Supply Chains Issues with batteries for EVs
Sales figures for electric vehicles (EVs) continue to increase. However, a future constraint for such sales may be the supply of batteries.
The recent coronavirus pandemic has put the brakes on the production of some batteries, but a larger concern is the raw materials that are used to make the batteries. More cobalt and lithium will be necessary in the future to allow EV production to ramp up to industry expectations.
EVs are doing big business these days. In 2017, 1.2 million EVs were sold worldwide, a quantity which grew 63 percent in 2018 to more than 2 million. While the latter number is only equal to 2.2 percent of all light-duty vehicle sales, the compound annual growth rate (CAGR) of such sales is 59 percent, meaning that EVs could account for 70 percent of the market by 2050. And that’s without legal mandates from countries and states that will eventually outlaw vehicles with internal combustion engines (ICEs) (such legislation is on the books or being considered in a number of places for the upcoming decade).
Battery supply bottlenecks
In February of this year, Audi temporarily halted the production of its e-tron electric SUV, stating that “battery supply bottlenecks” were a critical issue. Some 4,100 e-trons were built, rather than the 2020 specification of 5,700. Jaguar Land Rover also stopped production of its I-Pace electric SUV, and Mercedes paused the manufacture of its electric EQC SUV. In the cases of Audi and Jaguar Land Rover, the culprit was judged to be a Polish factory that belongs to South Korean battery supplier LG Chem. These stoppages highlighted how supply chain dependencies are tying the manufacture of EVs to market and material constraints.
Prior to the coronavirus outbreak, sales of EVs were expected to increase again this year to more than 4 million vehicles. A Deloitte study projected that EV costs will be comparable to ICE vehicle costs beginning in 2022, leading to a further increase in EV sales, which are expected to top 12 million by 2025.
Raw material issues
The batteries EVs use are lithium-ion batteries, which contain lithium hydroxide and lithium carbonate, materials which doubled in cost between 2016 and 2018. In 2019, costs for these materials rose again by almost 20 percent. In early 2020, however, an expectation of greater short-term demand and an EV sales slump resulting from the coronavirus pandemic led to a fall in lithium prices just as supply of the element increased from Chile, Argentina, and Australia. By March, lithium hydroxide prices finally rose (by 3.1 percent) for the first time since May 2018.
Ethical and environmental sourcing considerations also are a concern for lithium suppliers as indigenous populations challenge lithium mining operations. Still, China remains the largest supplier of the world’s lithium, producing 79 percent of the lithium hydroxide used in EV batteries.
Another raw material for EV batteries is cobalt. Unfortunately, demand for cobalt is only expected to grow—by roughly 1.6 times—over the coming decade.
Because of the coronavirus, Chinese battery manufacturers BYD (which itself also makes electric and hybrid vehicles) and CATL delayed production of some batteries. Industry observers say some 26 gigawatt-hours of production output has been eliminated for this year, creating supply shortages for automakers such as Ford, General Motors, Daimler, Fiat Chrysler, and Groupe PSA (maker of the Peugeot, Opel, Vauxhall and Citroën car brands). Many of these automakers have plants in China’s Hubei Province, where the coronavirus outbreak first occurred. The delays and cost increases from battery production have led many of these carmakers to seek diversification of their battery supplies.
As EV sales continue to spike, some carmakers have been spurred to change their production strategies. EV maker Tesla decided to switch to lithium phosphate batteries—which don’t contain cobalt—for its Model 3 cars sold in China. However, Tesla isn’t able to duplicate this strategy for its longer-range model cars. In March 2020, General Motors announced it would seek to source both nickel and lithium from North America for its EVs.
Last year, the Trump administration, sensing a key vulnerability for its EV and other industrial production capacity, ordered the U.S. Department of the Interior to identify domestic supplies for 35 critical elements, including both cobalt and lithium.
In Puerto Rico, a company called EnergyX began experimenting with new nanotech membrane technology that could allow for faster and more efficient refining of lithium. If this is achievable at the scale needed to supply the EV market, it could be one possible savior for automakers.
Another potential upside for car companies may be the possibility of recycling used batteries. While experts say that in the future, recycling will be critical for sustainability and the environment, at present, not enough batteries have reached the end of their lives for this process to be a significant factor for current market shortages.
The present coronavirus pandemic has caused numerous organizations like the International Monetary Fund (IMF) to declare that a years-long global recession is imminent, and that when this downturn hits, it may be far worse than the 2008 Financial Crisis. Not only would such a recession affect battery supply chains, but it would also dramatically impact sales of EVs.
In addition, cheap gas prices resulting from collapsing oil costs in the wake of the Russia-OPEC price war may translate to weaker consumer demand for EVs in favor of ICE-based vehicles. This means that rosy predictions for environmental resuscitation triggered by the outmoding of ICE-based cars could be misplaced, at least for a substantial number of years.
All of the above may point to both governments and automakers needing to take more determined action, as well as investing more in R&D to seek new alternatives to the present battery supply issues. Policies that secure the downstream, midstream, and upstream flow of critical resources around batteries may have to be reexamined in order to alleviate pressures that will only become more intense as EVs become an increasingly large share of the global car market.