Earlier this year, Chile announced that it would nationalise its lithium industry to boost its economy and protect its environment. The move would in time transfer control of Chile’s lithium operations from Albemarle and SQM, the world’s number one and number two lithium producers, respectively, to a separate state-owned company, posing fresh challenges to EV manufacturers scrambling to secure supplies, with more countries seeking to protect their natural resources. Albemarle and SQM supply Tesla and LG Energy Solution, among other EV and battery manufacturers.
Chile is just part of the global trend with several other countries having taken greater control of their resources. Mexico nationalised its lithium deposits last year, while Indonesia banned exports of nickel ore in 2020.
The EU’s Critical Raw Materials Act is one of the cornerstones of the EU’s Green Deal Industrial Plan, together with the Net-Zero Industry Act, which sets a target for the EU to produce 40% of its own clean tech by 2030, such as solar power or fuel cells, partly by streamlining the granting of permits for green projects. The bloc also announced a goal for carbon capture of 50 million tonnes by 2030.
Europe is responsible for more than one-quarter of global EV assembly, but it is home to very little of the supply chain apart from cobalt processing at 20%, according to the IEA.
Global investment in the green energy transition is set to triple by 2030 from $1 trillion last year, the EU said. The bloc will need €400bn of investment a year to decarbonise and meet its target of net-zero emissions by 2050, it estimated.
As part of the Critical Raw Materials Act, the EU has set targets for the region to mine 10% of the critical raw materials it consumes, like lithium, cobalt, and rare earths, with recycling adding a further 15%, and increased processing to 40% of its needs by 2030. The EU also said that no more than 65% of any key raw material should come from a single third country. The EU is almost entirely dependent on imports of these raw materials, particularly from China, with 100% of the rare earths used for permanent magnets globally refined in China and 97% of the EU’s magnesium supply sourced from China.
The US IRA has established policies that aim to strengthen the entire domestic EV value chain. Under the IRA, battery cells can receive a tax credit of up to $35 per kWh of energy produced by a battery cell, while battery modules can get up to $10/kWh. In the case where battery modules don’t use cells, a maximum of $45/kWh is provided. Moreover, the tax credits for EVs, with the highest level at $7,500, have important qualifying requirements that are tied to battery components and origins. This means that EV manufacturers looking to qualify for the tax credits will need to reroute supply chains and form new business partnerships with new suppliers.
The IRA can also encourage more battery recycling in the US because established battery recycling capacities can help EV manufacturers bypass any sourcing origin requirements for critical minerals. The government is also setting money aside to encourage the research and development of batteries and battery recycling.
It will be time and money-consuming, but the IRA’s policies would in the long-run lead to a more resilient EV supply chain in the US. The IRA has spurred $45bn of announced private-sector investment in the entire value chain as of late March, with more to be expected in the future.
Investment is key to combatting China’s crucial role in the EV supply chain. But even as the US and Europe continue to ramp up investment, China’s dominance in processing and production is set to continue to grow. Bloomberg New Energy Finance (BNEF) is expecting China’s dominance to continue, with the country accounting for 69% of the world’s battery manufacturing capacity in 2027. Combating China’s dominance in the EV supply chains will be an expensive process. According to BNEF, the US and Europe will have to invest $87bn and $102bn, respectively, to meet domestic battery demand with fully local supply chains by 2030.
Recycling and emissions reduction along the EV battery supply chain is an area that has not yet received sufficient attention but will become increasingly important for companies to manage. Battery electric vehicles (BEVs) on average show significant environmental advantages compared to internal combustion engine (ICE) vehicles when life-cycle emissions are calculated. The portion of BEV life-cycle emissions coming from battery mining and processing is relatively low, but the pressure to decarbonise battery mining and production will only grow as the demand for EVs increases.
There are several common practices to reduce emissions in EV battery mining and processing. First, companies are trying to use clean electricity to power their operations. This primarily includes buying Power Purchase Agreements (PPAs) from renewable developers. Second, mining companies are also taking initiatives to switch to low-carbon fuels – such as biodiesel – for their truck fleet.
Third, both mining and battery production companies have been engaged in boosting circularity for their product value chains. Today, the global capacity for battery recycling remains limited. In general, lithium-ion batteries' lifespan can last between 100,000 and 200,000 miles, or about 15 to 20 years of driving, after which it needs to be recycled in some way.
In the US, lower than 5% of lithium-ion batteries were recycled in 2019. For instance, US start-up Redwood Materials has been partnering with automakers Ford and Toyota, as well as battery producer Panasonic Holdings, to establish a closed-loop battery ecosystem. Redwood Materials recently obtained a $2bn loan commitment from the US Department of Energy to build and expand its pilot battery recycling facility. In Europe, Renault is collaborating with optimised resource management company Veolia and science-based company Solvay to advance EV battery metal closed-loop recycling.
Recycling EV batteries and decarbonising battery production will help companies boost company environmental, social, and governance (ESG) credentials. Recycling, specifically, can also help enhance supply chain security. Over the next few decades, we will see recycling become more mainstream among battery and EV manufacturers. McKinsey forecasts that EV battery recycling capacity will grow at 25% per year until 2040. Recycling lithium-ion batteries is increasingly becoming a priority for many countries and EV companies in order to reduce their dependencies on the mining of raw materials.
Policy and politics will play an increasingly large role in the future of EV supply chains. To secure battery metal supply, we expect to see countries and regions such as the US and EU forge new trade partnerships. We expect governments' EV policies to focus more on batteries and metals, and we also expect EV companies to further partner up with battery manufacturers and mining companies. The sustainability of mining and battery manufacturing will affect company decisions in the long term, but its impact will be limited until there has been a huge uptake in EV adoption.
