Analysis | How a Battery Metals Squeeze Puts EV Future at Risk

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The world’s epic shift into electric vehicles needs to overcome a major obstacle: how to meet rocketing demand for batteries, the vital component, while cutting the cost to help the cars go mainstream. Factory lines churning out power packs to fuel a clean energy future are being built faster than strained supply chains can keep up. A global rush to lock in stocks of lithium, nickel, cobalt and other key ingredients from a handful of nations has sent prices hurtling higher. There are major concerns over China’s industry-wide dominance and moves in some other countries to restrict mineral exports in hopes of building their own manufacturing base. It’s a scenario that risks slowing the pace of EV adoption.

Miners and refiners were wary of big investments after a spending wave last decade swamped demand and triggered a years-long slump. Now, battery production is being ramped up so fast there have been shortages of specialist materials like copper foil, and more importantly metals needed for battery chemicals. While factories can be built in about 18 months, mines can typically take seven years or longer to come online. Then there’s pandemic-related disruptions, shipping snarls and trade restrictions. Thus, the current scarcity — and high prices.

2. What’s the fallout? 

Tesla Inc. and other carmakers raised sticker prices along with Contemporary Amperex Technology Co. Ltd., the biggest EV battery maker. (Tesla CEO Elon Musk called lithium’s gains early this year — one measure jumped about 500% over 12 months — “insane.”) Governments and companies are attempting to diversify supply sources and lessen their reliance on China for so much refining and manufacturing, which is seen as a vulnerability because of recurrent trade and political tensions. U.S. President Joe Biden invoked the 1950 Defense Production Act to encourage domestic production. Mexico is among those embracing resource nationalism, passing a law to put exploitation of its lithium deposits under state control.

3. Which minerals are in focus?

• LITHIUM: Australia’s hard rock mines account for about half the world’s supply. Chile, where it’s harvested by pumping salt-rich brines from underground into vast evaporation ponds, is the No. 2 producer — and holds more than 40% of the world’s known reserves. China has more than half of all capacity for refining it into specialist battery chemicals. Almost $14 billion is needed to develop planned lithium production capacity by 2025, according to BloombergNEF. And money isn’t the only hurdle: Serbia in January blocked Rio Tinto Group’s plans to build Europe’s biggest lithium mine after running into public opposition over environmental concerns.

• NICKEL: The U.S. warned in a 2021 report of the prospect of large shortages of the highly purified, battery-grade type, known as class one nickel, in three to seven years because of a lack of enough specialized processing. Any trade curbs on Russia, which accounts for about 17% of production capacity, would add to pressure on prices. Indonesia, which holds almost a quarter of global nickel reserves, limited some exports a couple years ago and is now luring investments into higher-value processing, mainly from China.

• COBALT: More than two-thirds of the mined metal comes from the Democratic Republic of Congo, though Australia, Cuba and Canada are expanding capacity. The DRC has long faced allegations of corruption, human rights abuses and the use of child labor. Small-scale “artisanal” producers — who sometimes dig by hand — accounted for about 12% of the country’s output in 2020, and efforts are underway to try to improve their lot. China has little of the raw material but refining is concentrated there, with about 80% of global capacity. Capacity is growing elsewhere, though, including at Finland’s giant Kokkola refinery.

• GRAPHITE: Battery makers can use either a natural graphite extracted from mines to make anodes or a synthetic material that is typically more expensive but lasts longer, charges faster and improves safety. China accounts for about 60% of natural graphite production capacity and 90% for the synthetic. It also is a big source of the raw material, but new supplies are being developed in places including Tanzania, Madagascar and Canada. South Korea and Japan are alternative sources of processed materials. Tesla last year struck a deal with Syrah Resources Ltd., a supplier with a mine in Mozambique and a plant in Louisiana.

4. How will this affect the EV transition?

Battery costs are forecast to rise in 2022 for the first time in more than a decade. If raw material prices stay high, that could delay by several years the point at which electric models become as affordable as gas guzzlers, which BNEF had forecast to happen by 2024 in many markets. Who’s winning and who’s losing? A blizzard of investments has lifted Europe’s share of battery-making and the US will follow as demand builds, though neither is likely to surpass Asia. Manufacturing capacity for lithium-ion batteries will grow almost fivefold through 2025 if companies deliver on their existing plans, with China accounting for 69% of the sector by then, compared with 74% now. That may be just a foretaste. Zeroing-out road transport emissions by 2050, necessary under the Paris Agreement targets, would need leaps in technology, a huge contribution from metals recycling — and could exhaust all known global reserves of lithium, cobalt and nickel, BNEF said in a June report. 

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