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This article was written by Ewa Manthey, commodities strategist at ING Research
Reaching net-zero emissions will require massive amounts of critical raw materials, which are currently used in everything from solar panels to electric vehicles (EVs). For EVs, diversifying battery manufacturing and critical raw materials supplies will be key to ensuring secure and sustainable supply chains.
Electric vehicle markets are still showing great strength across the board, breaking new records as sales surge. A total of 14% of all new cars sold were electric in 2022, up from around 9% in 2021 and less than 5% in 2020.
Despite surging EV sales, the transition has really only just begun. This means that demand should continue to soar on the back of subsidies and future phase-out targets and regulations for internal combustion engine (ICE) vehicles. When total costs of EV ownership are on a par with those of ICE vehicles (and even begin to drop below them) in the second half of the decade, we can expect an extra upswing.
China, the EU and the US are the leading markets, with electric cars set to surge to 60% of total car sales across these three economies by 2030 – that’s if supply is able to keep up.
As the demand for EVs rises rapidly, so does the demand for the minerals inside their batteries.
Squeezed supply chains and looming shortages of critical metals which are key for battery manufacturing present a major risk for the energy transition as we head towards 2030. Lagging investments in mining may also add another challenge to the mix as we begin to see the supply-demand balance grow increasingly fragile.
The rapid increase in electric vehicle sales during the Covid-19 pandemic has exacerbated concerns over China’s dominance in lithium battery supply chains. Meanwhile, the ongoing war in Ukraine has pushed prices of raw materials – including cobalt, lithium, and nickel – to record highs.
The dependence on specific suppliers is not the only concern. Batteries make up a big part of an EV’s total cost and typically account for 30% to 40% of their value, but this proportion increases with larger battery sizes.Rising demand for EVs amid tightening supply chains has also pushed prices of battery materials (including cobalt and lithium prices) to multi-year highs. This impacts prices, which in turn makes consumers more hesitant to make the shift to electric vehicles.While nickel and cobalt prices have come down in the first half of 2023, they are still higher than they have been in previous years.
Europe is currently pushing hard to develop its battery supply chain, but this takes time and sourcing dependencies remain.
The EU’s Critical Raw Materials Act is the bloc’s attempt to secure supply chains and boost European autonomy to ensure the EU has access to materials needed to meet the bloc’s target of moving to net-zero greenhouse gas emissions by 2050.
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%.
As part of the Critical Raw Materials Act, the EU has set targets for the region to mine 10% of the critical raw materials it consumes, like lithium, cobalt, and rare earths, with recycling adding a further 15%, and increased processing to 40% of its needs by 2030.Today, China processes almost 90% of rare earths and 60% of lithium. The EU said that no more than 65% of any key raw material should come from a single third country. The EU is almost entirely dependent on imports of these raw materials, particularly from China with 100% of the rare earths used for permanent magnets globally refined in China and 97% of the EU’s magnesium supply sourced from China.
Investment is key to combatting China’s crucial role in the EV supply chain. But even as the US and Europe continue to ramp up investment, China’s dominance in processing and production is set to continue to grow.
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. Earlier this year, 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.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.
Policy and politics will play an increasingly large role in the future of EV supply chains. To secure battery metal supply, we expect to see countries and regions such as the US and EU forge new trade partnerships. We expect governments’ EV policies to focus more on batteries and metals, and we also expect EV companies to further partner up with battery manufacturers and mining companies. The sustainability of mining and battery manufacturing will affect company decisions in the long term, but its impact will be limited until there has been a huge uptake in EV adoption.
Meet with ING and hundreds of other industry leaders from businesses along the battery materials supply chain at our upcoming European Battery Raw Materials Conference in Amsterdam Sept 18-20, 2023. Secure your place