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June 15, 2022

Batteries: Macroeconomic trends

Over the past decade, the battery industry has progressed sufficiently to enable portable consumer electronics, the mobile internet, the first electric cars, and the initial adoption of intermittent renewable power storage and generation. Given the accelerating and expanding role stored energy will play in tackling global warming, it will become one of the world’s most significant industries over the next ten years.

Listed below are the key macroeconomic trends impacting the batteries theme, as identified by GlobalData.

Impending battery shortage

Our research indicates that battery production capacity will be sufficient to meet the world’s needs in 2030—although the whole manufacturing process needs upgrading—as there is a considerable global build-out of new capacity in the pipeline. But there is the real threat, already manifest, of a lack of low-cost, easy-to-purify raw materials to feed all those battery factories. A global battery shortage is a serious risk by mid-decade due to a lack of investment in new lithium, cobalt, nickel, and manganese mines over the last five years. Any new investments will take between seven and ten years to yield new mines.

Electric vehicles (EVs)

The biggest demand for batteries will come from EVs, mainly passenger vehicles sector. GlobalData expects the sector to account for over 80% of aggregate battery demand between now and 2035. Each EV battery pack involves the rough equivalent of 4,000 iPhone batteries.

GlobalData expects global sales of EVs to rise from three million in 2020 to 14 million by 2025, albeit with two-thirds of them still hybrids, which require only one-tenth of the battery power of a battery electric vehicle (BEV). Every auto major has laid aggressive plans to phase out gas and diesel models in leading markets by 2035, reflecting government regulation and diktat.

Consumer interest is expected to surge when BEVs cost no more than gas and diesel cars to buy or lease. They currently cost $120. However, surging prices for lithium (Li) and other battery metals may delay this inflection point.

Battery recycling

The scheduled build-out of global giga factories does not suggest a basic actual and prospective capacity problem. Benchmark Mineral Intelligence has 200 giant Li factories on its tracker, with 122 already in operation. Of these, 148 are in China. The issue is the prospective ability to feed those factories with raw materials.

The key metals that currently dominate the scene—Li, cobalt (Co), and nickel (Ni)—are increasingly difficult to access and purify, and there has been a lack of investment in mine expansion and bringing new mines on stream.

The geopolitical battery arms race

China controls the Li-ion battery supply chain: over 20% of the battery metals’ mines; 80% of midstream chemicals processing; over 60% of key component production; and 70% of downstream cell production.

The next five years will see the US and Europe, the latter led by Norway, striving to build their own battery supply chains, particularly in Li, and develop, as noted, scaled-up battery and battery materials recycling capabilities. These national projects will take at least five years to bite and a decade to make a mark.

Meanwhile, joint ventures such as those between GM and LG Energy Solution and VW and Northvolt and direct contracting between auto giants and mines over long-term supplies will be partial hedges against Chinese predominance. The worst-case scenario is that China could cut off supplies of key processed metals and rare earths such as neodymium, terbium, and ytterbium.

Environmental, social, and governance (ESG)

Ultimately, there is an antagonism between the need to match the demand for battery metals and the immediate availability of sustainable and ethical battery metal supply chains. As such, battery companies and automakers that can secure early deals with ESG-friendly mining companies will avoid reputational damage. Those that do not will find themselves under increasing consumer and media scrutiny.

The Democratic Republic of the Congo (DRC), which accounts for approximately 73% of global cobalt production, according to GlobalData figures, is becoming something of an ESG headache for automakers and battery makers alike. Approximately 20% of the Co mined in the country is mined by artisanal miners, many of whom are children.

Artisanal mining provides an income to around 200,000 Congolese, but many feel exploited by traders who often manipulate the purity and weight measurements. The Co issue is not significant in the EU, where the largest supplier, Finland, accounts for 66%, Russia 31%, and the DRC just 3%. The EU’s strong domestic source of Co allows it to lead on ESG regulation around batteries, as seen by its EU Battery Passport initiative.

The extraction of Li and Ni is also very water-intensive. In Australia, Indonesia, and the Lithium Triangle, this is a critical issue. Further research and investment into Direct Lithium Extraction—which allows 98% of the water to be recycled—in the Lithium Triangle would mitigate the environmental impacts of Li mining and appease indigenous and local communities. They often oppose international contracts due to their impact on the local environment.

Nickel bottleneck

The production of Ni, once dominated by Canada, Norway, Russia, and Australia, has shifted in the last decade. Indonesia is now the largest Ni producer. With this shift comes ESG and regulatory concerns. Ni is carbon-intensive to extract and, in the case of Indonesia, lies under areas that have significant amounts of biodiversity.

Deforestation and flooding are critical issues in Indonesia, and national regulation has recently seen a regression in labour and environmental standards. Global standards on Ni, set by independent organisations such as the Global Battery Alliance and EV companies, would help resolve these issues.

Vertical integration

A growing trend within the automotive and battery sectors is vertical integration. As automakers realise that their batteries are the most expensive and crucial part of their cars, several automakers are investing or making partnerships upstream. The most notable of these partnerships is between Tesla and Panasonic. The two companies have collaborated to build and operate a $5bn battery gigafactory in Nevada.

Tesla was the first automotive company to enter the refining and processing part of the battery metal supply chain when it announced plans to build a lithium hydroxide refinery in Texas. It wants to build a cathode factory in the same state. This will ensure supply stability and significantly reduce costs and negative environmental externalities. Although capital intensive, vertical integration allows automakers to gain control over supplies, oversee quality, and reduce costs. GM and Volkswagen have followed suit recently.

The production of high-quality batteries is predominantly in the hands of a small number of large companies, namely CATL, LG Energy Solution, Panasonic, Samsung SDI, BYD, and SK Innovation, with market share heavily concentrated in the first four companies. End users, such as automakers, are wary of making agreements with smaller battery makers with limited purchasing power for high-grade raw materials.

This is an edited extract from the Batteries – Thematic Research report produced by GlobalData Thematic Research.