Resource Constraints and the Emergence of Electric Vehicles - Ravi Raghavan

The global automotive industry is on the cusp of several changes of which the most significant is the replacement of the tried and tested internal combustion (IC) engine, running mainly on fossil fuels, with electrically powered systems. Underpinning this transition is a revolution in battery technology with several approaches being taken to provide both the optimum power and running time before recharge. While a range of technologies is being developed, the most advanced are the lithium ion batteries (LIBs) that power everything from cell phones and laptops to cars.

The ramping up of LIB production to the scales necessary to power cars in numbers only now being contemplated could however face a roadblock: the availability, pricing and sustainability of two key elements – cobalt and lithium. A LIB actually contains more cobalt than lithium, and a taste of what is to come can be seen in the dramatic run-up in prices of the two metals over the last two years. Unless alternate battery technologies evolve or technologies developed to sustainably exploit ores and to recycle spent batteries, deployment of electric vehicles (EVs) may face constraints.

Drivers for electrification

The drivers for electrification are largely two-fold: curbing emission of greenhouse gas emissions and improving air quality. The extent to which both aims are achieved will be largely determined by the manner in which electricity needed for powering up the batteries in EVs is generated. But even if it were to be from a ‘dirty’ fuel as coal, there will be benefits that accrue from the scale at which the power plants are built and their ability to curb emissions through deployment of emission control systems. If carbon capture were to be deployed at these power-generating units, the electricity produced could indeed be claimed to be carbon-free.

For countries such as India, EVs offer the possibility of curbing imports of fossil fuels. Nearly 80% of the country’s oil demand is currently being imported and at least in the short term the situation is unlikely to change. There have been some ambitious statements emanating from government officials of switching all new car production to EVs by 2030, but no firm policy announcements have yet been made. Elsewhere in the world, the pace of the transition to EVs is picking up. China is most advanced, and is currently the biggest market in the world. Nearly every big auto major, and a few start-ups – Tesla being the most famous – have plans to ramp up production of EVs from current low levels.

Battery on wheels

An EV can be described as a ‘battery on wheels’ as battery costs make up between 50% and 70% of total costs. While significant effort is on to develop optimal batteries that provide high energy density to enable long-range driving, LIBs currently dominate and is likely to stay that way for the near future. Annual demand for LIBs from EVs is expected to increase to 1,293-GWh in 2030, representing an annual growth of 33% from 2015 levels. McKinsey, a consultancy, estimates global EV production to increase from 3.2 mn units in 2017 to 13-18 mn units by 2025, and further to 26-36 mn units by 2030. China is currently the leading producer of LIBs, and is expected to account for about 60% of global battery capacity by 2020.

In recent times, battery costs have seen significant reductions stemming from economies of scale (with larger plants being built) and new battery design (optimising energy densities). Battery costs have plummeted from ~1,000 per kWh in 2010 to $230 per kWh in 2017, with some best-in-class batteries costing just $150 per kWh. McKinsey’s Center for Future Mobility estimates that at a price of about $100 per kWh, which could be reached beyond 2025, EVs could be cheaper than IC engines.

Technology options

Currently, there are five LIB technologies vying to be the main choice for battery makers. In each, lithium ions are the charge carrier between the anode (mostly graphite) and the cathode. The five differ in the composition of the cathode and encompass lithium cobalt oxide (LCO, mainly used in portable electronics), lithium nickel manganese cobalt (LNMC, mainly developed for EVs), lithium nickel cobalt aluminium (LNCA, for EVs and portable electronics), lithium iron phosphate (LFP, a safer option for EVs), and lithium manganese oxide (LMO, used in the first EVs).

The EV revolution is ushering in a golden era for all battery raw materials, and in particular for lithium and cobalt. As the battery sizes increase – to accommodate longer driving range – the material intensity will also rise. Today’s typical passenger EV, with a 55-kWh LNMC battery pack contains 7.4-kg lithium Carbonate equivalent (LCE) and 12-kg of refined cobalt (RC). In the future, a similar car with a 77-kWh LNMC battery pack will contain 8.4-kg LCE and 6.6-kg RC.

Demand driven by batteries

Historically, demand for lithium and cobalt was driven by multiple end-uses, but battery demand has been increasing its share.

In 2010, global demand for lithium was pegged at around 123-kt LCE, with use in ceramics & glass making, accounting for 42%. Batteries (for portable electronics) accounted for 14%, followed by use for making lubricants & greases (12%). By 2017, lithium’s share of demand for batteries climbed to 41% (of a total of 214-kt LCE), while that of ceramics/glass fell to 23%.

The story for cobalt has not been very different. In 2010, demand for RC was about 71-kt, dominated by use for batteries (25%), super-alloys (23%) and tools & hard materials (17%). By 2017, batteries had increased its share of the 136-kt of RC demand to 30%.

Metal pricing – increasingly more important

According to an analysis by McKinsey, the cathode accounts for approximately 25% of a battery pack’s costs, and the raw materials used – lithium, cobalt, nickel and manganese – are becoming increasingly important, representing 10% of the costs of an EV battery pack in 2018, compared to just 3% in 2010. While battery prices will be influenced by both lithium and cobalt prices, they are more sensitive to the latter. The recent price spurt for lithium and cobalt, and the belief these are not isolated instances, but part of a long-term trend, is driving innovation efforts to reduce overall material requirements and to focus on less cobalt-intensive chemistries such as LNMC and LNCA.

What about availability?

Here the outlook differs for the two elements.

Total lithium demand is expected to increase from 214-kt LCE in 2017 to 669-kt LCE in 2025, in McKinsey’s base case scenario, and to 893-kt LCE in an aggressive growth scenario. RC demand is estimated to climb from 136-kt in 2017 to 222-kt and 272-kt in 2025 under the two growth scenarios.

More than 95% of the world’s lithium supply occurs as a primary product in the form of brine or hard rock ores, with a production footprint encompassing Australia, China and Latin America. In contrast, less than 10% of cobalt supply occurs as a primary product, with the remainder produced as a by-product of primarily copper and nickel mines. Supply of cobalt is hence intimately tied to dynamics of the market for these two metals. Worryingly, 65% of the world’s cobalt production is concentrated in the Democratic Republic of Congo (DRC), a country with a high risk.

The recent spate of announcements for lithium projects suggests that supply will not be much of a concern. But it could become an issue with cobalt, especially in an aggressive growth scenario. The DRC is expected to consolidate its market position as the world’s leading supplier – a not very comfortable scenario for users.

Technologies for recycling LIBs to recover metals are not yet commonplace, though there are pilot efforts combining pyrometallurgical and hydrometallurgical routes. As the first wave of exhausted batteries become available these technologies could get a leg-up, but before that repurposing of partially-spent batteries that still retain 60-80% of initial capacity – from EVs to stationary uses – will make a small impact.

The likely constraint on availability of cobalt and the need to maintain control over supply chains for lithium will Lead to closer collaborations between mining companies, battery manufacturers, automakers and financial players. Aimed at creating a larger market for vital materials, they will be key to wider deployment of EVs.