When my friend told me the story of how Elon Musk gave him a book on Genghis Khan, it was great to learn that someone who is working on conquering the automobile industry via the electric car, Tesla, is a fan of the person who conquered the largest land Empire in history on a horse. Ironically, it may just make sense that he should follow the origins of Genghis Khan and build the next big factory in Mongolia, a country on the border of their largest future customer base, China.
As the founder of Tesla Motors, Elon Musk faces a tough decision in the near future. As Tesla came out with its earnings this week, one of the biggest questions was where they will build their next big factory- the Gigafactory, a 5 billion dollar investment for satisfying the increasing demand of electric cars. There’s no question that many US states will compete for the business of hosting such a large factory, with press outlets claiming that Nevada is likely in the lead. However, with the right incentives, building a smaller factory in Asia for the Asian customer base makes sense.
If the car is built in Asia, transportation costs would dramatically decrease. The current strategy of sending the lithium battery from Japan to build the car in America, and then sending the car back to China to sell seems like a costly plan- especially if the rare earths that go into making the lithium battery by Tesla’s partner Panasonic could come from Mongolia in the future.
Given the political nature of rare earth elements such as lithium and its lack of global supply, China has been known to place export limits on its rare earth supply and has even cut shipments to Japan before. This puts producers such as Panasonic in a difficult position, given that China holds at least 90% of the world’s rare earth supply. Therefore, if companies like Tesla decide to come to Mongolia, Panasonic could see Mongolia as a future country for building their lithium batteries, especially given the increasing business relations between the two countries, as seen by the latest free trade agreement. Mongolia, potentially holding the 2nd largest source of rare earths after China, is a compelling reason to do so.
This request may seem unreasonable to Tesla at the moment, but with these considerations in mind, I hope that they will look at this option at some point. We have seen that electric cars work in environments where there is a high population density with a similar social agenda.
For example, Silicon Valley seems to have become a haven for Teslas, with most tech founders looking at the positive environmental effects of electric cars. Mongolia could also look at electric cars in the same way and become a role model country for electric cars in the region. Pollution has been one of the worst problems in Ulan Bator, and some pollution may be due to the amount of gasoline and diesel fueled cars in the streets. If this can be changed, with electric cars leading to cleaner air, I imagine that the social move will be fast to change to electric cars while Mongolia simultaneously moves away from its oil dependence.
If Tesla showcases one Asian country as a model for other countries to follow, then the electric car adoption in Mongolia could promote their cause. In this sense, it’s a win-win situation.
*Sources: Bloomberg, Forbes, Reuters, Channel News Asia and Oxford Business Group