Fuel for Thought: What can OEMs do to ensure a robust and economical supply of batteries?

Raymond S. Hughes

Automotive Monthly Newsletter &
Podcast:

What can OEMs do to ensure a robust and economical
supply of batteries?


LISTEN TO THIS PODCAST

Navigating the opportunities within the comparatively nascent EV
industry will see winners and losers emerge. But how real are the
concerns around the battery upstream market and could this
genuinely be the next automotive supply chain crisis? In what way
can automakers achieve economies of scale while feasibly navigate
fluctuating commodity prices to deliver competitively priced EV
offerings? This challenge will fundamentally define how the
competitive landscape of the automotive industry transpires this
decade.

Battery raw material: A critical bottleneck within
growing EV supply chain

Annual production volumes of BEVs are forecast to increase from
around 4.8 million in 2021 to more than 50 million in 2034. As a
result, unprecedented quantities of battery-grade commodities are
needed to support such an uptick and ensure a successful global
transition to battery electric vehicles. S&P Global Mobility
considers this figure to mandate a shift from needing 260 GWh of
predominantly lithium-ion batteries in 2021 to some 4,568 GWh in
2034 to support BEV demand, with an additional 147 GWh required to
support hybrid vehicles. While many potential constraints exist
along the battery value chain, an abundant and financially
sustainable supply of raw materials such as nickel, lithium, and
cobalt will be critical to all-electric vehicle (EV) battery
chemistries.

Battery metals: Critical impact, but smaller in
quantity

In terms of the raw material constituents of a battery pack, the
quantity of material and value of material are unrelated. A typical
battery pack within a battery-electric vehicle (BEV) weighs more
than 500 kg and the portion of battery cells and, specifically
cathode, weights are about 50% and 20%, respectively. Within this,
the percentage of nickel and cobalt weight within a battery pack
featuring a nickel-cobalt-manganese (NCM)-based cathode chemistry
is even smaller, with 10% and less than 1%, respectively, subject
to the chosen portions of the chemical constituents. This is not to
mention lithium, the weight percentage of which is also small, even
though it is hard to measure it separately since it exists in the
form of ions from multiple components.

Price hiccups in battery metals

Nickel, cobalt, and lithium are three critical battery metals
that may become bottlenecks within the battery supply chain. The
potential risks from these metals have been evidenced by recent
battery metal price volatilities. For example, according to S&P
Capital IQ, the LME nickel three-month official price was hiked by
150% to reach near USD48,000 per ton in the March 2022 peak (two
weeks after the Russian invasion of Ukraine) from the July 2021
price level of USD19,000, and then settled down again near
USD19,000 as of 15 July 2022. Cobalt price hikes have been
relatively mild, nearly 60% up at its peak in March 2022 and came
down to a 15% year-over-year increase as of now.

In contrast to nickel and cobalt, lithium is still trading at a
high level, partly because of its irreplaceability in the
lithium-ion battery. According to S&P Global Commodity
Insights, the lithium carbonate CIF North Asia price is above
USD70,000 per ton as of now, up by more than 600% from the
USD10,000 level a year ago.

Why not pursue nickel and cobalt-free
batteries?

On the back of battery metal price volatilities, it has become
more economically attractive for OEMs to initiate a cathode
chemistry transition from high nickel NCM (nickel cobalt manganese)
or NCA (nickel cobalt aluminum) to LFP (lithium iron phosphate),
which contains no nickel and cobalt. However, even as a cheaper and
attractive alternative, LFP will not likely replace NCM/A due to
its inherent limitations on energy density for light passenger
vehicles. S&P Global Mobility expects NCM high nickel cathode
will have the largest share with almost 50% in 2030 from 25% in
2022.

Within NCM/A, cobalt is the most viable element so far to enable
a high energy density and a long battery cycle life as it
stabilizes the layered cathode atomic structure. There are many
feasible alternatives such as LMNO (lithium manganese nickel
oxide), high manganese NCM to replace or minimize cobalt usage to
avoid high price and unethical issues related to cobalt mining.
Meanwhile, nickel is harder to be replaced than cobalt as its role
is critical to achieve high energy density, which is directly
translated into EV driving range.

Supply and demand outlook for battery raw
materials

Battery metal demands will increase dramatically to follow the
BEV adoption curve while the growths in battery metal supplies will
likely be in doubt as supplies are not flexible enough to keep up
with demands. S&P Global Mobility expects that annual lithium
demand from all battery applications (light vehicle being majority
but also including energy storage system, portable electronics
applications) will reach 1.97mn tons in 2030, growing 28% CAGR
(compounded annual growth rate) from 0.27mn tons in 2021. Likewise,
nickel demand from all battery applications will reach 1.80mn tons
in 2030, growing 34% CAGR from 0.16mn tons in 2021.

However, the industry is facing challenges on securing supplies
as typical battery metal mines require more than 5 years to begin
operation in case of green field projects. Furthermore, for nickel
in particular, only high purity, class one nickel can be used for
battery application which comes from mostly sulfidic mines
only.

Battery upstream has become too important to
outsource

Auto OEMs had delegated most of battery metal purchasing to
cathode and cell manufacturers until the price disruptions in
battery metals happened. In recent months, to name a few OEMs in
North America, Tesla, GM, Ford and Stellantis all signed long-term
contracts directly with battery metal miners. S&P Global
Mobility has been actively researching battery upstream in recent
months to establish the complete dynamics of battery metal supply
& demand in light passenger vehicle and will publish the
resulting forecast dataset and analysis in the coming months.

Potential geographical risks also lie in battery
chemical refining

Now, many people tracking the battery upstream market
acknowledge the reality that nickel and cobalt are vulnerable to
macro risks after the recent series of price volatilities.
Furthermore, well understood is that high geographical
concentrations of nickel and cobalt exist in Russia and in Republic
of Congo, respectively, nations of known instability.

On the other hand, lithium is one of the most abundant metals in
the earth crust so lots of lithium mining projects have been
initiated across all regions of the world. However, if we go one
notch down toward the downstream, a high degree of geographical
concentration in battery chemical refining can be found. For
example, converter facilities of lithium hydroxide and carbonate,
which are refined chemicals from mining (either from lithium
spodumene ore or brine) and mixed to form cathode, are highly
concentrated in China. According to S&P Global Commodity
Insights, 89% of lithium hydroxide converters capacities is in
China, followed by 5% in Chile and only 3% in the U.S in 2022.

The reshoring of entire battery supply chain to the
US

Currently, the US heavily relies on foreign countries to secure
batteries, and it plans to re-shore not only battery cell
facilities, but also the whole battery supply chain from mining to
recycling. According to National Blueprint for Lithium Batteries
published by FCAB (Federal Consortium for Advanced Batteries) in
June 2021, the U.S owns 0%/10%/2%/6% of global
cathode/anode/electrolyte/separator manufacturing facilities while
China possesses 42%/65%/65%/43% of them.

While it looks feasible for the US to achieve the independence
of battery cell and some materials manufacturing in a decade,
battery metals have their own intrinsic limitations. According to
the same report, the percentage of US reserves of lithium, cobalt
and nickel are estimated to be only 3.6%/0.7%/0.1% of total world
reserve, respectively. Therefore, the US national strategy of
battery metals is focused on securing the access from partners and
allies while eliminating the dependency on nickel/cobalt and
developing sustainable domestic sources through R&D
efforts.

Sustainable lithium mining with advanced
technology

Among many efforts to secure domestic battery metal productions,
advanced lithium mining has been actively researched in the US. In
November 2021, CTR (Controlled Thermal Resources) started its
drilling program at the Hell’s Kitchen Lithium and Power project in
California. Hell’s kitchen project plans to use geothermal energy
for the novel extraction technology called DLE (direct lithium
extraction) which will be able to achieve less contamination, less
water/land usage with shorter production time. According to NREL
(National Renewable Energy Laboratory), DLE could be a
game-changing extraction method, potentially delivering 10 times
the current US lithium demand from California’s Salton Sea known
geothermal area alone.

CTR’s project has been jointly developed with a technology
partner startup called Lilac Solutions and is expected to deliver
its first lithium carbonate products in 2023. General Motors and
Statevolt are major EV customers who agreed to procure volumes from
this project.

OEMs’ strategy on battery raw materials

With a paradigm shift in vehicle powertrain being evident, the
question is no longer will there be a shift away from ICEs but
rather how quickly can we shift to more greener ways of transport.
OEMs have pledged billions of dollars in investment and elusive
long-term plans to make this shift. With a limited supply of raw
materials and an increasing demand for EVs, OEMs that manage to
gain supply of raw materials in the long run will be ahead of the
competition.

Investment in lithium mining companies

In light of concerns around supply chain ownership, an
increasing number of OEMs have sought to get more directly involved
in upstream raw material supply. Stellantis has invested in Vulcan
energy’s upcoming projects in Germany’s Upper Rhine Valley to mine
lithium hydroxide. Volkswagen and Renault have also signed supply
agreements with Vulcan Energy to obtain raw lithium from 2026. Ford
has loaned over half a billion dollars to Australia’s Liontown
resources to expand their mining and have signed an agreement to
obtain lithium.

OEMs have invested in CAM (cathode active material) companies
and lithium mining companies and in return signed long term offtake
agreements to make sure they are not gasping for raw materials in
the future.

Joint ventures and agreements

With many mines beginning operations in Africa and South
America, major OEMs have signed agreements with companies to obtain
raw materials. CAM companies such as Umicore have signed MoUs with
Volkswagen and Automotive cells company (the joint venture by
Mercedes-Benz, Stellantis and Total energy) to supply cathode
materials. Renault has supply agreements with Terrafame for Nickel
and with Morocco’s Managem group to supply cobalt, BMW and Managem
have signed a multi-million euros deal for the supply of cobalt. GM
has inked a deal with Glencore for long-term supply of cobalt.

Silicon anode batteries

To avoid the supply crunch of anode material – graphite, OEMs
are looking into silicon-based anode for EV batteries.
Mercedes-Benz-backed battery company Sila is all set to manufacture
batteries with silicon anode chemistry in North America. Tesla is
looking to make changes to its battery cells to include a high
percentage of silicon. Porsche, Volvo and Daimler have invested in
companies dealing with high silicon battery technology.

Solid-state batteries

Ford, GM, Mercedes-Benz, Volkswagen, Stellantis, and BMW have
all invested in companies dealing with solid state batteries. Solid
state and semi-solid state batteries are said to be cheaper and
have higher energy density than traditional Li-ion batteries
bringing the overall cost of the vehicle down.

Conclusion

The automakers best placed to grow in the emerging global EV
market have a number of features in common. Early investment in a
variety of battery chemistries provided by a multitude of suppliers
will help achieve the scale they require while giving a degree of
resilience from commodity price fluctuations and supply chain
security. Such supply of critical raw materials is typically
largely locked in through direct upstream partnerships, with the
likes of Volkswagen and Tesla taking much more ownership and stake
in the critical elements of the cell manufacturing process. At the
same time, these OEMs, along with the likes of Daimler and BMW have
made deliberate attempts to move product offerings upmarket and
indeed prioritize larger segment, high specification vehicles to
absorb pricing impacts and prioritize in the face of the ongoing
semiconductor crisis. This has ensured impressively higher levels
of profitability in the face of, in some cases, lower sales.

That said, the risks around supply of critical battery cell
cathode commodities such as lithium and nickel places the EV market
in genuine peril. It seems evident that sufficiently abundant
quantities of these elements exist and there is an appetite to mine
them. However, whether scale can be achieved quickly enough to
deliver them at a price that appeases their extractors while making
for both affordable and profitable EVs across mass market sectors
remains to be seen. Less discussed potential bottlenecks around
production capacity for intermediate processing and availability of
the complex machinery to perform operations such as cathode drying
could derail OEM aspirations. The industry will almost certainly
continue to wrestle with supply chain constraints that have the
potential to thwart the EV revolution just as it is gaining
momentum. This may, by default, provide an opportunity to nations
such as China and South Korea, and their leading suppliers, to
achieve scale ahead of others around the globe possessing
ambitious, but inherently riskier plans as industry fast followers.
Alternative chemistries free of such reliance on the stated raw
materials, such as sodium-ion, deliver possibilities. However, a
different array of technical compromises (such as energy density)
will naturally influence technical suitability for the full suite
of automotive applications.

————————-

Learn more about the Battery Supply
Chain!

Join us at NAIAS in Detroit on Thursday, September 15th
for our battery supply panel discussion on the AutoMobili-D stage.
The panelists from S&P Global Commodity Insights, global OEM
and part supplier will discuss critical issues in battery supply
chain from mining to recycling.

————————–

Dive Deeper:

Blog Article: Battery raw material
price hikes may pose additional pressure to OEMs’ electrification
roadmaps

Blog Article: Growth of
Li-ion battery manufacturing capacity in key EV
markets

Ask the Expert a Question:
Jay Hwang

Ask the Expert a Question:
Anoop Desai




Posted 28 July 2022 by Anoop Desai, Director, Automotive Advisory Services

and



Graham Evans, Director, Auto Supply Chain & Technology, S&P Global Mobility

and



Jay Hwang, Senior Technical Research Analyst, Global Insight, 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.

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