The EV battery sector is immature and somewhat chaotic and a period of volatility lies ahead as supply chains scramble to secure needed investment
INVESTMENT OPPORTUNITY
Forecasts of soaring demand for electric-vehicle grade batteries have revealed a shortage of mining and refining capacity for raw materials
INNOVATION
Both battery makers and car companies are focused on advancing new technology to avoid pinch points in raw material supplies and reduce costs to secure a competitive edge
KEY QUOTE
The EV battery sector is immature and somewhat chaotic
Insufficient investment in the mining and refining of raw materials for high grade lithium-ion batteries is threatening to slow the production of electric vehicles, warns the International Council on Clean Transportation (ICCT). Until the battery materials supply chain has time to mature, electric vehicle (EV) production risks falling short of accelerating market demand. Indeed, the supply chains of lithium-ion batteries will be “the oil pipelines of tomorrow” notes Benchmark Mineral Intelligence, a UK data provider. Even so, drumming up finance to expand mining capacity is difficult, says ICCT. Volatile prices in what is a relatively new market make investors wary. Supply in recent times has also been sufficient, keeping prices low for around two years, which weakens the business case for new sites. But with decade-long lead times to establish new mines and production sites, investment must be made soon to avoid a supply chain squeeze. Raw reserves of cobalt, graphite, lithium, manganese and nickel are currently plentiful, says ICCT. Projections of demand indicate that by 2035 EV-grade batteries will require 8-14% of proven global reserves for lithium, nickel and cobalt, it predicts. But the pace and scale of upstream mining of the materials and their refining into EV battery-grade quality is a weak link in today’s supply chain, says ICCT. The organisation, based in San Francisco, provides technical and scientific analysis to environmental regulators.
IMMATURE AND CHAOTIC
The ICCT is not alone in its fears. The EV battery sector is immature and somewhat chaotic, says Benchmark’s Andy Miller. The minerals and metals used in EV batteries are niche and not yet fully commoditised. The supply chain will have to grow rapidly to accommodate the expected uptake of EVs globally. While the prices of battery packs have been plummeting, 60-70% of the total cost is still raw materials. Any shocks to the early supply chain could have substantial knock-on effects down the line. “We’re in for a bumpy ride—a period of incredible volatility throughout the 2020s,” Miller says. ICCT argues for incentives to help development of the raw material supply chain and ensure key components reach higher volumes more quickly and sustainably. Market forces may be sufficient, however. Global cobalt production has increased from 38,000 tonnes a year between 1970 and 2009 to 145,000 tonnes a year in 2010-2019, according to the Faraday Institution, a UK battery research group. Mining of other metals has seen similar increases to keep pace with the growth of the EV market. Like ICCT, however, Faraday fears a supply chain squeeze. “Increased demand for raw materials combined with the long investment cycle and lead times required to exploit existing mineral reserves could put the global raw minerals supply chain under pressure in the coming decade. Supply bottlenecks, mineral price spikes and a slower transition [to EV transport] could happen unless action is taken now to mitigate and manage supply chain risks,” Faraday reported in December 2020.
CHINA DOMINATES
China has steadily become the leading global EV and battery manufacturer, also dominating the raw materials market. As of 2019, Chinese chemical companies—often operating in Africa or Latin America—accounted for 80% of the total global output of raw materials for advanced batteries, including lithium, cobalt, manganese, graphite and nickel. Over 60% of the world’s cobalt mining takes place in the Democratic Republic of Congo, with the larger mines owned by Chinese firms. Much of the world’s lithium reserves are in Bolivia, Argentina and Chile, and even in the US In 2019, 73% of the production of lithium-ion (Li-ion) batteries took place in China, says Benchmark. Of 142 Li-ion battery mega factories under construction globally, 107 are in China, with just nine in the US, according to Simon Moores, managing director of Benchmark, while speaking to the US Senate in 2019.
EUROPE STEPS UP
Despite China’s dominance, other countries are working to secure their share of the upstream market for EV-battery supply, including processing of the components and a share of battery manufacture. The European Battery Alliance, backed by the EU, is trying to create a competitive and sustainable battery cell manufacturing value chain in Europe. The regional market could have an estimated annual value of up to €250 billion by 2025. But lithium production is minimal in Europe, though there are projects underway in Spain, Austria, the Czech Republic and the UK, according to InnoEnergy, part of the EU’s European Institute of Innovation and Technology. Placing battery manufacturing close to Europe’s car assembly plants and using renewable energy sources to power the facilities could reduce the carbon footprint of EV production and improve availability within Europe while creating jobs, notes a joint study by UK professional services firm EY and Eurelectric, the European electricity trade body.
AMERICA THINKS BIG
Although the US has been slow off the mark in trying to foster domestic production, manufacturing of materials used in EV batteries has been increasing in America, reports the Wall Street Journal. The newspaper has highlighted the raising of $590 million by Sila Nanotechnologies, a California start-up that makes materials for silicon anodes in batteries, to establish a domestic factory. Funding has also been raised by California-based Romeo Power and Canadian mining company Lithium Americas. Over the next decade, Benchmark projects America’s battery-making capacity will increase more than six-fold from some 60 gigawatt-hours of yearly production in 2020 to about 383 gigawatt-hours in 2030. Moores notes the US currently has three battery production factories, with six more planned, but it needs at least five times that by 2030 to meet projected EV demand.
COMPETITION DRIVES INNOVATION
For the time being, Li-ion batteries will continue as standard for EV propulsion. They are expected to dominate the sector until 2025, predicted the Rocky Mountain Institute in a 2019 report published by the American think tank. As market appetite for EVs takes off and the industry expands to meet demand, however, companies are increasing their focus on how to avoid pinch points in raw material supplies and how to bring down costs to secure a competitive edge. Research into alternative materials is well underway by both battery makers and EV manufacturers. The chemistry of EV batteries is moving towards the use of more nickel than cobalt because it is cheaper, says David Reichmuth at the Union of Concerned Scientists (UCS) a nonprofit science advocacy group based in the United States. Pricing and sustainability are concerns for use of cobalt in batteries—and it is very difficult to engineer out, so the trend is towards lower intensities, says Benchmark’s Miller. Longer-term research is also underway looking into using more sodium and aluminium, which are cheaper and more plentiful, making EV battery manufacturers less reliant on the few sources currently available. Even so, it would take time before consumers reap the rewards: research, development and testing of new battery chemistries can take 10-20 years, Reichmuth adds. Carmakers are also looking at bypassing some of the supply chain issues. Tesla, at its Battery Day event in September 2020, announced it would make batteries without cobalt—removing one element from the value chain. Company CEO Elon Musk did not give a timetable for the heralded change in chemistry but said it will make rather than buy the intended cobalt-free batteries, in line with its longer-term policy of making all of its EV batteries in-house. Meanwhile, giant American automaker General Motors is developing its much-vaunted Ultium battery with claims it has double the storage of Tesla’s most powerful battery pack. The unit is expected to use 70% less cobalt than conventional Li-ion batteries because of energy-dense chemistry which uses Li-nickel, cobalt, manganese and aluminium.
DEMAND BREEDS CONFIDENCE
As popular support for the energy transition grows so does demand for EVs. Government announcements of future bans on the use of cars that run on fossil fuels are speeding the transition away from the internal combustion engine (ICE) as a means of propulsion. In China regulations and incentives are set to propel the share of EVs in the vehicle market to roughly 35%-50% by 2030 and in the EU to 35%-45% by the same year. Economic stimulus programmes post covid-19 make the aggressive scenario more likely, says McKinsey, a US management consulting firm. Global EV sales are projected to reach 62 million units a year by 2050 and the total global stock 700 million, according to Wood Mackenzie, a research and consultancy group. Price parity with existing ICE technology is the main driver for EV adoption—and batteries are the key component of price. Batteries can account for up to 30% of the purchase price of an EV, making them the single most expensive component. “The quicker we can get battery costs down, the quicker we can accelerate this transition,” says Reichmuth at UCS. That cost reduction may already be just around the corner, according to BloombergNEF, a new energy finance news and data service. It forecasts that by 2023, the average Li-on battery pack price for vehicles will be $101/kWh. At this price point, in some markets automakers should be able to produce and sell mass-market EVs at the same price as ICE vehicles, without the support of subsidies. The prices of batteries have been falling rapidly. In 2010, packs cost more than $1100/kWh. By 2020 they had fallen 89% in real terms to $137/kWh.
TEXT Ros Davidson