The rapid growth of the global market for EVs in the recent period has also led to a massive increase in the demand for Li-ion powertrain batteries. As a result, battery and car manufacturers are now in a fierce competition for the various raw materials used in battery production. These materials include common metallic and non-metallic elements such as nickel, aluminum, phosphorous, and iron. According to reporting from Bloomberg, demand will grow 14 folds for nickel and aluminum over the next decade, whereas phosphorous and iron will see demand increase by 13 folds during the same period.
Investors that are searching for “concept stocks” that are related to high-performance industrial sectors may want to consider mining ventures. In the growing market for EVs, the decisive factors in the competition among car manufacturers include not just technologies pertaining to car assembly and self-driving system but also powertrain batteries. In fact, the core competitive strengths of a car manufacturer lie in the capability to develop a battery system that offer a long driving range and in the acquisition of a stable supply of raw materials used in battery production.
The battery system now accounts for 30-50% of the total production cost of a battery-electric car, regardless of whether the vehicle has a two- or four-wheel drive. Therefore, the steady decline in the cost of batteries is the main reason why the price of EVs has been dropping over the last three years. Given the ongoing technological advances in design and production process, the cost of batteries is expected to keep falling in the next five years. Car manufacturers will eventually be able to offer battery-electric models that are affordable for most consumers.
Bloomberg NEF currently forecasts that the annual global sales of EVs will reach 26 million units for 2030, representing an increase of 24 million units from 2020. By 2030, one out of three new cars sold will be a battery-electric model. Correspondingly, battery demand will soar between now and then.
Currently, the Li-ion batteries used in EVs are divided into two major categories: LFP (lithium-iron phosphate) and NCA (nickel-cobalt-aluminum oxide) batteries. This division is based on the composition of the cathode. LFP batteries are mostly adopted by Chinese car manufacturers, whereas NCA batteries are adopted by the leading EV brand Tesla. NCA is a type of ternary cathode, which also encompasses materials such as NCM (nickel-cobalt-manganese oxide). Many domestically made EVs in China use NCM batteries as well. Furthermore, it should be pointed out that the Model 3s assembled at Tesla’s plant in China are powered by LFP batteries.
With startups and established brands in the automotive industry launching more EVs, battery manufacturers are expanding their offerings to meet the burgeoning demand. There is now a wide range of ternary batteries with different ratios of the three component materials in their cathodes. Regardless of the type, the demand for powertrain batteries will likely keep growing rapidly over the next decade.
The graph below depicts the future demand trends of some of the key materials that make up Li-ion batteries. It is created by Statista using the data provided by Bloomberg.
Nickel has the highest ratio to the other two component materials for most ternary cathodes, so this metal will experience the highest demand growth compared with the other key materials. Battery manufacturers will have high demand for phosphorous and iron as well due to the adoption of LFP batteries by Chinese car manufacturers. As for aluminum, the demand growth of this metal will be on par with that of nickel because it is present in both batteries and the bodywork of a vehicle.
In the case of cobalt, Bloomberg’s data indicate that the demand for this metal will not increase as much as the other key materials. The reason is that cobalt is rare and therefore quite expensive. To cut costs, battery and car manufacturers are developing batteries with low or no cobalt content.
Based on the data provided by sources in industries and media, the consumption of nickel resulting from the production of a single Tesla vehicle is calculated to be approximately 30kg. In 2020, Tesla’s vehicle sales totaled around 500,000 units. Therefore, Tesla’s nickel consumption in the same year was roughly 15,000 metric tons. In 2019, the global total production of nickel came to about 2.7 million metric tons. Hence, Tesla’s consumption in 2020 accounted for 0.5% of that total. If Tesla achieves its production target of 1 million units for 2022, its nickel consumption will double from 2020.
Another noteworthy development is Tesla’s pursuit of lowering cobalt content in its in-house designed batteries. Reducing the ratio of cobalt to the other two component materials in the ternary batteries will have the effect of raising the ratio of nickel. Elon Musk, CEO of Tesla, has already stated publicly that his company aims to reach an annual production capacity of 3TWh for batteries made in-house and on the production lines of its supply partners. In comparison, the annual total production capacity for Li-ion batteries in China came to 0.3TWh for 2020.
Considering the recent boom in the battery market, investing in the mining of battery-related raw materials seems like a sure bet. However, there are some caveats. Even though market growth has been rapid for EVs and Li-ion batteries, the strong demand for these products is partially driven by policies and popular movements for environmental and social justice. Regarding the mining of battery-related raw materials, there are political and environmental variables that could seriously constrain production in the future. In fact, a substantial portion of the global supply of cobalt is tainted by issues such as labor exploitation and pollution.
Last year, some shareholders in Tesla repeatedly complained to Musk about the problems of slave labor and toxic spills in the mines that supply battery metals to the company. In response, Tesla is promising to implement stricter oversight in the sourcing of raw materials and mandate its suppliers to follow a “sustainability” standard.
Many mining companies are upgrading their production methods so as to meet the growing demand from the battery industry while avoiding serious regulatory and ethical issues. At the same time, there is the rising possibility that battery and car manufacturers will be establishing their own mining operations. Tesla has already acquired lithium mining rights in Nevada, US. According to Musk, the mines that his company has bought in Nevada will produce enough lithium to electrify all cars in the US.
As more and more types of transport vehicles have adopted electricity as the main power source, mining and energy industries are also becoming increasingly intertwined. Last month, Chile, which is a major copper-producing country, announced a further integration of its mining and energy agencies. Thanks to the development of new forms of energy, mining as one of the oldest industries will be transformed yet again.
(Credit for the image at the top of the article: Wikipedia.)