Challenges in the Battery Supply Chain & What We Can Do About Them
By: 2021 Chicago Fellow Pranav Rai
Experts believe that batteries will be one of the fundamental pillars for decarbonizing the economy. Auto OEMs are integrating Lithium-Ion batteries into their plans as they continue to announce electrification initiatives. BNEF predicts that demand for EVs will increase almost 20x by 2030. Energy storage solutions are going to be critical to allow increased renewable penetration. According to the IEA, the global installation of utility-scale battery storage will see a 25-fold increase between 2020 and 2040, with annual deployment reaching 105 GW by 2040. This interest comes on the heels of a compelling price decrease in Li-ion batteries. It has come down the learning curve and is getting close to the $100/kWh mark compared to $1000/kWh in 2010.
To continue down this curve and meet the needs of the automotive and energy industries, we must ensure a robust and healthy supply chain for batteries. Many critical minerals like Lithium, Nickel, and Cobalt face many challenges that will need to be solved. Concerted action from government and industry is required to prepare for this future.
What makes a battery?
Simplistically, a battery converts chemical energy into electrical energy. This chemical energy stored in the electrolyte reacts with the Cathode and Anode to create a flow of electrons.
As it turns out, the Cathode is the most expensive part of a battery, accounting for over 50% of the costs. The chemistry of their cathodes often categorizes Lithium-ion batteries. The most commonly used varieties are Lithium Cobalt Oxide (LCO), Lithium Manganese Oxide (LMO), Lithium Iron Phosphate (LFP), Lithium Nickel Cobalt Aluminum Oxide (NCA) and Lithium Nickel Manganese Cobalt Oxide (NMC). The different combination of minerals gives rise to significantly different battery characteristics.
Lithium, Nickel, and Cobalt account for 50–65% of the cathode costs. Higher mineral prices could have a significant effect on battery prices. A doubling of lithium or nickel prices would induce a 6% increase in battery costs. If both lithium and nickel prices were to double simultaneously, this would offset all the anticipated unit cost reductions associated with a doubling of battery production capacity.
Challenges in the supply chain
There are two main problems with the materials supply chain.
Setting up new mines is a painstaking process and can take anywhere from 5–25 years. As you can see in the chart below, the IEA projects a significant divergence in demand and capacity for Lithium and Cobalt starting in 2025. Our mineral production capabilities do not seem to scale at the same level demand is projected to grow. This dislocation in the timeline to build the supply chain could lead to multiple battery material shortages and delay our transition to a clean energy future.
China dominates the supply chain and poses a risk to western countries. Following a concerted effort starting in 2008, China invested heavily in purchasing mining rights and building manufacturing capacities to own the EV supply chain. Even in Cobalt, where China accounts for only 1% of the global reserves, they have managed to gain a controlling interest in almost half of the output from the Democratic Republic of Congo. That accounts for 60% of international reserves. China has an ample lithium supply, but it has also actively purchased mining rights in Australia and Chile. China’s Tianqi Lithium now owns 51% of the world’s largest lithium reserve, Australia’s Greenbushes lithium mine. In 2018, the same company also paid about $4 billion to become the second-largest shareholder in Sociedad Química y Minera (SQM), the largest lithium producer in Chile.
The upshot is that if we do nothing, we will face extreme shortages of the critical materials that are important for the automotive and energy industry. The supply of which is controlled primarily by one country. That alone should cause concern for other countries and market participants without getting into the myriad human rights issues with existing supply chains.
What can we do about it?
The best time to plant a tree was 20 years ago. The second best time is now.
While the situation looks bleak for the western world, countries can take steps to prepare for themselves for the future and ensure they have the necessary energy transition materials. It will require a combination of clever policies and investment in technical innovation to achieve the desired outcomes. I will try to lay out a few options that exist.
Grow the local supply chains
Upstream parts of the supply chain usually have a high margin and provide western countries with a value creation opportunity. These countries need to accelerate the time it takes to identify a mine to production while simultaneously securing mine rights in other geographies. They must also incentivize the onshoring of specialty chemicals manufacturing. It is a high margin (60% +) business that will generate thousands of jobs per plant.
Innovation in the Lithium Chemical Manufacturing Process
Lithium Chemicals manufacturing has not seen much innovation in the last 50 years. The manufacturing process suffers from high electricity needs to reach high temperatures for baking ore or electrodialysis. Ore mining and material transport require high operating expenses and labor. The byproducts are not very valuable. We can invest in R&D and help existing plants transition to new processes.
Develop Battery and Materials Recycling Capacity
A recent report commissioned by Earthworks found that if we recycle 100% of dead EV batteries, we can meet as much as 25% of the lithium demand and 35% of the Nickel and Cobalt needs by 2040. Several improvements could make electric-vehicle LIB recycling processes economically more efficient, such as better sorting technologies, a method for separating electrode materials, greater process flexibility, design for recycling, and greater manufacturer standardization of batteries. There is a clear opportunity for a more sophisticated approach to battery recovery. We can do this through automated disassembly, smart segregation of different batteries, and the intelligent triage of used batteries into streams for reuse and recycling. The potential benefits of this are many and include reduced costs, higher value of recovered material streams, and the near elimination of the risk of harm to human workers.
Differentiate Cathode chemistries by application
As mentioned earlier, cathode chemistries have vastly different characteristics. We can use this to our advantage by developing batteries that do not rely on scarce materials unless the application calls for it. Currently, Tesla offers the same battery pack for all its customers. We can foresee a future where customers can decide what type of battery they want to use based on their range, location and cycle life needs. If your use case calls for fixed routes that are short, you might opt for a Lithium Iron Phosphate battery. In contrast, Lithium Nickel Cobalt Aluminum batteries can go to customers demanding long-range and faster cars.