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A successful transition to a zero-carbon future depends on the electric vehicle (EV) market. The promise of a vibrant EV market, driven by the combined force of government policies and consumer demand, is extraordinary. But stubborn realities exist in the European and US markets that risk limiting the full potential of EVs.
Although demand for critical battery raw materials (BRM) is expected to grow significantly through 2032, the Fastmarkets NewGen Long-Term Forecasts show that BRM supply will be able to support that demand. It is going to be tight and supply-demand balances will go slightly negative in the second half of decade. But, overall, the combination of investment, expanded production, new projects, evolving technology, and an emerging recycling market is forecast to support EV (and ESS and other battery demand) through 2032.
Learn more about expected supply and demand balances at our upcoming webinar, register here.
The important caveat is that global supply is expected to meet global demand. However, that global equilibrium masks structural challenges in Europe and the US.
Regionally sourced supply is not expected to meet regional demand, even with planned projects and government policies like the recent American Battery Materials Initiative. In 2032, Europe will represent 25% of lithium demand, but will contribute only 4% of global lithium supply. Likewise, the US will represent 8% of demand, but only 6% of global lithium supply.
The US and European governments have laid out clear plans for new car sales to transition from ICEs to EVs by 2035. These are ambitious goals, and in some instances they risk diverging from what the industry is capable of delivering, or even throttling EV growth. For instance, the 40% incentive hurdle for domestic or ally mine supply through the end of 2023 (lifting to 80% through the end of 2026) in the US. Or the possibility of lithium being declared a toxin.
And although ESG concerns are a public priority, governments may have to make a difficult trade-off between “how clean” and “how much” to secure supply and fuel the EV revolution. The Fastmarkets NewGen Long-Term Forecasts show that regional projects – some that are under pressure or paused today due to ESG concerns – will succeed. But the forecasts also show that there is clear downside risk that can delay supply and complicate EV growth in Europe and the US.
Yes, there is supply risk and, yes, there is an inherent ESG conundrum. But the markets will generally work these issues out over time. The durable issue is battery cost. The ideal is that EVs deliver cost parity with ICE vehicles, for which it is widely regarded that battery prices need to reach < 100 $/kWh. But the economic and competitive physics are not pointing in that direction.
These high prices affect all chemistries, so that even though there is increased interest in LFP to lessen the cost burden, LFP does not escape the physics of elevated prices through 2032. As an example, both LFP and NMC811 pack costs will remain above the critical 100 $/kWh mark up to 2032 considering lithium carbonate and hydroxide base price forecasts.
Today’s buyers largely accept that EVs are more expensive than ICE vehicles and recent price increases from Chevy, Tesla, BYD and others have not shortened the EV wait lists. But these buyers can afford it; the emphasis on luxury and performance vehicles has attracted customers that can tolerate the EV premium. The real challenge with cost will be for mass EV adoption where buyers will be far more sensitive to price.
In blunt terms, the EV revolution will win out. It is a matter of how, not if. Several innovative approaches to offset high EV and battery costs are in market today with varying results – but each gives a hint to the goal of addressing the mix of battery cost shock at purchase and charging anxiety on the road that results from lower cost, lower range batteries.
The EV revolution will take shape – there is simply too much critical need driving it forward. But battery makers and automakers will need to navigate the complexity and volatility of both supply and price across the battery raw materials market, making access to price, news, forecasts, and analytics vital to compete and win in the (inevitable) EV revolution.