Batteries: The race for supremacy

Author Thomas Kavanagh, Reporter

After a bumper year for electric vehicle (EV) sales globally, 2021 will see momentum build behind electrification in Europe, China and the US.

It remains to be seen which region will dominate the landscape over the next decade – a question that will be determined at each stage of the supply chain, from raw materials to production of the EVs themselves.

Securing raw material supply chains

Raw materials are likely to become the most hotly contested space in the battery race. For cathode materials, Asia (particularly China) will continue to dominate. Most of the world’s cobalt and nickel sulphate are made in China, and there is little production — either taking place or planned — in Europe. Around 95pc of cathode production takes place in Asia, according to estimates by Infinity Lithium. Overall, it remains a blind spot in the European supply chain.

Some cathode production facilities are planned in Europe, such as BASF’s Schwarzheide in Germany, which aims to provide enough cathode materials for 400,000 vehicles per year by 2022. Belgian chemical producer Umicore is also building a cathode plant in Nysa, Poland, but more projects are needed before Europe can significantly increase control over its own battery supply chain. In the US, Tesla has plans for a cathode plant near its Terafactory in Austin, Texas, but this will not be completed until near the end of the decade.

Looking to cobalt, the world’s largest producer, Glencore, may be a European company but most of its offtake for the next five years is tied up in contracts with Asian buyers, including China’s Gem and South Korean firm SK Innovation. Chinese companies have invested heavily in the Democratic Republic of the Congo (DRC), taking over the country’s largest cobalt mine – Tenke Fungurume – after Mutanda closed in late 2019.

China has also made diplomatic overtures to the DRC regime, cancelling $28mn of the country’s debt in January. The DRC also became the 45th partner in China’s Belt and Road Initiative last year.
Some small cobalt projects are under way in Canada and the US, which could provide an alternative supply source to DRC cobalt in some cases, but most of the world’s cobalt will continue to come from the central African country for the next decade and China’s involvement will continue to loom large.

In lithium, Chinese companies have access to domestic reserves and offtake agreements with South American producers. Meanwhile, several projects in the EU and US offer a chance at independent supply for the two regions, potentially giving them more control over their battery supply chains in the future.

Europe added lithium to its list of critical raw materials in 2020 and the EU is investing in selected lithium projects on the continent. Europe has projects with more than 9mn t LCE of proven lithium resources between them, including Cinovec in the Czech Republic (7.22mn t), Infinity Lithium in Spain (1.6mn t), Deutsche Lithium in Germany (760,000t), Savannah Resources in Portugal (707,000t) and European Lithium in Germany (270,000t). Between them, they will go some way towards fulfilling Europe’s lithium demand in the coming years, with most scheduled to start operations around the middle of this decade.

In North America, several projects are under development in Canada, mainly Quebec, which promise to serve the US car market. North America’s proximity to large raw material producers in Chile and Argentina also serves as an additional advantage. During Tesla’s last Battery Day in September, chief executive Elon Musk said the company will start producing its own lithium from clay deposits in Nevada, claiming there is enough lithium there to cover the requirements of the company’s US factories. But question marks hang over the process and cost of lithium clay extraction, so Tesla’s gamble is a long-term one and the US market will still need to source its lithium elsewhere in the next few years.

Meanwhile, nickel is facing a global shortage by 2030, with limited growth in class 1 nickel output expected over the coming years, despite prices steadily climbing nearer to the $20,000/t threshold at which investment in new supply becomes more attractive. Indonesia is expected to increase class 1 nickel output by around 204,000 t/yr by 2030, according to Russia’s Norilsk Nickel (Nornickel), but this will not be enough to meet rising demand.

Nornickel expects demand to emerge for an additional 500,000-900,000 t/yr of high-grade nickel by 2030. The fact that Chinese companies control two of the four new high-pressure acid-leaching projects in Indonesia – Huayue and PT QMB New Energy – and China’s Gem has an offtake agreement with a third – PT Halmahera Persada Lygend – does not bode well for international competitors.

Looking to other ‘raw’ material supply avenues, Europe is attempting to get ahead of China as a global battery recycling market emerges, with new regulations introduced in December requiring mandatory recycling quotas for new batteries, which could see more and more recycled material available to the EU market by 2030.

Battery production

In terms of battery production, China, South Korea and Japan are by far the dominant players and have been for a number of years. The rise of portable electronics production in Asia has led to the expertise being translated into cell production for cars in recent years. 

In 2020, Asian battery producers dominated the market. The five largest battery producers in MWh terms were South Korea’s LG Chem, followed by China’s CATL, Japan’s Panasonic, China’s BYD and South Korea’s Samsung SDI, according to consultancy EV Volumes’ estimates. 

LG Chem leapfrogged CATL to become the largest producer in the world, with supply deals with FCA Group, Volkswagen, Ford, Telsa and Volvo. CATL also signed battery supply agreements with Tesla, BMW, Daimler, GM and Volkswagen last year. Chinese battery pack production reached an estimated 83.4 GWh last year, out of an estimated 140 GWh worldwide, according to the Industrial Technology Research Institute of Taiwan.
Europe is trying to catch up with Asian battery production, with more than 20 giga-factories planned across the continent by 2025 and several recycling projects also in the pipeline. European cell production is expected to grow by 1,555pc to 331 GWh by 2025, up from just 20 GWh in 2020 according to forecasts presented at this month’s virtual EU Advanced Automotive Battery Conference by consultants P3 Automotive.

But Asian control over battery production will persist. The largest projects in Europe are investments by LG Chem, CATL, SK Innovation and China’s Farasis Energy. Most of these are in partnership with European carmakers, so battery-making in Europe will be a more collaborative effort between Asian and European companies rather than competition. 

The US is lagging in the battery space, despite boasting the current largest giga-factory in the world — Panasonic and Tesla’s facility in Fremont, California — which recently hit its target of 35Gwh production. And Tesla’s Terafactory will not be completed until near the end of the decade. Elon Musk has promised big and delivered before, but for now the US battery market is small compared to Europe and the US.

Policymakers jostle to incentivise EV uptake

At the consumer tip of the spear, China has historically dominated overall EV sales, but this changed in 2020. Europe overtook China in overall EV sales at 1.395mn units, a sharp 137pc rise from 589,000 in 2019. China sold 1.337mn in 2020, according to estimates from EV Volumes.

Both regions have policies to boost EV market growth. China’s centrally planned economy has a target of 20pc market share for EVs by 2025 and 40pc by 2030. The government has subsidies in place until 2022, when they will be replaced by tax incentives for vehicle producers.

In Europe, 20 countries offer incentives, such as bonus payments or premiums, to buyers. A further six countries have tax reductions or exemptions. There is only one EU member state, Lithuania, with no stimulus measure in place for EVs. Both regions are expected to be neck and neck for EV sales in 2021, with EV Volumes forecasting 1.9mn sales in each market.

In the US, a new, greener administration is expected to make inroads in electrification, but it is playing catch-up in overall EV sales. Sales are forecasts to rise to 530,000, up from 328,000 in 2020. But US private companies are dominant in the global space, especially Tesla, now the world’s most valuable carmaker. 

Tesla sold just shy of 500,000 EVs across all regions last year, with giga-factories in California and Shanghai, and another opening in Berlin in July this year. Incumbent carmakers such as US General Motors and EU Volkswagen are trying to catch up, growing their offering of EVs this year.

Large, incumbent carmakers give Europe and the US an edge in the global EV market, despite being relatively late to the party. Consumers and governments are also becoming more sceptical of Chinese influence since the pandemic. Decoupling – a polite term for geopolitical tensions – could lead to BYD, Nio, Xpeng and other Chinese carmakers dominating China, while US-based Tesla and the European car giants dominate the rest.

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