that's already been made quite clear by several governments and is quite interesting to see. Even as this competition heats up, there is a degree of realism that not everyone's pockets are as deep as the United States.
Now other bottlenecks that we need to think of, and I'm specifically thinking the example of battery metals and how this is truly no matter where you manage action them, they're reliant on global supply chains. So are there really tight markets that we need to keep an eye on, such as copper in the battery space that are ones to watch when we think about how we're changing supply chains.
So absolutely there's a number of metals that are what transition metals you could call them, that are going to be really important as scaling things, decarbonizing the economy. Copper is very important making cables among other things. We're going to be needing vast quantities of that through twenty fifty, and about a third of actual spending on transition metals is going to be concentrated within copper, and we expect that to be a tight market over the next decade plus.
We also expect the sort of the deficit when we look at announced mining facilities. When we look at other metals that are key to making batteries, lithium and cobalt feature heavily, and those are also metals where when we look at what's been announced in terms of production facilities, or when we look at what's been announced in terms of mines, we do actually see a deficit emerging over
the next couple of decades. So there's tightness in different markets, and we'll see whether the booming demand for those different medals could change things, whether the changes in battery chemistries could adapt as well, that's something that we've seen happen quite rapidly with various lithium ion batteries that don't use nickel, that don't use cobalts, that are ferrist based in their chemistries, that have emerged and seen uptake incredibly rapidly and far
beyond what was expected. But there's also this additional question, which is when the US says, for example, that it wants to focus on sourcing critical minerals from a number of limited number of countries with which it has a pre trade agreement, for example, that narrows the pull down and meeting those critical materials requirements could be quite difficult in an inner global scenario where supply demand balances are quite tight.
Is there enough labor, in skilled labor, specifically in various parts of the world to actually work in all of these on shore near shored manufacturing locations.
The skilled shortage is one that's brought up a lot, and it's a real barrier towards for the energy transition from a number of perspectives, whether it's installing heat pumps or rooftop solar, but manufacturing is really area where we're not seeing the skills base in places like the US, where a lot of the focus in terms of vocational training or of the educational system has not been in
those hard manufacturing skills. So there is a real concern that there's a need to train up the skill force very quickly to match the number of facilities that are
coming online. And for example, right now we're seeing lots of investments in the US by East Asian battery manufacturers and a lot of them are relying to some extent on engineering expertise from Korea, and that leads to another question, which is openness towards investments from various geographies and the exchange of that know how and the US has made it quite difficult for Chinese manufacturers to set up shop where we've seen some scrutiny applied to joint venture between
Ford and CAATL for taking advantage of some of those EV battery tax credits in the US. That project saw scrutiny far beyond what we've seen for other projects that don't involve Chinese manufacturers. There are concerns around foreign Entities of concern list, which is something that again might limit the availability of subsidies provided to manufacturers from countries such
as China. So that lack of openness, those concerns around what investments will qualify for various subsidies is a bit of a question mark and could impleade the flow of information from where knowledge about battery making is that is most sophisticated, that being in many cases in China. Same goes for solar technologies, for example, two regions that are
trying to catch up. Europe is adopting a bit of a different perspective, a bit of a different strategy with this, and is comparatively quite open towards receiving a lot of those investments. Last year, the biggest battery self facility coming online in the EU was Chinese. It was c ATL, the world's biggest battery maker. So there's some differences there that are really worth highlighting. Labor shortages are a problem across the world, across the geographies where we're seeing clean
energy manufacturing be aerial focus. But there's this flow of knowledge and know how which also needs to happen and could be impeded if openness isn't prioritized.
And so we've talked about upstream, so we've talked about commodities, and we've talked onstream and the manufacturing end of things. But how about midstream, how about all of the different components. Where does that fall. Is it being seen as one of the industries that are actually also being near shored or on short or is that going to be largely unchanged And we're really thinking about just downstream manufacturing and assembly.
So a lot of the focus investments has been in downstream segments like solar modules, battery cell factories, or we haven't seen as much of in announced projects and even far less in projects that are coming online across the West, for example, is in that midstream segment, and what that means is looking at the really important building blocks for building a solar module, which include things like ingots and wafers. When it comes to batteries, that includes things like cathodes
and anodes. And those are segments where manufacturing is even more concentrated in China and where we're really not seeing the same level of investment and announcements for building out that capacity in regions like Europe. In regions like North America, that's been recognized as a bit of a vulnerability, and that's also something where we've seen a number of trade barriers be erected for things like the use or trade
of US semiconductors and personnel in China, for example. But that midstream is an area where China can react, and we've seen suggestions from Chinese ministries that there might be restrictions on the exports of various piece of equipment for manufacturing some of those midstream components, most notably solar ingots and wafers. So there's been a real focus on the downstream. What we haven't seen as an approach that aims to build out the value chain in a really comprehensive way
and attributing equal weight to all those different segments. And it can make sense to start with the end product and work your way up, But given the speed at which these manufacturing bases are being built out at it seems like some degree of focus of refocusing and taking a bit more of a comprehensive approach towards building out supply chains might be worth considering now.
Certainly, the cost declines that we've seen in a number of these industries, and solar is a perfect example, have come from doing this at scale and having these manufacturing hubs that have created cheaper and cheaper products. Are we now seeing one a lack of transfer of technology and really learning rates across countries as this becomes more fragmented. And then the follow on question I'm going to add to that is what does this do for us in terms of reaching net zero targets?
So what could happen is if the US, Canada, You're all the various regions India are successful in building out keen energy manufacturing, then you do see a fragmentation. You see a regionalization of supply chains, you see a doubling up of investments in a way in which is less efficient than what otherwise would be the case. One of the things that has allowed for China to be so effective in bringing down the cost of producing technologies is learning by doing. It's dense pools of labor, it's a
low cost of finance, but it's also scale. And when we look at various segments of the solar value chain, it's typical that Chinese facilities factories are about four times bigger in terms of their yearly production capacity than outside of China. That has a really big impact on cost.
And when you're breaking things up and you're just looking at things from that scale angle, then things become less efficient and you're adding cost even if you aren't doing things in parts of the world where it's going to be far more expensive, like Europe, for example. So that's a big question is how to balance these different priorities and how to recognize that building things out is good from a political perspective when it comes to selling the
energy transition and its co benefits. What is less good at is for maximizing economic efficiency and minimizing the overall bill. And we're looking at an energy transition that's running into where we saw a trillion of investment last year across the energy transition. If we want to be getting on tracked net zero, we need to be seeing an average of
about four trillion every year going towards twenty thirty. Now that figure could be inflated quite a bit if we're starting to break things up and we're manufacturing more closer to demand centers. So trying to strike that balance is really important, and we're not seeing a real mature discussion about taking those costs into account, factoring them in, passing them through in various ways to end consumers or developers, and really optimizing things to make things work and diversifying
those supply chains. Which really is a focus with all of these industrial strategies that are coming out in recent months.
One of the things that you brought up really early on, and this is my final question, essentially, it has to do with the when. So you reference the fact that we have seen a lot of intention and movement towards changing these supply chains, but we haven't seen a lot of installation as if yet and that makes a lot of sense because these new projects are not going to happen over a quarter or even half a year. They're
going to take a while to get online. So that then brings me to you know, we love to talk about goals and certain years stand out as benchmarks. So do we think twenty thirty, twenty thirty five, twenty forty, when are we going to start to see essentially a material change in terms of supply chains and where they exist? And now when are we going to know really where the new hubs are.
So it does take a few years to set up manufacturing facilities. Right now, there's a shortage of equipment for battery making facilities that's slowing things down. There's a tight labor market that we mentioned. There are various reasons why permitting things in countries that want to speed things up, like Europe or the US, takes a bit of time, So that means that you're looking at may sometimes a couple of years for setting up a battery manufacturing facility,
for example. And we've seen a slew of announcements and we continue to see that number grow. But as I said, we're also seeing the same thing happen in China with a vast volume of new facilities that are still coming online. I think twenty thirty is a good point to stop and see where we're at. A lot of the manufacturing incentives under the IRA expire or start to phase out
in twenty thirty and expire in twenty thirty two. When it comes to the EU, that's when it's set a lot of its manufacturing targets for It's a year where we should be hitting our stride when it comes to investments for the energy transition, and things would have scaled up if things are going right, dramatically beyond what we're at today in terms of investment, and it would be a good time to look at trade flows, to look
at where manufacturing capacity is. And what I'd expect is we'd see several percentage points increase in the share of that's represented by Europe that's represented by the US when it comes to total manufacturing capacity for things like batteries, for things like solar But I still expect APAX share and China share more specificty to remain dominant. But it's not about replacing that overnight. It's about maybe hedging your
bets and diversifying things somewhat. It's about creating that political buy and by attracting some investments, and that in of
itself is really important. So I don't see a dramatic shift in the picture, but I think twenty thirty will be a time to see whether these industrial strategies, whether these different policies are having their effect, whether there's been any success in setting up domestic manufacturing without needing to keep them alive via vast subsidies, and whether or not this is a course of action to double down on, or whether given the geopolitical scenarios we could imagine in
the future, which are numerous, but whether at that time it might be advisable to scale that back and try to maximize the energy transitions over all efficiency to minimize costs. So I see the next few years leading up to twenty a really important time in which to sort of gauge the impact of these strategies and to take measure of how successful they are.
So we'll keep watching the companies and certainly the policies that are dramatically changing global supply chains. Thank you for joining us today.
Thank you, Dana. It's great to be here again.
Bloomberg NEF is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed, as investment advice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg n EF should not be considered as information sufficient upon which
to base an investment decision. Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed.