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A reckoning for EV battery raw materials

A reckoning for EV battery raw materials

Geopolitical turbulence and the fragile and volatile nature of
the critical raw-material supply chain could curtail planned
expansion in battery production—slowing mainstream
electric-vehicle (EV) adoption and the transition to an electrified
future.

Soaring prices of critical battery metals, as observed in the
following chart from S&P Global Commodity Insights, are
threatening supplier and OEM profit margins. This situation has
quickly translated into increased component and vehicle prices,
according to new analysis from S&P Global Mobility Auto Supply
Chain & Technology Group.

Trade friction and ESG concerns are also affecting the
development of the raw materials supply chain between markets.
These collective developments add to the challenges of the electric
vehicle transition.

Achieving its volume goals will require a steep growth curve for
a burgeoning industry. For OEMs to hit their BEV and hybrid sales
aspirations, S&P Global Mobility forecasts market demand of
about 3.4 Terawatt hours (TWh) of lithium-ion batteries, annually,
by 2030. This figure excludes the medium- and heavy-duty, and
micro-mobility spaces, as well as consumer electronics and
burgeoning demand for stationary energy storage. The 2021 output
for the auto industry: 0.29 TWh.

Elements such as lithium, nickel, and cobalt do not just
magically appear and transform into EV batteries and other
components. The development chain is lengthy and complex, from
their difficulty to extract to their complicated refining. The
intermediate steps between excavation and final assembly are a
particular choke point in terms of expertise and market presence.
Currently, China is the clear leader in materials refining, as well
as the packaging and assembly of battery cells. At issue is which
other nations will step up to facilitate this industry
transformation.

In terms of accessing battery raw materials, the equation boils
down to: Who needs what, where will it come from, who will supply
it, and who is best placed to benefit from this increased
dependency on a handful of critical elements?

The latest S&P Global Mobility research evaluates the
battery raw material supply chain from extraction to vehicle,
identifying:

  • A number of unfamiliar companies will play a major role in the
    processing and development of battery-electric vehicle (BEV)
    technology that will underpin the light passenger vehicles of the
    coming decade and beyond;
  • Potential trade friction could represent difficulties for major
    auto companies in extricating themselves from an established,
    nimble, and cost-effective supply of processed materials coming
    from or via mainland China;
  • Some OEMs are seeking the value and reassurance of “locked in”
    supply chain relationships straddling mine to vehicle, lessening
    the reliance on volatile spot markets and/or a need to work with
    less established industry partners.

The process flow below identifies a well-understood and
well-documented supply chain to provide the required nickel and
lithium for Tesla’s NCA-based cylindrical cells produced in its
“Gigafactory” near Sparks, Nevada, US.

Now extrapolate that across the entire auto industry—and
expand EV market share to encompass the bullish projections made
for 2030 and beyond.

The greatest quantity of nickel required by any given vehicle
brand for 2030 production is forecast to be Tesla—deemed to be
some 139,000 metric tons (mT). However, in assessing the existing
structure of their broader manufacturing bases, we expect each of
Volkswagen, General Motors, and Stellantis to surpass this
requisition amount. Developing modular battery packs that can be
configured to fit multiple vehicle segments and can accommodate a
variety of battery chemistry choices will ensure a degree of
resiliency against raw material supply constraints and price
fluctuations.

“We have identified a total of 28 extraction sources of
battery-grade nickel over the coming 12 years to serve the light
passenger-vehicle market, located in 15 countries worldwide,” said
Dr Richard Kim, Associate Director with S&P Global Mobility’s
Supply Chain & technology team. “However, the supply base for
the upstream material processing steps and formation of the
fundamental battery cell cathode chemistries presents a challenging
lack of geographic diversity.”

S&P Global Mobility research suggests that, while the
process of either smelting or high-pressure acid leaching (HPAL) is
typically done at the nickel extraction site, that is not the case
for the process of conversion to nickel sulphate.

Of the 16 companies that can perform this process at present, 11
are in mainland China. By 2030 we expect the number of companies to
increase to at least 24, of which 14 will likely be in mainland
China. We forecast mainland China to process 824,000 mT of nickel
sulphate annually by 2030, with Chinese mining giant GEM’s supply
of nickel sulphate to key Tesla supplier CATL expected to be the
largest supply contract by tonnage. By contrast, we forecast North
America and Europe to process just 146,000 mT.

We must also consider risk in calculating access to cobalt—a
material well understood for its limited sources of origin and
concerns regarding ethical supply. Battery-grade cobalt bound for
electrified light passenger vehicles currently originate from just
18 mines, totalling 52,000 mT – of which 29,000 mT is forecast to
be mined in the Democratic Republic of Congo (DRC) in 2022. The
United Nations has cited the DRC’s “deteriorating security
situation,” its humanitarian crisis affecting 27 million people, as
well as child-labor practices and the ongoing guerrilla campaign
being waged over the exploitation of resources and food
security.

Despite the conflicts ravaging the DRC, we still estimate that
nation’s output bound for OEMs and suppliers to increase to 37,000
mT by 2030. However, reliance on the DRC will decrease from 56% to
17% in terms of total tonnage. We expect near tenfold increases in
supply from countries such as Australia and Indonesia, while
countries such as Vietnam, Finland, and Morocco will by then weigh
in with meaningful contributions. Given the dynamics of the supply
market, even for an OEM with locked-in cobalt contracts with
miners, a portion of several automakers’ supply remains unknown at
this stage.

“Geopolitics has coupled with a desire for supply chain
dominance and independence in the battery raw material supply chain
evolution to date,” said Dr Kim. “China has established a firm head
start. The evolution of their Belt and Road initiative clearly had
one eye on the automotive industry transition to electrification,
with broad strategic and logistical investments in Africa as well
as Southeast Asia.”

S&P Global Mobility research clearly indicates that
established battery raw material supply and processing operations
under mainland Chinese ownership will continue to deliver much of
the world’s supply of lithium-ion batteries and their constituent
key elements.

However, the imposition of nationalistic policies such as the
United States’ Inflation Reduction Act (and the automotive
implications of it) look to belatedly redress some of this
imbalance by promoting the setup of domestic supply chains, in
return for lucrative subsidies to both the suppliers and the
purchasing consumers.

The battery will be the defining technological and supply chain
battleground for the industry in the next decade, and access to
their constituent raw materials will be crucial. S&P Global
Mobility will continue to assess the changing landscape of the
battery raw materials market in real time, incorporating the latest
industry developments and research.

Please contact [email protected]
to find out more information around our insights to help you make
data-driven decisions with conviction.




Posted 31 October 2022 by Graham Evans, Director, Auto Supply Chain & Technology, S&P Global Mobility


This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.