The Battery Supply Chain eBook
This Battery Supply chain ebook provides information about the entire battery supply chain, for all participants, and is designed to help you understand the current state of the EV battery market, the regulations in place, and what trends and challenges exist.
- An Overview of the Ebook
- Who is it for?
- Chapter 1: Battery Passports - an Overview
- The Rise of Lithium Batteries
- What is a Battery Passport?
- What Data Has to Be Included in the Battery Passport
- Chapter 2: The Battery Value Chain
- What will the Battery Passport bring for each battery supply chain participant?
- Chapter 3: Battery Regulations
- The United States
- South Korea
- Chapter 4: Challenges and Trends
- Key Challenges and Trends
- Securing Raw Materials and Establishing Long Term Partnerships
- From Partnerships to Consortiums
- Supply Chain Regionalisation
- Moving to Fully Transparent Supply Chains
An Overview of the Ebook
To say the EV battery supply chain is complex is an oversimplification. One battery might contain minerals and materials from dozens of companies and come from different geographies, which makes it difficult to track and understand how sustainable and clean the whole production process is. Combine this with regulation - today, governments understand the importance of electric transport for the future energy market. This is why in the 2020s we saw a significant increase in the number of regulations aimed to create domestic production of EV batteries and sustain critical minerals within their own borders. Many of these regulations set requirements for establishing a transparent and traceable production process, so that the end user can understand the provenance of materials and how the battery is produced and assembled.
Who is it for?
For EV manufacturers
Do you want to know your supply chain better and ensure your network is transparent, and materials are clean and produced in a sustainable way? This Ebook will help you to take a closer look at your suppliers and better understand how the whole EV batteries supply chain works.
Cell, Module and Pack Manufacturers
Do you know what the mandatory requirements will be and how can you ensure full compliance with upcoming regulations in the EV battery space? This Ebook will help you understand what are these requirements in different regions, from North America to China, and how you can take steps to comply with specific standards, in particular CO2 emissions and due diligence data.
Raw materials, mining, and refining
Do you want to stay informed about what the current requirements are like and ensure your customers’ full expectations are met in the long-term? This is an important transition point for many raw materials producers while the world is going towards more sustainable and transparent supply chains. This Ebook will help you to get more information about how to move to more sustainable production processes and differentiate your materials as clean and sustainable.
Battery Recycling and 2nd Life
Recycling is one of the bases of the circular economy. Make sure you have all the necessary information at hand to make informed decisions and propose the most suitable recycling technologies and processes to enable circularity.
The Battery Supply Chain Ebook was created in order to summarize the most crucial insights and information for you. It will cover the battery supply chain, its participants, regulations and their most critical requirements, and the key trends and challenges for further market development.
Battery Passports - An Overview
The Rise of Lithium Batteries
Ever since batteries were invented back in the 19th century, they have become a field of constant research and development. There are continuous attempts to experiment with different chemistries to reach optimal energy density, and improve power and weight ratios, as well as technical parameters that fit the needs of different applications and end-uses.
However, the biggest breakthrough was made in the 1990s, with the commercialisation of the lithium-ion battery. Lithium, a light metal providing high energy density, has become the key ingredient in today’s batteries, especially the ones requiring higher energy storage for automotive and industrial applications.
After lithium's potential was discovered, technological advancements boomed. It became clear that such batteries can bring to life the first electric vehicles capable of long-distance travel.
The real hype started with the Tesla Roadster model back in 2008. As serial production of long-distance EVs has become a reality, it disrupted the automotive world - which was at that time fully focused on internal combustion engines - and caused a spark within other big automotive companies as they saw the increasing consumer interest for electric vehicles.
The flowing tide of global environmental concerns and resource scarcity have added to this upheaval, creating healthy competition in the sector. Not only does this include the automotive segment but also all connected tiers of suppliers, as it sets a higher bar for novel approaches and R&D, especially in the battery segment.
Fast forward 10 years and we have even more environmentally conscious end-users, backed by green initiatives and legislation encompassing every single part of the battery supply chain, and its impact on the environment.
Increasing demand brings increasing concerns. Batteries, as the powering source behind EVs, have faced growing scrutiny as to how resources are obtained and the cost associated with them. These include the claims of human rights issues, water management, and environmental concerns regarding the mining of these raw materials.
Herein lies the reason why greater visibility and transparency of how a battery is produced are coming at the forefront. Along with it, the end-of-life stage includes developing enhanced methods to improve the reuse, recycling and circularity of materials. That is where Battery Passports come in.
What is a Battery Passport?
A Battery Passport is seen as a digital representation of a battery’s life, which should include information about its composition, product and safety details, as well as relevant ESG and lifecycle requirements based on the upcoming regulatory definitions and details.
With different battery chemistries being made available and explored further, nowadays the most prevalent EV batteries still rely on raw materials such as lithium (Li), nickel (Ni), cobalt (Co) and graphite (C).
With that in mind, the Battery passport can be described as a tool to support the clean energy transition, contribute to the development of a more circular economy and, on the whole, create a more efficient, transparent and sustainable battery value chain.
Within the regulatory space, the concept was initially mentioned as part of the proposal for a Regulation of the European Parliament and of the Council, concerning batteries and waste batteries, and announced on the 10th December 2020.
Along with the regulation it is seen as one of the very first initiatives under the Circular Economy Action Plan, and in line with the goals of the European Green Deal, which aims at promoting a circular economy and net-zero greenhouse emissions (GHG) by 2050.
To date, there were two major draft compromise texts to the initially released proposal. The latest announcement took place on the 18th of January, with the EU Commission, EU Parliament and Council reaching a provisional agreement on the draft.
What Data Has to Be Included in the Battery Passport
A Battery Passport, besides including the standard technical product and safety specifications, will contain specific details such as: information about the materials that have been used, the overall carbon footprint, details on conformity assessments, performance and durability and information requirements. In a nutshell, these are some of the details that will be part of these categories:
Due Diligence requirements
The provenance and due diligence practices for the minerals in batteries are in the main focus of the upcoming EU Battery regulation.
Five minerals (lithium, cobalt, nickel, natural graphite, and their compounds) are stated as critical, thus the economic operators will need to set and implement due diligence policies and provide publicly annual reporting on this topic.
Some of the main requirements that economic operators will have to establish are:
- Set, adopt them and communicate their due diligence policies to the public and their supply networks
- Provide verification (third-party verification) and periodically audits of these policies and their results
- Due Diligence documentation should be kept for at least 10 years
- Due Diligence requirements might be implemented in collaboration or through joining recognised due diligence schemes
- Companies should set and operate a proper management system that includes a chain of custody or traceability system, with the aim to identify upstream actors in the supply chain
- Establish a risk management plan and address the relevant risks
- Disclose information on due diligence policies upon requirement and publicly in an annual format
Overall, the aim is to create a more transparent market that will contribute to ensuring better quality of products as well as more knowledge of materials used, their transactions and practices involved within the battery supply chain. Some of the main questions that will be addressed are:
- Usage of minerals in the batteries - which ones and from which regions
- Sourcing details of minerals - are these minerals sourced responsibly, addressing the relevant ESG indicators?
- Documentation on due diligence - are there provenance and due diligence details available?
- Management systems - is there a management system in place for risk monitoring and mitigation?
- Traceability - Has the economic operator established a traceability or chain of custody system for the identification of their upstream suppliers?
- Audits - how often are these policies audited?
When it comes to eligibility, it is worth noting that due diligence obligations will not be applicable to companies that had a net turnover of less than EUR 40 million in the financial year preceding the last financial year, and that are not part of a group, consisting of parent and subsidiary undertakings, which, on a consolidated basis, exceeds the limit of EUR 40 million (article 45a from the latest draft compromise text from 18 January 2023).
The carbon footprint details of a battery are to be introduced gradually by the implementation of the following three requirements:
- Carbon footprint declaration
- Carbon footprint performance class
- Carbon threshold levels
All of these contain information on the overall battery lifecycle and differentiated lifecycle stages (firstly raw material acquisition and pre-processing; secondly main product production; third distribution; and finally end-of-life stage) along with administrative information about the manufacturer, the manufacturing location and battery model.
Information on minimum share of recycled content for industrial, EV batteries and SLI batteries is also a requirement. It comes with a provision of documentation that should contain information on the share of recycled content for lead, lithium, nickel and cobalt from battery manufacturing waste or post-consumer waste for each battery model per year and per manufacturing plant.
Different minimum recycled content percentages are defined for each of these critical minerals with the aim to increase those gradually throughout the years.
Labeling, marking, information requirements, and QR code
Proper marking and labeling are seen as the key enablers of a more efficient circular battery supply chain. What is the first step towards enabling more efficiency with batteries at end-of-life? Knowing what you are dealing with in terms of product details and safety requirements, which allows for better decision-making for the next steps of treating a battery.
At the very core of the proposed EU regulation is to have proper labeling, marking and information on the battery so that it can be easily available to the relevant stakeholders in a standardized way including QR code and an unique identifier.
Why do we need to have a more transparent battery supply chain?
If we take into consideration the projections for the global lithium batteries and EV demand, we can grasp the magnitude of these sectors and the impact they create.
According to McKinsey, the global EV battery demand is expected to grow by around 30 percent, nearing 4,500 gigawatt-hours (GWh) a year by 2030. The battery value chain is expected to increase by ten times between 2020 and 2030 to reach annual revenue as high as $410 billion.
On another note, the number of Li-ion batteries reaching end of life (EoL) by 2030 is 11 million metric tons. Do we expect to dispose of those directly as waste? Or do we carefully plan and ensure we address their EoL proactively?
This is where recycling inefficiencies can be addressed and preparing for the end of life phase of all these batteries can come into play. One way is by providing transparent and traceable records that depict a battery’s complete life. This can enable supply chain participants at the very end to make the right decisions on how to treat a battery once it no longer serves its original purpose.
The more we know about a battery, the better we can address its EoL and enable its proper reuse or recycling after it no longer powers an EV.
This is especially important as - with just a simple QR code - stakeholders such as producers, OEMs, governments, brands, and consumers can scan and view their digital Battery Passport for the physical battery to understand exactly how it was produced, used and with that make more efficient decisions on it should be treated at the end of its lifecycle.
Overall, the goal is to increase transparency at every stage. The Battery Passport does this by gathering ESG information and lifecycle data (based on what a sustainable battery should encompass) and aligning with any regulation that may be applicable.
The Battery Value Chain
What will the Battery Passport mean for each battery supply chain participant?
The Battery Passport requirements proposed in the new EU Battery Regulation directly affect each company that places batteries on the market (Art.65 p.1: “each LMT and industrial battery with a capacity above 2kWh, and electric vehicle (EV) battery put on the European market or into service")
However, to comply with these requirements the companies will need to obtain data from their upstream supply chain partners to address some specific points, such as carbon footprint calculation requirements and due diligence obligations.
The proposed regulation creates an indirect effect for all the upstream battery value chain players, hence requiring downstream battery producers to have visibility over their supply chain.
In that sense, a typical battery supply chain will go through these steps:
1. Raw and processed materials providers
In the EU, the proposed regulation names four critical materials that have to be included in companies’ due diligence policies. These are lithium, nickel, cobalt, and natural graphite. The list might be extended in the future.
In practice, this will mean that upstream players producing or processing these minerals will be required to provide details to their next-in-line supply chain partners to meet the chain of custody requirements. These requirements will be directly required by downstream companies placing batteries on the market.
As the EU regulation will make carbon calculations mandatory for the entire battery manufacturing process, mining companies will have to be able to calculate carbon emissions for their segment of work. At the same time, depending on the mineral, they will require to share information such as the ones indicated in 45b (d), as follows:
- Description of the raw material, including its trade name and type;
- Name and address of the supplier that supplied the raw material present in the batteries to the economic operator that places the batteries on the market containing the raw material in question;
- Country of origin of the raw material and the market transactions from the raw material’s extraction to the immediate supplier to the economic operator that places the battery on the market;
- Quantities of the raw material present in the battery placed on the market expressed in percentage or weight;
- Third-party verification reports done by a notified body and concerning the up-stream suppliers.
Depending on the mineral, companies might even be required to follow or provide their documentation following certain standards, such as:
- UN Guiding Principles on Business and Human Rights;
- OECD Guidelines for Multinational Enterprises;
- Ten Principles of the United Nations Global Compact;
- UNEP Guidelines for Social Life Cycle Assessment of Products;
- Convention on Biological Diversity Decision COP VIII/28- Voluntary guidelines on Biodiversity-Inclusive impact assessment;
- ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy;
- Eleven fundamental ILO Conventions;
- ILO Declaration on Fundamental Principles and Rights at Work;
- The International Bill of Human Rights, including the international covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights;
- OECD Due Diligence Guidance for Responsible Business Conduct;
- OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
2. Precursors and battery active materials
Based on the battery chemistry, different combinations of precursors will be used to create the cathode and anode active materials, as two of the main components of a battery.
As this is where further transformation of materials takes place, it is a point where a dedicated and traceable sustainability record and details of reliable sourcing practices for the raw materials will be required, along with information on the carbon footprint impact from the respective production cycles.
Another important aspect that companies from this point in the supply chain should account for is the recycling content tracking and calculation. This is also part of the regulation proposal and has a set of prescribed targets for certain raw materials such as lithium, cobalt, nickel and lead.
3. Battery cell, module & pack manufacturer
It is at this point where all the battery passport requirements are combined. Not only taking into account the previously mentioned points on due diligence, carbon footprint or recycled content, but also data pertaining to the battery model and individual battery, such as:
- Labeling, marking and information requirements (such as manufacturing place, data, model details, chemistry etc.)
- EU declaration of conformity
- Performance and durability data
If we imagine a case where the battery producer is fully aware of all of its upstream suppliers and has visibility over them, then obtaining the data on due diligence and Scope 3 emissions up to that point should not be a challenge, but in practice that is rarely the case.
This is one of the reasons and goals that the proposal takes on its terms of traceability and awareness of supply chain players in order to create a more competitive, but also more circular value chain for batteries.
Once a battery pack is installed within an EV vehicle, further monitoring of the State of Health (SoH) of the battery is proposed to be included as part of the battery passport.
The benefit of the end-user being familiar with the status of the battery is the proper handling of the end-of-life cycles that will happen over time with these types of batteries - essentially end-users will have directions and know what to do with a battery when it reaches the end of its useful life.
5. End of Life (EoL) management of EV batteries
At EoL the better the data set for a product such as battery it is, the more efficient the treatment of that battery will be.
With the upcoming battery proposal, the goal is to create a more informed system so that every EV battery placed on the market comes with a Battery Passport and a unique identifier. This unique identifier allows for recyclers or repurposes to receive exact information and details of the battery they receive, based on which they can make more informed decisions on its most appropriate treatment.
Being able to have first hand information on the chemical content, dismantling and way of recycling the contents of a battery pack not only improves the health and safety aspects, but also resource efficiency. Especially with the latest techniques for recycling and creating secondary materials that can be reused again.
How does the battery passport fit within the circular economy aspect?
EV supply chain participants will be obliged to track and trace batteries and ensure they recycle and reuse critical materials, while at the same time keeping them within a certain country or region.
To make it possible, companies need a unified solution and technology tools. Such tools should enable the exchange of information between all the battery supply chain participants, tracking and tracing minerals and battery components, calculating carbon emissions, and monitoring the recycled content share. A blockchain-based Battery Passport is one of the possible solutions, as it provides a secure and efficient way to track batteries throughout the whole lifecycle.
The European Union was one of the first to set common rules for critical materials, and later followed suit with battery regulations. To achieve carbon neutrality by 2050, among other steps under the EU Green Deal’s top priorities, the EU Commission has introduced the new Circular Economy Action Plan that aims to ensure that used resources are kept in the EU economy. The Circular Economy Action Plan focuses on the most resource-consuming sectors where the potential for circularity is high, with batteries and EV production being among those.
Under the plan, the Commission proposed a new regulatory framework for batteries. It will expand the Battery Directive and bring new amendments to the battery regulation in the EU countries, in particular:
- Set the common rules for the battery segment across the EU,
- Propose rules on recycled content to ensure the recovery of materials,
- Set the requirements for sustainability and transparency of battery production and recycling, including the carbon footprint of battery manufacturing, ethical sourcing of raw materials and security of supply, and facilitating reuse, repurposing, and recycling.
Few realize that there was an update, a compromise text agreed upon between the EU Commission, EU Parliament, and Council t in January 2023. The final version will follow later, but we collected some of the key requirements for battery supply chain participants, with timelines, in one table (see below).
🇺🇸 The United States
The US goal for the EV market is to make half of all new vehicles sold in 2030 electric. To date, the country has introduced several regulations to foster the EV and battery industry’s domestic growth. Some of the most important regulations are the Bipartisan Infrastructure Law, CHIPS & Science Act, and the Inflation Reduction Act, which will invest over $135 billion into the US EV industry in the coming years.
The IRA introduced in August 2022 is based on another important legislation, the Build Back Better Act (BBBA). The BBBA didn’t progress in the Senate, however it was quickly followed by climate actions presented in the Inflation Reduction Act. The IRA is forging historic investments in a diverse range of climate solutions, including batteries for EVs and industrial applications.
In contrast with the EU, the US Inflation Reduction Act names 50 “applicable critical minerals'':
Aluminium, antimony, arsenic, barite, beryllium, bismuth, cerium, cesium, chromium, cobalt, dysprosium, erbium, europium, fluorspar, gadolinium, gallium, germanium, graphite, hafnium, holmium, indium, iridium, lanthanum, lithium, lutetium, magnesium, manganese, neodymium, nickel, niobium, palladium, platinum, praseodymium, rhodium, rubidium, ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium, tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc, and zirconium.
Mining companies excavating critical metals in the US will be able to seek production credit equal to 10% of production costs. The extracted minerals must meet defined purity thresholds to qualify for the credit, as laid out in the Act.
Certain tax credit qualifications in the Inflation Reduction Act contain domestic sourcing requirements for battery materials, and final vehicle assembly in the US. A tax credit of up to $7500 is available for vehicles meeting certain value, type, and battery material and component requirements.
The Act specifies the minimum thresholds of minerals contained in US-manufactured EV batteries to qualify for the tax credit. At least 40% of critical minerals in US-made EV batteries must come from US miners or recycling plants, or mines in countries with free trade agreements with the US. Today the US has FTAs with 20 countries.
The Act sets minimum percentages for the value of battery components sourced from North America required for a project to receive tax credits. Before 2024, at least 50% of the value of a US-made battery’s components must come from North America. This rises to 60% in 2024 and 2025, 70% in 2026, and then 10% more each year until reaching 100% in 2029.
The act defines the “percentage of the value” of the applicable battery critical minerals extracted or processed in the US, or a US free-trade partner, or recycled in North America, to be:
- 40% for a vehicle placed in service before 1st January 2024;
- 50% for a vehicle placed in the service during the calendar year 2024;
- 60% for a vehicle placed in service during the calendar year 2025;
- 70% for a vehicle placed in service during the calendar year 2026; and
- 80% for a vehicle placed in service after 31st December 2026.
To qualify for the tax credit, the companies have to meet value, type, and battery material and component requirements. The tax credit consists of two parts:
A threshold of critical minerals in the EV battery.
Part 1, or $3,750 of the $7,500, can be achieved by meeting a requirement of a certain threshold of critical minerals in the EV battery that are extracted or processed in the U.S., countries that the U.S. has a free trade agreement with, or have been recycled in North America. The battery minerals also must meet certain purity requirements to qualify.
A percentage of the battery’s components manufactured or assembled in North America.
Part 2, or the remaining $3,750 of the $7,500, is achieved if the percentage of the value of the battery’s components that were manufactured or assembled in North America exceeds thresholds of 50% through the end of 2023 and increases by 10% per year to 100% in 2029 and beyond.
The most important regulations in the US are:
In Canada, there are several regulations focused on zero-emission vehicles (ZEVs) and aimed to increase the number of clean vehicles on the country's roads.
In December 2022, the government of Canada published several documents proposing ambitious goals for having at least 20% of zero emissions cars of new vehicles sold in Canada by 2026, at least 60 percent by 2030, and 100 percent by 2035.
The government proposed certain incentives, e.g., renewed the program (the total funding is $1.7 billion) that provides Canadians up to $5,000, and businesses up to $10,000, toward the cost of buying or leasing a ZEV.
Canada has also introduced a Critical mineral strategy that aims to advance the domestic battery value chain. It defines critical minerals and prioritizes 6 of them as the most important for priority supply chains. These are lithium, graphite, nickel, cobalt, copper, and rare earth elements.
Having potential for critical minerals exploration, Canada introduced a 30 percent critical mineral exploitation tax credit, which will provide an additional investment boost to the mining companies exploring critical raw materials.
Canada’s Critical Minerals list, source: Canada.ca
China is one of the economies making significant advances in the battery and EVs sectors. China also controls some of the most critical mineral supply chains globally.
China has active regulation for recycling, including a regulation on battery recycling that was first introduced in 2018. The regulation requires manufacturers of new-energy vehicles (NEVs) and others to set up and standardize recycling plants for electric vehicle batteries. These plants will be shared by NEV manufacturers, battery makers, wrecking yards, integrated companies, and more. Dedicated electric car battery recycling facilities collect, sort, store, package, and ship worn-out units, though they are not allowed to disassemble units for any purpose aside from conducting safety inspections. They are also expected to use digital tools to trace and collect data on their inventory and hand the information over to manufacturers, who in turn report recycling data in a “timely fashion”.
China plans to become one of the top market players in the EV and batteries market. The country introduced several regulations focused on the lithium battery industry to foster industry growth while improving health and safety, and encourage foreign investment.
Below are some regulations which address the EV and battery segments:
- 14th Five-Year Plan for the Development of the Raw Materials Industry (2021-2025),
- Catalog of Encouraged Foreign Investment Industries (2019 Edition),
- Interim Measures for the Management of Recycling and Utilisation of New Energy Power Vehicle Battery,
- Interim Provisions on the Management of Traceability of Recycling and Utilisation of New Energy Vehicles Power Battery,
- Guidelines for Construction and Operation of New Energy Vehicle Power Battery Recycling Service Outlets.
Since the early 2000s, Japan has been a world leader in the 3Rs (Reduce, Reuse, Recycle) and has achieved steady results in reducing the final disposal of waste and improving the recycling rates.
One of the foundations of Japan's circular economy is the “Basic Law for Establishing the Recycling-based Society'' that came into force in 2000. Like some other Japanese laws, it promotes and encourages environmentally friendly initiatives among public, government and businesses. Later, in 2018, the Ministry of Environment launched the 4th plan of establishing a Circular Society. Three main drivers in the plan include:
- A regional revitalization through a circulation system,
- The full circulation of resources’ life cycle,
- The appropriate processing of waste or regeneration of resources.
The most highly regarded Japanese circular economy initiative is the Top Runner Program. The Program covers products and services that use energy. It employs a combination of economic and command- and-control policies, and its enforcement mechanisms are unconventional, employing, for example, the “name and shame” device. The government selects the “top” product in a given category and sets its energy efficiency characteristics as the baseline requirements for all products in the same category.
🇰🇷 South Korea
South Korea changed regulations to allow for environmentally friendly ways to utilize used batteries from electric vehicles. This change anticipates the effect of Korea’s Green Energy drive. The number of used EV batteries is anticipated to increase sharply in the future as EVs and hydrogen fuel-cell cars become commonplace.
The latest move paved the way for Hyundai Glovis Co., an auto parts unit of Hyundai Motor Group, to rent batteries to KST Mobility Co., an EV taxi operator, which will help the company better manage and recycle used batteries. Hyundai Motor Co., South Korea's top car producer, will study ways to harness used EV batteries to build energy storage containers, which are connected to solar facilities. LG Chem Ltd, a major battery producer, will also carry out research projects on finding ways to utilize used batteries in producing ESS (energy storage systems) products.
The renewable energy industry in South Korea is principally regulated by the Electricity Business Act (also known as the Electric Utility Act) and the Renewable Energy Act. The Renewable Energy Act outlines key matters concerning renewable energy projects. In May 2020, the South Korean government unveiled a $60.9 billion ‘Green New Deal’ (also known as the ‘2025 Plan’) as part of its wider national strategy to transform the economy from high carbon to low carbon in light of the Covid-19 pandemic. It includes plans to expand the country’s green mobility fleet to 1.33 million electric and hydrogen powered vehicles and investment in smart grids.
The Green New Deal also sets ambitious goals of ending funding of overseas coal plants, transforming urban areas into smart green cities, and introducing a carbon tax.
Challenges and Trends
How is the electric future shaping up? What can we hope to see in the EV sector in the years to come? EV Batteries are clearly one key component of the clean energy transition and a more sustainable future. The demand for batteries is set to increase 14-fold by 2030, according to the IEA’s EVs Market Outlook. In Europe alone, according to PTR's forecast, there are expected to be 274 million EVs by 2030. This would mean that the amount of batteries that reach their end of service would increase significantly..
The electric car battery value chain is extensive and offers many business opportunities, with the value chain covering the production of chemicals, precursors, cathode active materials, cathodes, and battery cells and packs. The batteries used in electric cars can be reused, and the materials used to manufacture them are worth recycling for reuse, which creates an enormous potential for the recycling technologies market. This is why companies and governments are looking to future solutions and how to gain momentum.
The journey towards sustainable and clean energy has already started in many countries - governments and companies have invested resources into creating infrastructure to enable the EV transportation market's rapid development, full-scale battery production, and recycling.
Key Challenges and Trends
The massive changes towards transition to green energy and transportation go along with challenges for all parties, including mining companies, chemical producers, battery manufacturers, recyclers, and EV brands. For this chapter, we asked several battery market players for their opinion and assembled an overview of the challenges and trends.
Securing Raw Materials and Establishing Long Term Partnerships
Battery cell production is a capital-intensive process and production is highly concentrated, with the top-three producers in 2021, CATL (China), LG Energy Solution (Korea), and Panasonic (Japan), accounting for 65% of global production. These companies all have a long history of building their supply chains and securing materials.
One of the key challenges for battery manufacturers outside of Asia is securing raw materials at optimal cost. Many experts name it as the first priority.
"EV battery packs have faced higher variations in prices in Europe and North America than in China. The main reason for this has been the dependence of these regions on other countries for sourcing battery raw materials. Current disruptions in the supply chain have led the companies to focus on building a domestic supply chain for raw materials, refining, and manufacturing batteries domestically which would ensure the security of raw materials and a balance in battery prices. EV battery manufacturers are also exploring new technologies which can reduce dependence on critical raw materials and overall reduce cost. One such technology which is being researched is Sodium-ion for low-range electric vehicles."
Inobat, a battery producer from Slovakia, aims to pioneer the research, development, and manufacturing of custom-designed batteries to meet the specific requirements of global customers in the automotive, commercial vehicle, motorsport, and aerospace sectors. David Petitjean, Head of Procurement and Supply Chain at Inobat, commented:
“For companies like Inobat, it is almost impossible to compete with Asian battery producers like LG. So, we need to be targeted. We are targeting the market where customers’ needs are yet not fulfilled, such as sports car manufacturers. We talk to them and design batteries specifically for their needs. The main challenge right now is sourcing critical materials and ensuring the long-term guarantee of supply. To do this, we are currently focusing on long-term partnerships with raw materials producers”.
Inobat’s approach to securing raw materials is not unique. McKinsey's article says that purchasing agreements, joint ventures, or indirect agreements with upstream producers are becoming typical for automotive OEMs.
From Partnerships to Consortiums
The next step is building consortiums. Consortiums could be a great way to establish a strong position in the market, secure long-term supply agreements, and create a competitive advantage by leveraging the leading role. We see many announcements, e.g., Northvolt and Volvo Car. Another example is Panasonic, Redwood Materials, and Tesla. There are more and more joint ventures between battery cell manufacturers, EV brands, and recycling companies in North America and Europe.
Daria Arbuzova is a Business Development Manager at Green Li-on, a startup aiming to revolutionize the market with technology that fully rejuvenates Lithium-Ion batteries, has experience in both European and Asian markets, from battery manufacturing at ElevenEs to the recycling technology industry. Arbuzova’s expert opinion is that the value chain will continue moving from partnerships to long-term big consortiums formed by OEMs. Small companies will fall under the umbrella of big ones, and we will see market consolidation. These consortiums could be created by OEMs, battery manufacturers, cathode material producer companies, and finally recyclers - who will be a very important part of the battery life cycle in the near future.
“I think a successful consortium will look like a partnership of four companies, OEMs, cell makers, active material, and recyclers. I can already see some kind of development. Let's take Northvolt. Firstly, they got investment from Volkswagen and partnered with Volvo Cars, forming a joint venture to produce batteries. Secondly, Northvolt intends to produce over 100 GWh per year of its cathode material. On the recycling side, they also partnered with Hydro Volt and built a recycling plant in Norway. Another example is Tesla, Redwood Materials recycling company, and Panasonic. That already looks like a consortium, and we’ll see more announcements like that.”
According to Mckinsey, such close partnerships have many benefits for all parties involved, as they can provide access to investments, more rapid joint technology development, and increased overall transparency, especially for ESG matters.
Supply Chain Regionalisation
The market is highly dominated by Asian suppliers. The top ten battery manufacturers in 2022 are all Asian companies. Many experts name localization and regionalization as key trends and challenges. However, in the 2020s, the EU and North America are expected to have higher growth in the EV market, with regulation and action the creation of domestic value chains.
Vincent Boissonneault, an independent consultant specializing in the South American lithium brine space, agrees that the movement towards more regionalized value chains and geopolitically aligned value chains, or what has been termed “friendshoring” or “ally-shoring” will be quite common:
“In lithium that will mean de-linking the Australian lithium spodumene production and its refining into lithium hydroxide in China (the percentage of spodumene exported from Australia to be refined in China was recently as high as 97% of Australian production).
This constitutes a major threat to China, which will have a spectacular impetus to find alternative sources of lithium, namely in Africa and South America. This will likely be a gradual movement as offtake contracts expire for Australian producers. Should that movement be accelerated by geopolitical events (i.e. especially military action against Taiwan) it will leave China much more vulnerable than Australia, as it takes up to 7-10 years to get a greenfield lithium mining or brine extraction online vs. 2 years to get a refinery online (and of course to get an extraction operation you need the resource in a friendly jurisdiction or at home, whereas you can set up a refinery wherever you want).
However, the Chinese industry and government are keenly aware of that vulnerability and they tend to plan for the long term and act much faster and in a much more concerted way than their European, North American and Japanese, or Korean counterparts. The counterparts still lack focused action with the sufficient financial muscle and tend to be much more risk-averse when it comes to making greenfield investments in exploration projects and much less realistic about the prospects of certain resources (the Salton Sea is a great example of a lot of hype around a resource that requires technology never used at an industrial scale).
South America will in my opinion be the most interesting region when it comes to this ‘lithium Cold War’ as the main countries involved (Argentina, Bolivia, Chile for brine assets, Brazil, and eventually Peru for hard-rock assets) are very independently-minded when it comes to their foreign policy. To keep the Cold War analogy, they could form a block similar to the non-aligned countries. The jurisdictional risk of certain countries needs to be considered in light of those alliances with geopolitical countries. For instance, Australia and Canada have generally considered very safe places to make investments from a jurisdictional point of view, but in the mid to long term that probably doesn’t hold for Chinese investors. Likewise, Bolivia is seen as a high-risk jurisdiction for its perceived political instability, but it is probably much safer for Chinese or Russian investors than it is for US investors”.
The battery supply chain is very complex as minerals and materials come from different regions. Lithium may come from either South America, Argentina, or Chile, while graphite, which is the dominant anode material, is predominantly produced in China.
Regulation and standardization of the requirements will be crucial for winning the top positions in the global EV market, however, this is a very complex issue. EV battery regulation strongly correlates with mining, so ESG and due diligence requirements have to be considered. The US and EU are designing policies aimed to exclude any environmental, human rights, and other risks which could occur in the raw materials extraction process. Besides ESG, governments have to take into account and align with already existing energy policies and rules created to tackle CO2 emissions issues.
“The regulation comes with a lot of requirements. Many aspects are yet to be elaborated on in detail, in particular how they will be measured and compared in practice over time. For example, in the EU Battery compromise text there are certain requirements on sustainability and safety. In this category there is a requirement for carbon footprint calculations, classes and thresholds. However, the documents that define methodology have not yet been published by the regulators. At the moment, we don’t know how to calculate and verify values for the carbon footprint”
"One of the key challenges will be the key standards upon which to base assessments and how to translate from one to another. Certain criteria, like CO2 emissions, will have fairly standardized methods for assessments, but even there will certainly be issues when it comes to implementing those and measuring them across different jurisdictions. When it comes to more subjective criteria, like human rights issues, the task will be even more daunting as the sheer diversity of issues will make it difficult to establish pre-set cookie-cutter standards across jurisdictions and different minerals. For instance, how could one standard apply at the same time to child labor or conflict minerals for cobalt extraction in the Democratic Republic of Congo and indigenous relations for lithium extraction in Canada or Chile. Part of the solution could be to mirror existing standards that have already gained major traction, like IRMA (Initiative for Responsible Mining Assurance).”
“For us as a recycling technology company, the main challenge will be the recovery ratio of different elements for different chemistries. At the moment we don't have LFP (lithium iron phosphate) recycling technology on the commercial and industrial scale. But we have a recovery ratio for lithium, and it is calculated based on another chemistry, NMC (Lithium Nickel Manganese Cobalt Oxide). This is a practical challenge for recycling companies. How can we match these two and ensure we meet these requirements no matter what the chemistry is.”
Moving to Fully Transparent Supply Chains
We are generally at a point where the importance of raw materials needed for EV batteries and its continuous supply are well observed, so the idea is to ensure there is a set of rules and practices in place to create a more transparent and secure supply chain considering the complexity of process and how the EV batteries are currently produced. The overall goal will lead to establishing a benchmarking system, so that over time all battery value chain participants including end users would be able to further streamline their sourcing processes, have better information at hand and differentiate their supplier base on details such as quality and reliability. The task is not easy.
Certain regulations’ requirements remain unclear, especially for companies operating globally. They will need to adapt to regulations in different geographies which might require significant amounts of time and resources.
But it is already clear that to comply with them, EV producers have to know their entire supply chain and where materials come from, from mining up to the recycling phase. Suppliers, including battery cell and pack producers, chemicals companies, and recyclers also have to adapt to the requirements and enable data collection throughout the whole battery life cycle. Not only due diligence but CO2 calculation discussions are already taking place. This means that the EV and battery market will go towards full transparency between supply chain participants, sooner or later.
Despite many aspects that remain not yet defined, market experts agree that communication between producers and their suppliers plays a crucial role. Apart from technologies and data collection systems, they will need processes. EV producers, battery suppliers and other parties involved will have to ensure they have a clear and transparent process of gathering, transporting, and reporting the most important data about the battery. Only then can we expect this sector to begin to realize its full potential.
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