Securing Battery Metal Supply Chains: Challenges and Opportunities Amid the Global Energy Transition
ING Economics 26.07.2023 14:28
Countries and companies are increasingly wary of possible shortages of raw materials going forward and seek to secure supply. Battery metal demand is also evolving as demand shifts between chemistries. Current interdependence is significant and actors seek to reduce supply risk in light of the energy transition.
China dominates downstream EV battery supply chains
China has massively pushed electric vehicle (EV) sales in recent years which has helped to further develop the battery supply chain. China’s dominant role in battery metals supply chains, as well as export restrictions in other countries, risk slowing down the pace of EV adoption.
EV supply chains are expanding, but for manufacturing, China remains the key player in the battery and EV component trade. In 2022, 35% of exported electric cars came from China, compared with 25% in 2021, according to the International Energy Agency (IEA).
The rapid increase in EV sales during the Covid-19 pandemic and increased geopolitical tensions have exacerbated concerns about China’s dominance of lithium battery supply chains. The risks associated with the concentration of production are in many cases heightened by low substitution and low recycling rates. For example, in EV batteries, there is no substitute for lithium.
More than 80% of the world’s lithium is mined in Australia, Chile and China, the latter of which also controls more than half of the world’s processing and refining.
Chinese companies (including BYD and CATL) have also made significant investments in projects overseas; in Australia, Chile, the Democratic Republic of the Congo (DRC) and Indonesia. In Chile, the second-biggest lithium producer after Australia, only two companies produce lithium – US-based Albermarle Corp. and local firm SQM, in which China’s Tianqi Lithium Corp. has more than 20% stake. They mainly make lithium carbonate – 90% of which goes to Asia.
China dominates many elements of the downstream EV battery supply chain, from material processing to the construction of cell and battery components. China only accounted for about 15% of global lithium raw material in 2022 but around 60% of the battery metal is refined there into specialist battery chemicals. China also produces three-quarters of all lithium-ion batteries. This is a result of Beijing’s early push towards electrification, particularly through subsidising EVs.
Meanwhile, Europe is responsible for more than one-quarter of global EV assembly, but it is home to very little of the supply chain apart from cobalt processing at 20%. Like the US, Europe is currently pushing hard to develop its battery supply chain, but this takes time and sourcing dependencies remain.
China is the least expensive place to process lithium because of lower construction costs and an already large, processed chemistry engineering base. In 2022, 35% of exported EVs came from China, compared with 25% in 2021, according to the IEA.
Battery cell manufacturing is concentrated in China (2022)
Rising trend of vertical integration of EV and battery production
With uncertainties from metal supply chains, some automakers – which have set EV sales targets – have been looking into expanding their businesses into mining in the hope of securing a long-term supply of raw materials. In January, General Motors (GM) announced that it had formed a joint venture with mining company Lithium Americas, which would give GM exclusive access to lithium from a mining site in Nevada, US.
Ford, through its joint venture with battery company SK Innovations, will receive a $9.2bn loan from the US Department of Energy (DoE), the largest single loan in the DoE Loan Programs Office history, to develop battery plants in Tennessee and Kentucky. Stellantis has entered separate joint ventures with Samsung SDI and LG Energy Solution to build battery plants in the US and Canada, respectively. Other firms such as Tesla, BMW, VW, Hyundai, and Honda are similarly investing in building battery manufacturing capacity.
In the coming few years, we are going to see more partnerships – not just trade partnerships, but strategic partnerships – made along the EV battery supply chain. The future of the EV industry is vertical, ‘mine-to-wheel’ collaboration. This means that early efforts of long-term planning and relationship building will become increasingly important.
Energy transition at risk as resource nationalism gains momentum
The energy transition has become a pillar of policy for many governments while global trade and political tensions have prompted a reconsideration of global supply lines.
The global incidence of export restrictions on critical raw materials has increased more than five-fold in the last decade. In recent years, about 10% of the global value of exports of critical raw materials faced at least one export restriction measure, according to a report by the Organisation for Economic Cooperation and Development (OECD).
The rise in resource nationalism could slow down the pace and increase the cost of the energy transition, impacting the scale of investments, supply and prices.
Export restrictions on ores and minerals, the raw materials located upstream in critical raw material supply chains, have grown faster than restrictions in the other segments of the critical raw materials supply chain, correlating with the increasing levels of production, import and export, as well as the concentration in a small number of countries, the OECD report found.