From Tesla’s Gigafactory to the Aluminum Smelting Conundrum

Jan 8

Tesla’s Gigafactory in Shanghai, covering 4,500,000 square feet
**Photo credit:** *China News Service*

Under the COVID-19 pandemic lockdown in 2023, China’s Gigafactory, located in Shanghai, consisted of more than 50 percent of Tesla’s sales.[1] It astonishingly delivered 950,000 vehicles in 2023[2] accounting for 51.3 percent of the Tesla global production.[3] On the contrary, Germany’s Gigafactory, double the size of its Chinese counterpart,[4] produced only 250,000 vehicles in 2023.[5] The United States’s Texan Gigafactory, the largest Tesla factory across the globe, delivered 375,000.[6] This begs the question: Why did German and U.S. Gigafactories fail to match Chinese counterparts in similar size and capacity?

Looking deeper, inefficient production capacity can be attributed to a lack of adjacent aluminum supply and other supporting facilities combined with inadequate government support. Without satisfying these two conditions, any factories producing electric vehicles (EVs), even local manufactures such as BYD, cannot surpass Chinese dominance.

Aluminum is an important input to certain technologies critical to the energy transition, especially for EVs. On average, EVs contain approximately 641 pounds (291 kilograms) of aluminum per vehicle, which is higher than the aluminum content in internal combustion engine vehicles (ICEVs).[7] Model S and Model X models feature aluminum-intensive designs, with bodies and chassis constructed predominantly from aluminum to reduce weight and improve range.[8] If a factory is equipped with comprehensive aluminum smelting and extrusion facilities, it can not only achieve its production goals more quickly but also significantly improve efficiency.

Aluminum production is also a double-edged sword. Its mining, production, and smelting are a significant source of CO2, according to IEA, emitting nearly 270 Mt of direct CO2 emissions in 2022 (about three percent of the world’s direct industrial CO2 emissions).[9] Aluminum smelting facilities also pose significant pollution risks to nearby communities through emissions of sulfur dioxide, particulate matter, and fluorides, which contribute to respiratory illnesses, cardiovascular issues, and cancer, especially in vulnerable populations.[10] Driven by these polluters, degradation of nearby land and contaminated water supplies can reduce agricultural productivity and land values.[11]

However, environmental challenges have surpassed by the economic incentives in China. The company, Shanghai Unison Aluminium, has become a direct supplier of aluminum alloy components to Tesla (Shanghai), providing 120,000 units per month according to available data from 2020.[12] The company’s Prospectus for Issuing Shares and Going Public points the fact that their aluminum extraction and smelting capacities in Shanghai has fueled Tesla production.[13]

Shanghai, a city comparable to Manhattan in its urban density and development but population 15 times larger, showcases an interesting dynamic. Imagine planning to build an aluminum smelting plant near Manhattan, perhaps on Long Island or in Upstate New York—how would local communities react? The environmental sacrifice showcases Shanghai government’s greater tolerance for environmental trade-offs in pursuit of economic growth.

Looking towards the German Gigafactory, it has faced intense protest over its planned expansion. Extreme activists pointed out the deforestation and environmental harm that the factory caused and may cause in the future and attempted to storm the facility.[14] If the plan is about building a top polluter, aluminum production facilities, protests and subsequent damage may not be stopped by just storming the facilities.

From a global standpoint, there is no other country that can replace China’s dominance over aluminum smelting capacity. China leads as the top aluminum smelting producer, accounting for 59 percent of the world’s aluminum smelter capacity, according to the USGS.[15] Its neighbor, India, is the second-largest producer even though their production is 10 times smaller than China’s output. Even though the raw materials like bauxite were not mined domestically, they predominately were smelted in China. In 2023, China imported approximately 141.38 million tons of bauxite, marking a 12.9 percent increase from the previous year.[16] China’s alumina exports rose 33 percent year-on-year to 123.57 million tons from January to September 2024, indicating increased aluminum smelting activity compared to 2023.[17]

Environmental challenges and government efficiency are the real embedment for western entities to reshore its aluminum manufacturing and refining facilities. This is reflective of a broader pattern in many developed countries where environmental protection policies and environmental protestors often restrict the manufactures and other so-called “dirty industries” to reshore back to its countries. Do you want cleaner air and water or reshoring manufactures with higher employment rates?

On other side, how come the Indian or other emerging markets fail to build a similar size melting facility? The energy consumption of aluminum smelters is tremendously burdensome for a country with a poor grid system or a lack of electricity. According to S&P Global, China’s primary aluminum production in 2023 consumed to 559,400 gwh of electricity and accounted for 6.1 percent of China’s total power consumption.[18] California’s total electricity consumption during the summer of 2023 was roughly 239,500 gwh.[19] It is hard to envision that a country can incentivize an industry that requires more than double the electricity consumption of California without discussing the massive pollution to its adjacent communities and to our broader climate. China has established its momentum and shows no signs of slowing down. The question remains: can any country catch up to its pace in the coming decade? It’s an intriguing prospect—and one worth watching closely.

[1] https://www.teslarati.com/tesla-giga-shanghai-sales-2022-global-share/

[2] https://digitalassets.tesla.com/tesla-contents/image/upload/IR/TSLA-Q4-2023-Update.pdf

[3] https://ir.tesla.com/press-release/tesla-vehicle-production-deliveries-and-date-financial-results-webcast-fourth-quarter-2023

[4] https://finance.yahoo.com/news/tesla-texas-gigafactorys-massive-size-151107725.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAANCt7aW5hjtHTD5sxGdDcexTTT2avWksTXV8lk0El39F1liM8SF2gYP9FPK-ymyC7542A_Rf0CIT1Dmj124kl7aDFIqrPO49wT-gNhSSw010bKikGCWkMBnvkC_XaGjTkW0_wI9U2_IofFPIslpvBv-Qzuh_rSzEGxNQ2g4KDacs

[5] https://finance.yahoo.com/news/us-carmaker-tesla-leaves-timeline-082646660.html

[6] https://digitalassets.tesla.com/tesla-contents/image/upload/IR/TSLA-Q4-2023-Update.pdf

[7] https://drivealuminum.org/wp-content/uploads/2022/10/Introduction-to-Aluminum-Use-in-Automotive.pdf

[8] https://drivealuminum.org/news/tesla-model-s-relies-on-aluminum-to-maximize-electric-vehicles-range/

[9] https://www.iea.org/energy-system/industry/aluminium

[10] https://pmc.ncbi.nlm.nih.gov/articles/PMC4131939/pdf/joem-56-s33.pdf

[11] https://pmc.ncbi.nlm.nih.gov/articles/PMC4131939/pdf/joem-56-s33.pdf

[12] https://www.sohu.com/a/426564527_768896