Fabrikanten worstelen met het leveren van batterijen aan elektrische voertuigen

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Audi

Audi e-tron 95 kWh battery pack

Audi

Lithium-ion batteries are an essential part of our everyday lives: they power our phones, laptops, tablets, and electric vehicles (EVs). Demand for lithium in the form of lithium carbonate and lithium hydroxide – key ingredients in these batteries – are rising rapidly: up almost 20% in 2019. Pricesdoubledbetween 2016 and 2018 in anticipation of increased demand brought on by the EV revolution.

However, the consistent increase in demand is militated against by the ongoing outbreak of coronavirus, the looming economic downturn, and the collapse of oil prices, making the future of EV sales uncertain.  These are additional strains on supply chains.

Global EV sales broke 1.2 million units in 2017 and grew to more than two million units in 2018: anincrease of 63%on a year-on-year basis. That may only equal a penetration rate of 2.2% compared to all light duty vehicles worldwide, but with a compound annual growth rate CAGR of 59%, we could see over 70% penetration by 2050.

Back in February Audi temporarilyhalted the productionof its electric SUV the e-tron, citing ‘battery supply bottlenecks’. It reduced its production to 4,100 EV, some 1,600 short of its 2020 target. This is not an isolated case.

Jaguar Land Rover ispausing the productionof its I-Pace electric SUV as is Mercedes of itsEQCdue to the unavailability of certain key ingredients for batteries – including lithium and cobalt. Audi and Jaguar both source their batteries from a Polish factory owned by South Korean battery giant LG Chem. Despite an upstreamoversupplytoday, we are now seeing how a crimp in any part of the supply chain can impact the finished product. 

The Rising Consensus of EV adoption

BNEF

How Electric Vehicle Fleet Size Forecasts Have Changed Over Time

Bloomberg New Energy Finance (BNEF)

Global electrical vehicle adoption is accelerating at breakneck speeds: world EV production is expected to top4 million carsthis year barred the corona slowdown, reaching 12 million in 2025.Deloitteprojected that 2022 will be a tipping point for EV costs, making them cost competitive with their internal combustion engine (ICE) counterparts.

The EV battery supply chain faces a number of obstacles including high costs and environmental concerns associated with the extraction and processing of key metals. Today’slow prices, which reflect an overestimation of short-term demand, will also hurt investment in future exploration and production projects. We could be witnessing the beginning ofstructural undersupplyof key battery materials, which will have a significant impact on EV manufacturing.

Cobalt mining, for instance, is concentrated in one country — the Democratic Republic of Congo (DRC) — responsible for65% of global supply. The DRC is one of the world’s least developed countries and has very limited transparency in the cobalt value chain.Multiple reportsdetail the hazards of the DRC’s mining industry, including severe human rights abuses, dangerous working conditions, forced labor, andchild labor. Yet demand for this element may reach as much as430,000 tonsin the next decade, a 1.6 fold increase compared to today’s numbers.

Current trends suggest a shortage of raw cobalt in the future: the current capacity to mine will not be able to meet growing demand. According to anMIT study, demand for the metal [$1 – $3 per oz.] is only expected to increase while supply would not shift substantially.MIT’s Olivetti Groupcalculated only a marginal increase in supply: from 149,000 tons in 2017 to 160,000 tons in 2023. This could lead to unsustainable price spikes, with severe implications for the green economy.

Lithium, on the other hand, does not face mining shortages. Rising prices of the core battery material caused a lithium rush in Australia, Argentina, and Chile. However, a global decrease in demand for EVs due to a weak automotive market and a reduction of sales in China have resulted in a slower pace in mining and plant construction. Suppliers must also address ethical sourcing considerations as well, as numerous communities across the globe challengelithium mining operations.

SA

Global Lithium demand (annual)

Seeking Alpha

The global pandemic introduces additional uncertainties to the sustainability of existing supply chains. Many of the manufacturers were reluctant to invest in the industry even before the outbreak due to the economic tensions between the United States and China. Businesses might lose future profits due to single point of failures in the supply chain, as seen with Audi and Jaguar Landrover. China is the largest buyer of EVs globally, but also produces the bulk of the world’s lithium. Last year alone, it produced79% of the lithium hydroxideused in electric car batteries.

The prices for lithium hydroxide rose3.1% last month, their first increase since May 2018. Chinese producers explain this sharp rise by higher production costs and logistical difficulties caused by Covid-19. China’s major battery manufacturing players, like CATL andBYD, had to delay their production due to shortage of labor and raw materials, as the government was fighting the virus.

While most of the manufacturers have already restarted their production, the outbreak is estimated to set Chinese battery producers back by26GWh of output in 2020. This halt in production has created supply shortages for western carmakers, as automakers, such as Fiat Chrysler, PSA Group, General Motors, Daimler and Ford, have their plants in the province of Hubei, where the Coronavirus took its first hit. With the looming economic downturn, many of the companies attempt to localize, or at least diversify, their supply chain for lithium.

Securing Supply

With sales of EVs predicted to grow this decade and beyond, manufacturers will need to find a way to either ensure a continuous supply of cobalt and lithium or find viable alternatives. To compensate for this, EV giantTesla agreedto buy lithium phosphate batteries, a principal alternative to cobalt-containing batteries, for Model 3 cars in China. While this move is a clear signal for the global battery market, its impact is questionable as the decision would only apply to Tesla’s shorter-range models. To counter the Chinese dominance in the lithium market, in the beginning of March, General Motors announced its intention to source lithium and nickel from North America for its new range ofelectric cars.

New methods for lithium mining and extraction are also cropping up. Tech companies like Puerto Rico-basedEnergyXare experimenting with nanotech membranes that allow for the speedy and efficient separation of Lithium during the refining process. If it reaches scale, it would be a massive boon to the global lithium supply chain.

Another supply chain strengthening process is the recycling of existing EV batteries to reduce the mining and processing of raw materials. However, while recycling constitutes a viable strategy in the future, it will take some time for a significant number of EV batteries to reach the end of life.

Raw materials for these technologies do not just concern the auto-makers. In June 2019, the Trump Administration released “A Federal Strategy to Ensure a Reliable Supply of Critical Minerals.It directs the U.S. Department of Interior to locate a domestic supply of 35 critical materials, including lithium and cobalt. The administration deems this move necessary to protect the U.S. against supply volatilities across the globe.

With lithium-ion batteries becoming an essential part of modern life and a crucial step to decarbonizing the global economy, supply chain issues around crucial components may endanger the rise of electric cars.

As the impact of coronavirus progresses around the world, its economic implications look dire: the IMF predicts a global recession that will be tantamount to thefinancial crisismore than decade ago – or worse. The economic downturn not only would cause disruptions in the supply chain, but would undermine the entire market of electric cars. Furthermore, cheap gasoline resulting from the ongoingOPEC-Russiaoil price war (collapse) will negatively impact EV car sales as well.

In the long term, both car manufacturers and governments need to adapt in the long term to sustain the battery component of the transition towards electrification. This will require consistent R&D to explore new storage technologies as well as policies that secure the upstream, midstream, and downstream flow of critical resources. In the short term, everything hinges on the recovery from the global coronavirus pandemic. 

With Assistance From Raushan Zhandayeva

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