Soaring electric vehicle demand could cause a supply bottleneck for lithium-ion battery materials by the middle of the next decade. How will each material be impacted?
As it stands, there are at least five materials that could be a cause for concern for EV watchers. We'll review all of them below.
“By the mid-2020s, we’re going to need more,” said Milan Thakore, research analyst for battery raw materials at Wood Mackenzie.
Thanks to the push for electrification in transport and stationary storage on the grid, global battery demand is expected to grow 40x by 2040, according to Wood Mackenzie's storage analysis.
Materials shortages could make it difficult for countries to reach their ambitious EV targets and internal combustion engine bans, said Thakore.
The main source of concern is that investment in mining and processing operations for battery materials such as cobalt, graphite, lithium and nickel tends to lag behind demand.
The lag might not be important where small increases in volumes are involved, because most materials markets have a measure of elasticity and can accommodate reasonable peaks in demand.
The global energy transition — and in particular the expected growth in vehicle electrification — will completely transform the market dynamics of a number of prime materials, some which are currently small players in the mining world.
One of the best examples is cobalt. The battery sector has been the largest user of the metal for many years, Thakore said, because it is used in lithium-cobalt-oxide batteries that have been the mainstay of the portable electronics industry.
And as vehicle electrification adds to that demand, Wood Mackenzie expects the battery industry to use up to 70 percent of all cobalt production by 2030. It is a similar story with lithium.
It has only taken a few years for the battery sector to become the largest demand driver for lithium, Thakore said.
And because it is used in every lithium-ion battery chemistry, demand will increase in yearly double digits from now on, with batteries set to account for more than 80 percent of global lithium supplies by 2030.
These potential shortages have sparked investor interest which could, potentially, lead to capacity increases that will head off bottlenecks. But just as one material seems to be on a stable footing, supply-wise, concerns start to emerge for another.
Below, we account for five materials: lithium, cobalt, nickel, graphite and copper.
Until recently, interest in lithium was largely confined to chemistry teachers and Nirvana fans. But increasingly regular mentions of "Li-ion" in the last decade have led to a growing appreciation of what lithium is, where it comes from, and whether there will be enough for EVs.
Concerns over lithium availability are not helped by the fact that 70 percent of economically accessible supplies are confined to three countries: Argentina, Bolivia and Chile.
As a result, around three years ago, experts began to question whether peak lithium might be around the corner. Those fears now seem to have been overblown.
Lithium is more abundant than lead in the earth’s crust and is actually a minor component of Li-ion batteries compared to metals such as cobalt and nickel.
And once rising lithium prices alerted them to the threat of supply shortages, potential customers, such as automotive and battery manufacturers, moved quickly to secure long-term agreements with extraction and processing companies.
At the same time, mining interests looked to exploit new lithium sources outside of Latin America. As a result, current production of around 250,000 tons, plus forecast capacity yet to come online, is expected to be sufficient to meet immediate battery industry demand.
A Wood Mackenzie analysis of lithium shows an oversupply, which could hinder investment in new projects. "It is not until the period beyond 2028 that we start to see a supply gap that will require new supply from projects we currently rank as 'probable' and 'possible," write WoodMac analysts.
What happened to lithium in terms of pricing drew a lot of attention to the sector, said Andrew Miller, a senior analyst at Benchmark Mineral Intelligence in London. “Now you have a lot of companies looking to address those issues.”
This does not mean lithium is immune from supply constraints. Announcing new projects is one thing. Making sure they all come online in time to meet demand is another. The real issue for lithium is getting it out of the ground economically, at the right spec, Miller said.
Indeed, it is the economics of the lithium market that make it tricky, rather than the abundance of the material. The early interest in the lithium supply chain resulted in some investments that looked to peak too soon, leading to fears of a market collapse due to oversupply.
“We see the lithium market being quite tight for the foreseeable future, simply because even though you have this new production coming into the industry, it’s not automatically going to be of the right quality [or] cost, necessarily,” said Miller. “It’s not going to be a smooth road.”
When concerns over lithium supplies spread to other battery materials, cobalt soon emerged as a major worry. Global production is at around 100,000 tons a year, according to Benchmark.
More problematically, though, most of that supply comes from one risky country.
The Democratic Republic of Congo (DRC) has a stranglehold on cobalt’s global supply chain, thanks to a geological accident that means cobalt is found abundantly alongside copper seams in the country.
Wood Mackenzie shows this dominance in its illustration of global cobalt supply.
Copper and cobalt are mined jointly in the DRC, with around 300,000 tons of copper yielding 30,000 tons of cobalt.
Cobalt is also found elsewhere with nickel, in a similar 10-to-1 ratio, but mining those reserves is not worthwhile because of nickel’s current value in the market, according to Benchmark Mineral Intelligence analyst Caspar Rawles.
Cobalt’s low occurrence and concentration in one country likely makes it the biggest worry for EV supply chains today, he said.
The good news for cobalt supplies is that since the possibility of bottlenecks emerged 18 months or so ago, “the supply response has actually been pretty strong,” Rawles said.
This means that cobalt availability is no longer seen as an immediate threat to the EV battery industry, although Benchmark sees a potential supply deficit arising around 2023.
Also, the not-so-good news is that the supply chain response has involved DRC mining concerns upping their game, so that the African nation is set to become even more of a dominant player in cobalt world.
Benchmark expects that by 2021 the DRC will be supplying three-quarters of the cobalt in the world, up from 66 percent last year.
Rawles said the output from mining operations in the country is so high, “you need approximately 10 or more mines outside of the DRC to make one big DRC mine. There’s a lot of work to be done away from the DRC, to start competing.”
Relying on a single country is bound to be risky, particularly when the country in question is one like the DRC, which is known for its corruption and political instability. Nevertheless, experts believe mining operations could be relatively immune from potential unrest, since any administration in power would like to keep the ores flowing as a way of bringing cash into the country.
A large part of the government’s income comes from mining, so if those in power want to be able to pay their soldiers then they would protect mining at all costs, said Rawles. “I think the likelihood of the supply being stopped completely is pretty low,” he said.
Despite this, worries over DRC supplies have led to a rush for alternative sources of cobalt and other minerals. Last month, for example, Bloomberg reported that commercial-scale mining of the deep sea “is poised to become a reality as early as 2019.”
Such operations could open up rich deposits, said Rawles, although the environmental impact and economic feasibility of deep-sea mining is still unclear.
Recycling is another way the cobalt supply chain could diversify in the future, once significant volumes of EV batteries reach the end of their useful lives, said Rawles.
Recycled cobalt is not expected to play a significant part in the market any time soon, though, he said. “It could be a 10-year horizon before we’ve got a regular supply of large volumes coming back into the market."
Still, a limited amount of cobalt recycling from consumer electronics batteries is already underway. And “it’s more difficult with consumer electronics because the batteries are hard to get at for the volume of material you get out,” said Rawles.
When demand for cobalt began to outstrip supply last year, leading to price increases, battery makers went back to the lab to tweak the composition of their products and cut back on costs.
The focus was on nickel, manganese and cobalt (NMC) lithium-ion batteries. These had cathodes traditionally made up of equal parts nickel, cobalt and manganese, a cocktail shortened to 111, or more recently a ratio of 6-2-2 (a formulation referred to in the industry as "622") or 5-2-3 ("523").
To save costs, the South Korean battery makers LG Chem and SK Innovation last year announced plans to move to an NMC mix of 80 percent nickel, 10 percent cobalt and 10 percent manganese, or "811."
Switching from cobalt to nickel would seem like a good idea, since the latter is a major commodity. But the nickel sulfate used in EV batteries is not that easy to come by. It comes from nickel sulfide deposits that only make up around 38 percent of current production.
And not all of what comes out of the ground is suitable for the battery industry. Suitable nickel sulfide deposits are “pretty much exhausted,” said Rawles. “There’s no significant new ones being found that we know of at the moment. That’s going to be challenging.”
It’s also challenging to work out when exactly this is likely to become a problem. Because the move to higher-nickel batteries depends on what is going on with cobalt, there is a fair amount of uncertainty over the nickel demand outlook.
Earlier this year, for example, LG Chem and SK Innovation both appeared to backtrack on their 811 plans. LG Chem said it would only use the formula for bus batteries. SK Innovation said it would postpone the introduction of its cells.
It is unclear whether the announcements were due to concerns over the 811 technology or a response to the improving outlook for cobalt.
Further muddying the nickel outlook, China’s Contemporary Amperex Technology has also said it will produce 811 batteries and is hoping to beat its South Korean rivals to market.
Nevertheless, there are signs that nickel availability could end up becoming a serious problem for the battery industry at some point within the next decade. Based on battery demand alone, Benchmark sees the need for around a million tons of nickel a year by 2029 or 2030.
Sean Mulshaw, principal analyst for global nickel markets at Wood Mackenzie, said: “There is a real challenge for us. By the time we get to 2025, where the heck is all this nickel going to come from, if forecasts are anything like as accurate as they profess to be?”
At the moment there is little awareness of this problem because the nickel industry has been through several years of surpluses, he said. But since last year, stocks have been going down and prices have been creeping up.
“We are now in a deficit market, and it looks like we are going to have deficit year-on-year going forward,” Mulshaw said.
Aside from the long-recognized problem of lithium and cobalt supply, as well as the emerging threat from nickel, the EV industry is keeping a watchful eye on graphite.
Although not exactly rare — it is made of carbon and is essentially a form of coal — getting hold of the right kind of graphite for batteries is not easy, and they need a lot: around 55 lbs. for a single large EV battery.
The problem with graphite is that one country, China, more or less controls the production of battery-grade supplies. The country is leading efforts to deliver an almost threefold increase in global graphite processing capacity by 2020, GTM reported last year.
Benchmark’s Miller said graphite had been overlooked for the past few years because there had been no surge in the price.
The graphite market is also much bigger than those for lithium and cobalt, which means battery demand plays a smaller part in overall pricing dynamics.
But as China builds out its national EV industry, its graphite exports, which to date have been moderately priced, could become more expensive.
China’s dominance in the graphite market has put non-Chinese companies on alert, with mining companies looking to change the shape of the supply chain with new large-scale extraction projects in countries such as Mozambique.
There is one further material that could pose a problem for vehicle electrification, but it is not specifically linked to batteries. Instead, the concern with copper is that there might not be enough to provide the circuitry needed for millions of EVs.
Copper is a 23.6-million-ton-a-year industry. Extraction is a major industry in the world-leading producer Chile, plus countries including Peru, the U.S. and Canada. Higher-grade ores, meanwhile, are found in African copper belt countries such as Zambia and the DRC.
And Russia, China, Central Asia and Australia also have mining activity. Clearly, the metal is not in short supply. But the challenge is knowing how quickly today’s capacity could scale up to meet future demand from the EV industry.
Nick Pickens, research director at Wood Mackenzie, said the firm is tracking new projects that could add a potential 10 million tons a year to the market. There is uncertainty over whether these projects will get off the ground, though.
It’s not easy to build mines, said Pickens, and once a mining company green-lights a project, it could take five to seven years, at best, before production starts. This time frame for production could extend to a decade for newer extraction techniques such as block-cave mining, he said.
“The lead times are big and don’t fit very well with the investment cycle,” he noted. “Most investors want a return in five years.”
Will this be a problem? It depends. Wood Mackenzie copper analyst Eleni Joannides said the metal is not needed in all electric cables. Overhead lines, for example, are likely to be made of aluminum because it is lighter.
Aluminum is also likely to be used in underground cabling for new cities such as those going up in China. Copper will be needed in places where there are space constraints, though, as well as in transformers and other electrical equipment.
All of this is already baked into analyst forecasts, Joannides said. But “if we look at EVs, then things could get tighter, sooner,” she said.
For now, there’s no need to worry. Wood Mackenzie sees demand for copper growing at up to 2.5 percent a year until the end of the decade, followed by 1.5 percent growth thereafter. And “we have a little bit extra in the market,” said Joannides.
“[It's] not a market that is constrained right now.”
Plus, there is evidence that the copper market can be fairly elastic. It saw shortages in the early 2000s that led to substitution of copper pipes with plastic, for example. There is the potential for this to happen again.
There is also a significant market for scrap copper, which could help supplement the supply. However, as with other EV materials, things could get tricky by the mid-2020s.
Wood Mackenzie estimates that by then the EV market will be demanding a million tons a year of copper. Some of this will act as a substitute for copper that would have gone into an internal combustion engine vehicle instead, but there will be an uplift in demand nevertheless.
What could possibly go wrong?
All in all, there are many potential bottlenecks when you look across the supply chain, said Benchmark’s Miller. “A lot of investment is going to be needed.”
Each of the raw materials going into EVs has its own issues. And investments to expand production must be finely balanced to meet the upswing of EV adoption expected from around 2022 onward.
Cobalt and nickel should both give the battery industry cause for concern, but other major materials need watching too. And that’s only half the equation.
A big challenge for analysts tracking the energy transition is that EV supply chain dynamics depend on forecasts for vehicle adoption that nobody is really sure of. Problems with nickel, for example, will depend to a large extent on how much and how quickly plug-in EVs take over from hybrids.
“How...the future fleet is made up is important, because a full-electric vehicle is going to need a much more powerful battery than a hybrid,” explained Mulshaw at Wood Mackenzie. “That will mean more nickel.”
The same holds true for copper, with EVs likely to drive up demand much more quickly than hybrids. And the problem is not likely to go away, even with important shifts in battery chemistry.
Solid-state batteries, for instance, could lead to an even greater dependency on lithium. And while flow battery makers are keen to emphasize the ability of their products to use commonly-available materials, nobody has yet come up with a viable flow battery for a car.
It’s important to stress, however, that the issue is mostly timing rather than availability. Mining companies make investments based on positive pricing signals, but those investments may not have an impact on the market for several years.
This exacerbates the likelihood of missing EV materials demand targets. And even assuming mineral production can scale at the right pace to meet demand, there is a bigger issue down the road.
As Rawles summed up in relation to cobalt: “These resources aren’t getting any bigger. They are just being mined more quickly.”
Wood Mackenzie offers a monthly report on battery materials, which is available on subscription.