The battle for rare earths and the future of batteries

In early 2023, the carmaker Ford announced a new $3.5bn battery plant in Michigan. This mega-industrial project is one of many initiatives attempting to re-shore the manufacturing of critical technologies in the United States since the start of the war in Ukraine and amid rising tensions between the US and China.

The development of battery technology is deeply rooted in geopolitical frictions. It was in the 1970s, following the OPEC oil embargo, that Exxon launched a research program on electric vehicle batteries, and made significant discoveries in a chemical process called “intercalation”. In lay terms, intercalation is a way of storing atoms in separate “host” material.

With this discovery, some early lithium batteries were rapidly commercialised. Unfortunately, their chemistry turned out to be unstable, with the unfortunate tendency of catching fire. Luckily, in the early 1980s, John Goodenough (who lived up to his name) built a new battery using a material called lithium cobalt oxide (LCO). Following this discovery, Sony commercialised the first rechargeable lithium-ion battery, and it was the beginning of the global expansion of many portable devices powered by lithium.

Today, LCO batteries are still used in most of our smartphones, laptops, and many other electronic devices. The fundamental chemistry hasn’t changed. But, in a world where our appetite for energy is constantly growing, so is the need for better solutions, and LCO chemistry features a number of challenges. Energy storage has become a critical battleground in a world divided by geopolitical tensions.

The road to the best battery chemistry

When we think of batteries, we immediately think of lithium-ion. But in fact, different types of lithium-ion batteries are actually made of completely different materials (lithium being the common material).

Lithium is still today the common battery component because it is the lightest material and is very efficient at intercalation. But, as we will see, chemists have been trying to play with several other materials to optimise our batteries’ capacity (and cost).

Indeed, there’s a fascinating battle unfolding between different types of lithium-ion batteries. It’s not just a story about the best battery chemistry, but one of cost, patents, and jostling superpowers.

The sector in which this battle for “best chemistry” can be crystallised is the EV market. Indeed, the challenge of EV batteries is that they are big, and make up 30–40% of the cost of an EV and the main goal of the industry is to make batteries lighter, smaller or cheaper. To achieve this, industrials plaid with different compositions and are still searching for the ideal recipe.

The challenge faced by the first type of LCO batteries used by EVs is their composition. Unfortunately, cobalt is expensive and one of the most geographically concentrated and ethically troubled elements to extract.

The world’s largest cobalt reserves (45% of the world’s total) are in the Democratic Republic of the Congo, which currently produces more than 70% of the world’s supply. The appalling reality of mining and cobalt extraction in the DRC is extensively documented online.

Thus, industrials started replacing cobalt with a mixture of cobalt, nickel and manganese. These “diluted cobalt” cathodes are called NMC (Nickel, Manganese and Cobalt).

NMC batteries make up the majority of batteries in EVs today. The main reason for this is that they are fantastically energy-dense (they carry a lot of energy for not much weight).

Over time, with these rare earth concerns in mind, engineers tried to reduce the use of cobalt and manganese. Other combinations were tested such as NCA (Nickel Cobalt Aluminium) which is a relative of NMC that uses aluminium instead of manganese. It’s a slightly lighter type of battery, but very similar to NMC was used by Tesla in its early days.

Then came LFP batteries. LFP is lithium iron phosphate (LiFePO4, hence the acronym). The particularity of LFP batteries is that they contain no cobalt or nickel (the two expensive and geopolitically sensitive materials present in NMC and NCA). They’re replaced by iron and phosphorus, which are abundant and much cheaper (iron doesn’t even make it onto the US’s chart of critical minerals). On top of this, LFP has a much longer cycle life than NMC (the batteries degrade less over extended use).

But there’s just one problem: LFP batteries are not very energy-dense. To store the same amount of energy, they are considerably heavier. For EV batteries, this is a big issue. For an industry obsessed with ever-increasing vehicle range, it was thought for a long time that LFP just wouldn’t be able to compete.

However because LFP is a much safer and stabler chemistry than NMC, engineers found that it was possible to produce much bigger battery cells. Over time, carmakers considered that although NMC cells were more energy-dense than LFP, they lost their advantage as they needed to be put in smaller packs and assembled.

Further, we are starting to reconsider the necessity of long-range for EVs. A lot of Chinese EVs have used LFP for a while, because the Chinese city commuter car market doesn’t care so much about range.

Continuing the search for the ideal solution to tackle the issue of cost and providing high energy density, some chemists turned to another material: sodium. Sodium-ion batteries, sometimes called Na-ion after sodium’s chemical symbol (Na) are the new revolution in the battery market. The excitement was first expressed in China.

In April 2023, CATL announced that its first sodium-ion battery would be powering new EVs by Chery (a Chinese car giant). BYD announced that its Seagull EV will have a sodium-powered version, sold for $11,600.

To give perspective on these announcements, CATL is the largest battery manufacturer in the world and BYD is the biggest EV manufacturer in China (and probably soon in the world).

CATL’s sodium battery is expected to cost 30% less per kWh than an LFP battery. Also, they keep almost all of their charge when temperatures fall far below freezing, something lithium batteries typically do not do.

But as always, there’s one slight problem. Sodium batteries are also massive. They weigh about 33% more than LFP batteries and take up 48% more space. But this doesn’t seem to be a problem for the Chinese EV market. The issue of size and weight is also not so important for grid-scale batteries.

As demand for batteries is growing fast, lithium is unlikely to remain the dominant material indefinitely. Thus, China is taking a strategic advance with this new chemistry.

In two years, China will have nearly 95 per cent of the world’s capacity to make sodium batteries. Lithium battery production will still dwarf sodium battery output at that point, but advances in sodium are accelerating.

In this battle for the best battery chemistry, the underlying race for rare earth control and innovation leadership is becoming increasingly apparent.

Power games for rare hearth

Tension around rare earth materials is becoming an increasingly significant geopolitical issue, as it is estimated that demand for these metals could multiply by 40 in the next 20 years.

The power dynamic around battery manufacturing control first started to play out in the LFP space. Previously, 95% of LFP production was in China. But in 2022, a key patent controlling LFP production outside China expired. Following this, in early 2023, Ford announced its new plant in Michigan to make LFP cells. Once complete, it will mark the first-ever large-scale US production of LFP EV batteries.

One of the main considerations for the strategic nature of sodium batteries is that they don’t require any nickel, which comes mainly from mines in Indonesia, Russia, and the Philippines. Nickel prices rose following Russia’s invasion of Ukraine. And whilst Russia is only the world’s third-biggest producer, it has some of the highest grade (and therefore lowest cost) nickel deposits in the world.

But for global power, the key material to control is lithium.

The world’s lithium production is concentrated in three locations. Australia currently produces the most lithium in the world. It extracts lithium from a hard rock called “spodumene”. Then, the Lithium Triangle is an area in the Andes which falls across Chile, Argentina, and Bolivia. The huge salt flats here contain the world’s biggest resource of lithium. Lithium is not mined, but extracted from lithium-containing brines through evaporation and processing.

China also contains large lithium resources (both brine and rock), but they are lower grade. It produces a decent amount of lithium, but what is more notable is its refining capacity. More than two-thirds of the world’s lithium processing happens in China, and without it, “raw” lithium is useless in batteries.

The question hanging over is whether lithium will become more costly. Lithium prices quadrupled from 2017 to last November, but have since dropped by two-thirds. Specialists are still concerned about a lithium supply crunch (which is likely, according to many).

In a worst-case scenario where lithium supply dries up or is politically weaponised, there are limited options for battery replacements. For grid storage, we have a few choices (more on that below), but for EVs, the only comparable battery chemistry is sodium ion.

Regarding sodium, the United States accounts for over 90 per cent of the world’s readily mined reserves of soda ash, the main industrial source of sodium (deep under the southwestern Wyoming desert).

This critical resource may balance out the power dynamic. But are there other factors to consider?

Are significant escalation of tensions regarding rare earth inevitable?

Will there be a lithium crunch?

The answer to this question first comes by turning to the grid-scale battery market.

Grid-scale batteries use the same chemistry as EV batteries. Today, most grid-scale battery storage uses lithium-ion. But, we are also starting to see the very early stages of sodium-ion deployment.

In comparison with EVs, which only need light and powerful batteries, grid storage batteries can be heavier — and thus cheaper. Utilities that switch from lithium to sodium don’t care about weight and space. They can simply put twice as many big batteries in an empty lot near solar panels or wind turbines. For many, sodium batteries will shave off the peak of demand for lithium.

Further, other innovations are moving along and solutions may be removing pressure on the lithium market.

Iron-air batteries are the first kind of solution researchers are quite excited about. The American company, Form Energy, set out to build a new battery specifically for multi-day energy storage using iron “unrusting”. The principal excitement about the technology is that it chose an abundant material (iron) making it an extremely low-cost solution for batteries. Form Energy is in the process of building its first gigawatt-hour scale projects. Incredibly, the fact that Form decided to build its factory in West Virginia may have been a key reason that the Inflation Reduction Act was passed.

Another exciting innovation is redox air flow batteries which provide a new method to store and convert energy. The key feature of flow batteries is that you can scale energy and power separately.

A little-known Stockholm-based startup Enerpoly just received an $8.4m grant from the Swedish Energy Agency to build a factory to manufacture zinc-ion batteries. Enerpoly has been able to prove that its battery won’t catch fire, even at temperatures exceeding 200C. Enerpoly is currently planning to build a factory outside Stockholm to produce modular batteries with a final capacity of 100 MWh annually.

In November 2023, Northvolt, Europe’s largest battery manufacturer, announced it had developed a battery entirely with sodium-ion (Na-ion) cells validated with an energy density of over 160 watt-hours per kilogram. This is the first big breakthrough by a European company in Sodium. Which confirms the momentum for this technology.

Can recycling save the day?

In October 2023, French battery recycling startup Mecaware announced a €40m Series A. The round will enable Mecaware to start scaling its technology and deploy a pre-industrial pilot as part of a partnership with Verkor, one of Europe’s best-funded gigafactories.

Mecaware says that its technology can extract and reuse metals from old batteries, as well as from the waste produced at battery manufacturing plants, which have high scrap ratios.

Gigafactories waste as much as 30% of the batteries they produce, according to estimates, and as plants multiply across Europe, Mecaware expects rapid growth while also enabling manufacturers to source part of the metals needed to produce batteries locally.

Mecaware will move into pre-industrial production levels and is aiming to process 100 tons of waste per year by mid-2025 — making for about 50 tons of metal.

Battery recycling is not new. US company Redwood founded by the former chief technologist of Tesla has been leading the way. The company makes components for new batteries from materials it recovers from old ones (including nickel, cobalt, lithium and copper). They expect some 250,000 ageing Tesla Model S sedans, Nissan Leaf hatchbacks, Toyota Priuses, and other hybrids, to turn up at dismantler lots in 2024, with more coming every year after.

The recycling industry alone could create a $6 billion profit pool by 2040, by which time revenue could exceed $40 billion — more than a three-fold increase from 2030 values.

Since 2018 California has been formulating guidelines for battery recycling which will require auto-makers to create programs to recover old batteries. In the EU, a new batteries regulation will impact the design, production, and waste management of all types of batteries manufactured or sold in the European Union. Amongst other areas, the regulations provide detailed guidance on the recallability of EVs and aims at a recycling target of 80% of batteries in the market.

With a constantly improving industrial process, recycling rare materials is becoming a profitable activity. And with these new regulations in place, the recycling market seems to have a bright future.

But recycling won’t fully solve the problem. Even if a 100% recycling rate is achieved for any given metal, increasing demand means that primary production will still be necessary, according to the European Commission.

Market outlook

All projections show that global demand for Li-ion batteries is expected to soar over the next decade. The number of GWh required is going to increase from about 700 GWh in 2022 to around 4.7 TWh by 2030.

This is why batteries topped the 2023 charts for mega-rounds in climate tech VC investments. Northvolt raised $1.6bn over two rounds last year to scale European battery manufacturing. Redwood Materials raised $1bn to build its US battery materials and recycling facility. China’s Hithium raised $621m to manufacture battery cells and storage systems.

Governments are significantly involved in supporting these rounds. Redwood Materials received a $2bn loan from the US Department of Energy in Feb 2023. Verkor received a $717m grant from the French government in Sep 2023.

McKinsey projects, that revenues along the entire value chain will increase 5-fold, from about $85 billion in 2022 to over $400 billion in 2030.

With these growth perspectives in mind, it is obvious how battery manufacturing has become a critical industrial challenge for global powers around the world. Studies suggest that at least 120 to 150 new battery factories will need to be built between now and 2030 globally.

To counter China’s leadership in battery manufacturing, the EU and the United States, have pushed regulatory changes and re-localized supply chains. With rising tensions between the West and nations like Russia and China, regionalisation of the supply chain is becoming ever more pressing.

The coming years will require us to make our current value chain more resilient, regionalized and diversified. McKinsey envisions that each region will cover over 90 per cent of local cell demand, over 80 per cent of local active material demand, and over 60 per cent of refined materials demand.

Further, as you may have gathered by now, control over row material is going to be critical. As almost 95% of lithium could be mined for battery-related applications by 2030 the control of resources has become indispensable. Even if lithium reserves are well distributed and theoretically sufficient to cover battery demand, high-grade deposits are limited and tension in this market is possible.

The fundamental issue of availability of resources requires us to consider what model of batteries we want to invest in. As we have seen from the chemistry analysis above, the trade-off boils down to mineral abundance (and therefore, cost) and energy density (and therefore range). This trade-off requires us to consider which chemistry we want to favour to serve our immediate needs.

The US and the West, obsessed with needlessly high-range EVs might want to look toward China commercialising low-cost less energy-dense batteries (first LFP, and now sodium) as this will probably become the most sustainable model.

Innovations using new active material chemistries (such as Iron air or zinc air) as well as investing in sodium for grid-scale batteries might relieve pressure on our reliance on lithium and other rare earth metals.

With the first wave of EVs being retired from roads and mandatory recycling of battery components, we may see a further reduction in demand for raw materials.

Already, this diversification seems to show some results, as a lot of key metals prices have significantly dropped in recent years. The Economist even recently published an article title Cobalt, a crucial battery material, is suddenly superabundant.

However, as we live in a world of finite resources, we shouldn’t just rely on these headlines and continue our efforts to find the most sustainable and resilient solution to power the transition we so desperately need.