The disruption in global supply chains, brought about by the COVID-19 pandemic and increasing Chinese-US tensions makes clear the vulnerabilities in the lithium-ion battery market. In Part 1, we examined the sources for the lithium used in electric vehicle (EV) batteries and how some sources provide an advantage for specific battery chemistries. In this second part, we will look at how the global supply chains for lithium-ion batteries have developed and what it means for future electrification of transportation.
A Tesla Example
As an example, consider the scale of the global supply chain that results in lithium arriving at the Tesla Gigafactory in Nevada, to be used in the production of EV batteries for the carmaker. First, it’s important to know that Tesla’s battery chemistry, nickel, cobalt, aluminum (NCA) uses lithium hydroxide. The raw material source is the mineral spodumene, which is mined for Tesla in Australia. As we learned in Part 1, this type of hard-rock mining requires digging the mineral from deposits in the ground and then concentrating the ore for later processing. Lithium can also be extracted from brines in places like Argentina and Chile, but the resulting lithium carbonate, while useful for some battery chemistries such as lithium, iron, phosphate (LFP), is not the best starting point for Tesla’s NCA chemistry.
The Australian spodumene for Tesla is shipped to China where the concentrate is converted into battery-grade lithium hydroxide. The lithium hydroxide is then shipped to Sumitomo in Japan, where it is used to produce cathode material for Tesla. The cathode material is finally shipped to Tesla’s Nevada Gigafactory where it becomes part of the battery. It should be noted that Chinese conversion plants account for 80% of the lithium hydroxide used in the world’s high nickel cathodes in lithium-ion batteries.
Regions Not Countries
Even before the shocks of the first half of 2020, lithium-ion battery manufacturers had begun to think in terms of regions of the world, instead of nationalistic countries. To that end, some of the major EV battery manufacturers are spreading their production plants around the globe. Korean giant LG CHEM, whose contracts include supplying General Motors, Volvo, Audi, and Volkswagen, has built its plants in Korea, China, in Ohio in the US, and Poland. Rival South Korean battery maker SK Innovations is building its own plant in the US in Georgia, and Chinese giant CATL is supporting its European ambitions with a plant in Germany.
Tesla has adapted to a regional strategy—the shorter-range version of the Model 3 that the company builds in its new Chinese manufacturing plant in Shanghai used lithium-iron-phosphate (LFP) batteries produced by Contemporary Amperex Technology (CATL). In addition to local production, the use of LFP removes expensive and politically problematic cobalt from the battery chemistry. But even companies like CATL were affected by the pandemic as a shortage of both raw materials and workers, as well as temporary shutdowns have reduced the number of batteries it will build this year.
Investing in Mining
Companies that are serious about electrifying their fleets, among them Tesla, VW, and BMW have invested in mining and raw materials suppliers to ensure a secure supply of lithium. “Automotive innovations, in the past, have started with vertically integrated supply chains,” Edwin Pope, principal automotive analyst, global light-weighting, at IHS Markit told Design News. “Sourcing and logistics of raw materials can greatly impact total battery cost. Early market predictions of BEV (battery electric vehicle) demand compared to supply chain capability led to automakers investing directly at the raw material level,” he added.
To secure raw material supplies for battery cells, the BMW Group signed a supply contract with Ganfeng Lithium Co., Ltd. based in Jiangxi (China) for sustainable lithium from mines in Australia. “The projected order volume totals 540 million euros. In this way, the BMW Group is securing 100% of its lithium hydroxide needs for fifth-generation battery cells in its high-voltage batteries,” said Dr. Andreas Wendt, member of the Board of Management of BMW AG responsible for Purchasing and Supplier Network in a November 2019 news release. The contract is for a term of five years (2020 – 2024).
“Alongside cobalt, lithium is one of the key raw materials for electromobility. With the signing of this contract, we are securing our lithium needs for battery cells,” continued Wendt. “We aim to have 25 electrified models in our line-up by 2023 – and more than half will be fully electric. Our need for raw materials will continue to grow accordingly. By 2025, for lithium alone, we expect to need about seven times the amount we do today.”
2020 is a Challenge
As reported in Forbes, in February of this year, Audi temporarily halted the production of its electric SUV the e-Tron, citing ‘battery supply bottlenecks’. It reduced its production to 4,100 vehicles, about 1,600 under its 2020 target. Jaguar Land Rover also interrupted the production of its I-Pace electric SUV and Mercedes paused its EQC due to the unavailability of lithium cathode materials for batteries. Audi and Jaguar both obtain their batteries from LG Chem from the South Korean company’s battery factory in Poland.
Although the price difference between an EV and ICE (internal combustion engine) vehicle is decreasing, EVs are still more expensive o purchase (but less expensive to operate). This makes the news from the International Monetary Fund that much more dire. The IMF June 2020 report projected global growth at –4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. The report says, “The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast.” Global growth for 2021 is projected at 5.4 percent, a 2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January 2020. Less money means fewer people can afford to buy a new EV, stunting the potential for EV growth. Likewise, the recent crash in oil prices has made gasoline cheap, reducing the incentive to go electric.
Where From Here?
Edwin Pope from IHS Markit told us, “EVs can have compelling use cases in Total Cost of Ownership, especially for last mile delivery operations. Considerations beyond tailpipe emissions are now in the evaluation criteria of mainstream buyers as well as concerned scientists and environmental activists. A whole picture approach to mining, manufacturing energy consumption, and environmental impact is the likely path forward for battery production in general.”
How EVs will continue to influence the market will depend on a variety of factors—ironically very few of which have anything to do with how well today’s EVs are meeting prospective owner’s expectations. Among the factors are:
- The continuing global financial crises
- Travel and shipping limitations due to the COVID-19 pandemic
- US and China trade tensions
- The vastly complex global supply chain for lithium-ion battery materials
- The need to invest in local or regional supply of lithium battery materials
- Continuing low oil prices
Moving away from reliance on Chinese processing of lithium-ion battery materials might be a dream for some—particularly in the US—but in the next three to five years, or even longer, the reality is that China will control the most important aspects of the EV supply chain. At best, companies can begin reshoring their supply chains by investing in European and North American opportunities as they present themselves. There is time—EVs won’t really come on strong until the second half of the decade. But whether or not there is the will to gamble in a huge investment in raw materials and their processing remains to be seen.
Kevin Clemens is an engineering consultant who has worked on automotive and environmental projects for more than 40 years.