The supply chain for Lithium batteries comprises three areas of expertise: upstream suppliers of raw materials (including cathode, anode, electrolyte, binder, conductive agent, and separator), mid stream cell packaging and downstream modules.
The costs of producing one single cell can be further broken down as follows: cathode material accounts for 33%, separator accounts for 25~30%, electrolyte accounts for 12% and anode material accounts for 10%. In terms of profitability of cathode material suppliers, profit margin varies greatly from 15% to 70%, due to variations in cathode powders used. Among different types of chemical compounds used, Lithium-iron has the highest profit margin.
In addition, because Japanese companies control the majority of supply of separator, the profit margin can be as high as 60~70% as a result. On the other hand, electrolyte suppliers are mainly Japanese and Korean companies who also enjoy a decent profit margin of 30~40%. Other raw materials do not have entry barriers as high as the aforementioned materials, and thus suppliers retain a lower profit margin ranging from 20% to 30%.
According to EnergyTrend, a typical hybrid vehicle needs 70 kg of cathode material, 40 kg of anode material and 40 kg of electrolyte. There are about 70 million new car purchases per year. If we substitute just 1 million new car sales with hybrid vehicles, the derived annual demands for cathode material, anode material and electrolyte would be 70,000 tons, 40,000 tons, and 40,000 tons respectively. If that day comes, it is highly unlike for supply to catch up with demand.