Electric vehicle manufacturers are considering using less expensive lithium batteries rather than lithium-ion batteries that rely more on critical metals. Most lithium-ion batteries in electric cars contain nickel and cobalt, as well as lithium — metals that are expensive to extract. Tesla, Volkswagen, and Ford plan to use lithium batteries that contain more iron rather than the more expensive nickel and cobalt. In recent years, the use of alternative lithium-iron-phosphate batteries, which contain no cobalt or nickel, surged in China as a way to reduce the cost of an electric vehicle and make them competitive with gasoline and diesel vehicles. Lithium batteries have been enjoying a recent renaissance in the Chinese market due to their energy density advances and safety advantages. While lithium batteries are less powerful and weaker on range than lithium-ion batteries, they have reduced the costs of battery manufacturing by about 20 percent. This is important since batteries make up about 30 percent of the cost of an electric vehicle.
The transition to electric cars is expected to create a large amount of waste batteries over the next two decades, and the world’s carmakers risk creating a greater waste problem by using the cheaper electric car batteries made in China. Electric vehicle batteries last an average of 15 years, after which they can be reused in other applications, be recycled or become waste. Lithium batteries are more costly to recycle because of the lower metal value, which results in a higher net cost for recycling. Because iron is cheap and abundant there is little profit to be made from recycling it, reducing the incentives for recycling.
Demand Growth Expectations
About 90 percent of battery demand will come from electric vehicles over the next two decades. According to Forbes, electric vehicles are expected to grow at an average of 15 percent a year over the next 20 years so that by 2030 there will be 100 million electric vehicles on the road and by 2040, 400 million, compared to 10 million today. It is not until the 2030s that electric vehicles are expected to displace internal combustion engine (ICE) vehicles in a large way due to the slow turnover in vehicle stock.
Supply Chain Challenges for Lithium-Ion Batteries
Supply chain challenges loom for lithium, cobalt and nickel as electric vehicle sales ramp up. Lithium faces the steepest increase in demand, a six-fold increase from the battery sector by 2030. Because the supply base is relatively diverse, however, under-developed and accessible resources from Australia, Argentina and Chile can be delivered to the market to meet rising demand.
The supply chain for cobalt is tied to the Democratic Republic of Congo, which supplies over 70 percent of the market today and will maintain that share even as demand rises through this decade, despite new production from Australia and Indonesia. The cobalt market is expected to fall into deficit around 2027. With electric vehicle sales expected take off in the 2030s, Forbes projects mined and recycled cobalt can only meet half of forecast demand by the middle of the decade. The world will then become more dependent on cobalt from the DRC.
The supply chain for nickel is expected to slip into deficit late this decade. While there is no shortage of nickel resource, new mines (in Indonesia, for example) have significant challenges. Also, it can take five to ten years to deliver nickel to market from a major new project, and those times are lengthening.
China’s Dominance
China dominates the production and export of rare earth elements and other critical metals needed for renewable energy (solar and wind technology), electric car manufacturing and batteries, defense weapons, cell phones and other electronics. China has 80 to 90 percent of the global rare earth market. Further, while over 70 percent of all mined cobalt needed in the electric vehicle industry comes from the Democratic Republic of the Congo, and most of it is controlled by China.
China implemented its new Export Control Law on December 1, 2020, which stipulates that the state will implement export control on dual-use items such as military products, nuclear, and other goods, technologies, services, rare earths and other items related to national security and interests, and fulfilling international obligations such as non-proliferation. That means China now has an official mechanism to reduce rare earth exports and other critical metals. And, as the global supply of these items shrink, their prices will rise.
Conclusion
As the demand for electric vehicles grows, so will the demand for batteries. Car manufacturers are looking into using lithium batteries, which do not need cobalt and nickel, rather than lithium-ion batteries because of their lower cost, increased density, and safety advantages. However, lithium batteries are more costly to recycle because they do not use these metals and thus are less valuable, which can result in a future massive battery waste problem. Despite all the happy talk surrounding the electrification of vehicles, there are enormous looming logistical challenges facing manufacturers and governments. In order for the dream to succeed, hard choices are going to need to be made.
