Tesla as a pioneer, car companies to start a battery raw materials "defense war"

While the electrification revolution in the automotive industry is in full swing, RJ Scaringe, CEO of American electric vehicle startup Rivian, warns that the current chip shortage may be just an "appetizer" compared to the upcoming battery shortage.

Over the past two years, chip shortages have led to production cuts and frequent vehicle allocations by automakers, and consultancy AlixPartners has estimated that chip shortages will cost automakers about $210 billion in 2021. Now, however, automakers may face a shortage of batteries worse than a shortage of chips, as well as a shortage of metal raw materials needed to produce batteries. For car companies, the impact of the lack of key raw materials for batteries may be more profound than the lack of cores.

Battery raw materials are in short supply at the same time as prices are soaring

According to a report released by the Center for Automotive Research (CAR), battery production will not be able to meet demand until 2030, and more than 18.7 million electric vehicles worldwide are expected to be missing batteries between 2022 and 2029. Scaringe expects shortages in every part of the battery manufacturing process, including raw materials such as lithium, nickel, cobalt and graphite, in addition to the battery itself.

Scaringe isn't the first to express concerns about the future supply chain of electric vehicle batteries. Tesla CEO Elon Musk has repeatedly warned that the supply of raw materials for batteries could become a major problem, and he has repeatedly called on raw material suppliers to mine more mines, especially lithium.

Lithium is a key component in the manufacture of batteries because it is the lightest metal and the least dense solid element, which means that lithium batteries have a high power-to-weight ratio, which is very important during transportation. However, as the demand for lithium-ion batteries in electric vehicles continues to increase, the price of lithium materials continues to soar. According to Benchmark Mineral Intelligence, the price of lithium has more than tripled in the past year as lithium mining lags behind the demand for electric vehicles, and in the face of high costs, even Musk can't help but sigh: the price of lithium has reached a crazy level!

(Musk's response to soaring lithium prices; Image source: Musk Twitter screenshot)

Nickel is a key component of most lithium-ion batteries. Sumitomo Metal Mining, Japan's largest metal smelter, said global demand for nickel for batteries is expected to grow by more than 20 percent this year due to strong demand for electric vehicles, climbing from nearly 330,000 tons in 2021 to more than 410,000 tons in 2022. It is also predicted that the global supply of nickel this year is estimated at around 2.6 million tons, but the amount used for electric vehicles is estimated to be less than 10%. This means that the global supply of nickel is far from keeping up with the demand of the electric vehicle industry. Musk has repeatedly said that the supply of nickel is the company's biggest concern.

(Demand for nickel for batteries climbs sharply between 2020 and 2030; Image source: Macquarie)

Russia was originally one of the world's largest nickel producers, but due to the escalation of the situation in Russia and Ukraine, which further affected the global supply of nickel, the price of nickel also soared further, and in March, the price of nickel reached the highest level in more than 20 years.

Cobalt is a metal that occupies 0.001% of the hull, which ensures that the battery cathode is not prone to overheating or catching fire, and helps extend the life of the battery. While the amount of cobalt in batteries has fallen sharply in recent years, soaring electric vehicle sales mean that overall demand for this rare metal will also rise. Roskill analysts predict that cobalt demand will increase from 141,000 tonnes in 2020 to 270,000 tonnes by 2030.

(Demand trends for cobalt in electric vehicles; Image source: CRU)

Most difficultly, cobalt is primarily a by-product of copper, so it is difficult to invest in specific capacity of cobalt, and there is no mechanism for supply to react to demand and price.

Graphite accounts for 20%-30% of the battery material of each electric vehicle, and as a negative electrode or "anode", without it there would be no lithium-ion battery. Tirupati CEO Shishir Poddar said that by 2030, graphite demand is expected to be three times our global capacity, and the imbalance between supply and demand will inevitably drive the price of graphite up.

As the COVID-19 pandemic and the situation in Russia and Ukraine have disrupted supply chains and battery raw materials have become increasingly difficult to obtain, the prices of these battery materials have also risen and have soared to multi-year highs, adding another layer of concern to automakers.

Benchmark data shows that the cost of raw materials in lithium-ion batteries accounts for 80%, which is twice that of 2015, while the cost of battery cathode materials such as lithium, cobalt and nickel alone has risen by nearly 150% in the past year, and south Korea's three major automakers have raised prices several times, forcing Tesla and other car companies to raise the price of electric vehicles many times.

In order to ensure supply, car companies launched a "defense war" of battery raw materials

In order to ensure that the core components of the future power battery are not "stuck neck" by raw materials, to ensure their long-term stable development, and to better control costs, more and more car companies have begun to lay out the battery industry chain, and have extended their business tentacles to the raw material end.

Tesla's proactive approach has made it work hard in the raw materials sector, several years ahead of its peers, and all this can be attributed to Musk's efforts to focus on vertical integration of the supply chain.

In terms of lithium and nickel, two major battery raw materials, Tesla has signed multiple supply contracts with suppliers and strives to ensure the diversification of supply sources. On raw materials such as cobalt and graphite, Tesla has also signed supply contracts with Glencore and Syrah Resources, respectively. Still, Tesla has a deep sense of crisis. As a result, the company is even considering directly and large-scale involvement in the mining and refining business of raw material mines.

Following the pace of electric vehicle pioneers, other automakers that want to share in the field of electric vehicles have also begun to pay attention to the supply of battery raw materials, and GM has done a good job in this regard and diversified ways. In response to the or to-come cobalt shortage, GM announced a multi-year purchase agreement with Glencore. In addition to the procurement relationship, GM has also reached partnerships with other battery materials vendors, such as working with GE to develop the rare earth materials value chain and posh chemicals to build a battery cathode active materials factory. For potential mining projects, GM also invests directly.

BMW and Volkswagen also have a relatively early layout in battery materials, and as early as 2019, they have signed lithium supply contracts with China's Ganfeng Lithium Industry. Volkswagen has also recently established joint ventures with Huayou Cobalt and Tsingshan Group to ensure the supply of raw materials. Ford chose to partner with Redwood Materials, a U.S. battery recycling company, to establish a "closed loop" or circular supply chain from battery raw materials to recycling.

However, Tesla's preparation in battery materials is clearly far ahead of other competitors, which also gives it a clear competitive advantage. Talon Metals spokesman Todd Malan said: "People don't even realize how far Tesla has come in securing the raw material supply chain and integrating battery materials."

In short, this "supply war" of battery raw materials has been launched by car companies. Chase the deer in the Central Plains, whose hands the deer die, let us wait and see.