For all the people out there asking whether or not the mining industry can keep up with demand for raw battery materials, the qualified answer is yes. But not without some shortages and some price hikes.
There are tons of detractors taking to social media platforms suggesting that raw materials mining just simply cannot keep up with demand and that this fact alone will see the EV market fall flat on its face. So we thought we’d do some modelling and the outcome is out new forecast on battery raw materials entitled “Will scarce raw materials grind the lithium battery market to a halt”
One of the most surprising outcomes of this report is that outside North America, raw materials are already opting for LFP battery designs, dumping Cobalt because of its expense and rarity. Higher energy density can be bestowed upon LFP by including Manganese in its cathode design, something the Chinese call LMFP. These two battery chemistries will initially take BESS markets, then low end EVs, and later most of the EV market. One of the advantages of working with these chemistries is that it is a relatively simply job to set up a supply chain, because the materials are not rare at all.
Global demand for new passenger EVs is set to reach the equivalent of 12 million BEVs worth of batteries in 2023, this is considering PHEV battery size and adjusting accordingly. China will remain the world’s largest market for EVs as it leads the industry in sales through city-commuters while the US will catch up through its massive 75kwh average battery size dwarfing the needs of both Europe and China.
A central factor of raw material demand this decade will be what chemistry China will lead itself and Europe to as its successor to LFP. We think that it will be LMFP for a few key reasons.
Firstly, LMFP offers a 15% to 20% increase in energy density with just a 5% to 10% increase in cost, this further improves upon the economics of LFP without jeopardizing safety or simplicity of supply conditions while partially addressing its primary shortfall. The only problem that needs to be solved is cycle life, which even if this doesn’t get fully addressed, it’s less of an issue with cheaper batteries as it would lower the cost of replacement. Europe’s amicable relationship with China will see Chinese companies like BYD and CATL competing within its automotive industry directly or indirectly with the advantages of both cheap labor and technological superiority. It’s hard to see how Chinese companies don’t win this fight and come to a significant share of European battery manufacturing through the implementation of its IP superiority gained from a decade of complete manufacturing dominance.
Its main competitor will be the rate of development of sodium ion batteries, as both technologies are targeting the same market segment of city-commuters. CATL’s pursuit of the next new thing means it will come around eventually, but if it commercializes too much later then it will have to compete with LMFP’s economies of scale. It’s important to remember that the best technology doesn’t always win if it misses its window.
LMFP manufacturing isn’t as simple as chucking a hunk of manganese into the mix, it will require new manufacturing facilities to develop as most LFP plants use solid-phase manufacturing methods due to its simplicity in spite of its higher cost, LMFP requires either liquid-phase manufacturing or semi-solid semi-liquid phase manufacturing methods which introduces additional complexity despite being cheaper overall. China has never been hesitant to develop significant manufacturing capacity in strategically beneficial markets to establish dominant positions, and as such we aren’t too concerned about a lack of manufacturing capacity because of the size of the technology’s backers.
The US will overtake Europe in battery demand in 2027 as it continues to mandate larger battery sizes, while Europe benefits quicker from the development and proliferation of charging infrastructure and its greater population density. US-based EV demand will remain largely dependent on high-nickel cathodes for a majority of vehicles due to these limitations – which as a result of the Inflation Reduction Act – will turn the US into a demand hub for nickel and manganese, but less so for cobalt. While cobalt will still be necessary we can see the demand for the material waning as Tesla starts production of its 4680 cells making its 18650 NCA cells redundant, lowering cobalt intensity through increases in energy density and chemistry manipulation. Recent supply expansions in Indonesia, Australia, and eventually Canada might not look like surefire investments after all.
Cobalt demand will increase in the short term and increasingly be needed in and around North America, while some will remain necessary in Europe for luxury vehicles. This will at least in part be dependent on safety messaging within the region. Consumers won’t buy a battery that is significantly more expensive, surplus to requirements, and more prone to catastrophic failure if they’re sufficiently informed. Manufacturers also don’t want the headache of maintaining these supply chains in the long-run, and moving away from NMC-based chemistries will simplify operations significantly.
The first 2 months of this year have seen battery raw material prices sink following China’s winding down of EV subsidies and its lifting of Covid restrictions and the consequent havoc that wrought. Lithium carbonate (LiCO3) is down to below 400,000 yuan per ton ($58,000 per ton), widening the divide between it and lithium hydroxide (LiOH) prices. This divide is fueled by a disproportionate reduction in the demand for LFP cathode materials and NMC cathode materials, since LiCO3 is primarily used as a precursor for LFP batteries it has suffered more from a very China-centric demand shock. This divide will be maintained or widen according to China’s rate of recovery, which we expect by the end of Q2 or by the start of Q3 at the latest.
Some are saying this demand shock and the subsequent price reductions are systemic and irrecoverable, we say this is utter nonsense as we see it again and again in the EV industry. Countries in Europe have experienced reduced demand as a result of subsidies ending before, and those markets always recover within half a year, as consumers adjust to new pricing. This policy decision has been particularly effective in part due to simultaneous epidemiological factors that stemmed demand, and due to China’s outsized influence on commodity prices resulting from its concentration of demand and supply. For these reasons we believe the current fall in lithium prices is temporary and will recover alongside Chinese demand.
Graphite supply is tough to forecast – the US doesn’t have much existing natural graphite production, but it does have significant potential for the production of synthetic graphite, since it has relatively cheap electricity and petroleum coke as a byproduct from oil processing. This puts the primary bottleneck at refining and processing capacity within the country, as whatever graphite is acquired will still need to be purified further into spherical graphite so it can be used within anode materials. We don’t expect supply to keep pace with demand in the short term, but this isn’t a problem without solutions due to the potential for imports and slightly increased prices. Graphite prices may increase in the first half of this decade but not to a level where it will be competing with cathode active materials.
The report can be found here.