Sparking an EV battery materials race
Demand for EV battery materials is poised to outstrip supply in the next few years, creating opportunities for new recycling and mining technology platforms.
2021 is shaping up to be a breakout year in EV adoption. With an estimated 10 million electric vehicles on the road globally today, another 4.4 million passenger EVs (including battery electrics and plug-in hybrids) are expected to be sold globally this year, up about 60% from 2020. The pace of adoption is accelerating, creating demand pressure for battery materials such as nickel and cobalt, not all of which can be met with mined materials from current mines.
Near term global demand-supply gap for cobalt [1,000 T]
Additionally, consumer electronics and automotive OEMs are looking for transparency and supply security in materials sourcing. Increased awareness of the human rights violations across the cobalt supply chain is forcing accountability and transparency into raw materials production. In the US and Europe, anxiety and discussions about “energy security” have shifted from conventional sources to solar and battery materials. These additional factors, and the relative scarcity of the underlying materials, create a more complex challenge than the solar industry faced a decade ago with polysilicon availability.
There are 3 levers available today to close the supply gap:
- Repurpose / recycle existing materials at end-of-life (EOL) and on the production line (scrap), to create a “closed loop” that maintains control over key materials
- Increase supply of newly mined materials through improvements in mining efficiencies and/or technologies to identify novel sources of new materials
- Modify battery chemistries to use less material (e.g., cobalt) through R&D. Shift mix of battery chemistries to match performance requirements of the particular vehicle type
Recycle / repurpose existing materials
- OEMs are facing emerging regulations in both the US and Europe requiring them to have an EOL solution for EV batteries. In Europe, “Extended Producer Responsibility” is being extended to batteries in the form of a “battery passport” to track batteries through their life
- The 3 EOL options available to OEMs today are recycling, disposal, and second-life applications. Disposal does not make sense given the residual value in batteries — therefore, the question becomes whether recycling happens at the end of the EV’s (first) life or the battery is repurposed in second-life applications and then recycled
- The economics of second-life applications are not attractive today because of the costs of remanufacturing, resale, and potential liabilities incurred due to uncertainty of battery performance. Some OEMs are experimenting with pilot-scale programs, either in partnership with owned energy divisions (Volvo), or third parties (Nissan). The majority, however, have either exited early pilots or explicitly stated that they do not intend to build second-life businesses
- Additionally, OEMs are increasingly integrating the battery pack into the vehicle (eliminating the module) to reduce $/kwh and improve energy efficiency — this will make second-life applications even less likely, because the pack will not be easily extractable from the vehicle
- Recycling is therefore the most logical EOL solution for OEMs, and has the added benefit of bringing materials back into the production cycle sooner. Building a closed-loop system at scale does not come without challenges, however — particularly related to: (1) timing of capital investments relative to needs (there is uncertainty about when the supply of scrap and used batteries will grow large enough to justify the capex required, particularly with improvements in battery longevity and the emergence of the “used” EV market), and (2) logistics of material tracking and collection at EOL
Increase supply of newly-mined materials
- Companies like Jetti Resources and MineSense are improving material recovery at the mine site, primarily by extracting additional useful material from what would otherwise be discarded as “waste.” These technologies help improve the productivity of existing assets, and help improve the overall project economics of the mine
- Others, like Kobold Metals and Earth AI, are identifying new potential sources of critical materials by digitizing and analyzing troves of geological data. By creating a “Google Maps for the earth’s crust” their technology has the potential to enable supply diversification and transparency
The rise in EV adoption and battery materials demand has created opportunities for multi-billion dollar businesses to be built across all these areas. The main challenges ahead will be in navigating commodity price exposure, maintaining margin entitlement, and timing capital deployment. Companies can manage these risks through creative procurement (e.g., exclusive partnerships for recycling feedstock), forward integration into higher value-add products, and offtake agreements with OEMs.
If you are working on a venture related to battery materials supply chains do please reach out. This is a rapidly evolving space, and I hope to keep these insights as fresh as possible.
