This is the second of a three-part series on the push for electrification in the world’s largest vehicle market, looking at the battery makers that have ridden on the coattails of carmakers to the top of the world for powering electric vehicles. The first instalment of the series on the push of electric cars into rural China can be found here.
More than a century ago, the Iowan state capital of Des Moines was the global hub for electric vehicles, with more than 30,000 horseless carriages produced at the industry’s peak in 1912.
William Morrison, a Scottish immigrant and chemist, had invented a horseless carriage powered by 24 lead-acid battery cells that could carry 12 passengers at a top speed of 20 miles per hour for 50 miles (80 kilometres) before recharging. In the century since, Morrison’s self-powered electric carriage – known as the auto-mobile – would be replaced by vehicles that run on oil-guzzling internal combustion engines (ICE), as the abundance of crude oil and the growth of the refining industry made hydrocarbons the fuel of choice.
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Now, the world is returning full circle to the electric car, as concerns about gaseous emissions and their impact on climate change compel global governments to find alternatives to petrol-guzzlers. China, whose passenger car market only took off two decades ago, has not only taken the global lead on the adoption and manufacturing of electric vehicles (EV), but also its most valuable component – the battery – which makes up 30 to 50 per cent of their value.
“For the next 15 years, China, the current industry leader, will remain in the fast lane and dominate every step of the value chain, while Europe will be following closely behind China,” said Ryan Castilloux, managing director of rare earth and electric battery metals consultancy Adamas Intelligence. “Tesla will remain the giant in the EV space, but at the national level China is also a giant.”
Chinese battery makers will maintain their dominance in an industry where the operating and planned production capacity may more than quadruple in a decade, even as their European and American competitors expand to catch up, said analysts.
The next decade will be “particularly interesting”, as Europe and the US try to create their own battery champions to challenge Asian incumbents, which are already building capacity in both places, said James Frith, head of energy storage at clean energy research provider Bloomberg NEF. China has the world’s most competitive lithium-ion supply chain, supplanting the decade-long lead in the industry enjoyed by Japan and South Korea, according to the research provider of clean energy last month.
Contributors to the competitiveness include China’s 72 gigawatt-hours of domestic battery demand, control of 80 per cent of the world’s capacity for raw material refining, 77 per cent of battery cell production capacity and 60 per cent for components.
Although ranked 11th on innovation and infrastructure, the industry is investing to improve on those scores. Contemporary Amperex Technology (CATL), the world’s second-biggest EV battery maker, is ploughing 3.3 billion yuan (US$495 million) over five years to build a world-class research centre called “21C Lab” to house 1,000 staff.
The company, based in Ningde city of Fujian province, said it would focus on next-generation lithium-ion, solid-state battery and sodium-ion battery technologies. CATL batteries are used in Xpeng Motors’ P7 midsize electric sedan, with the furthest driving range of 706km on a single charge, according to an April certification by the Ministry of Industry and Information Technology (MIIT), that regulates the industry.
Another competitive advantage China has built up over many years is a significant control over global resources and the capacity to mine lithium, cobalt, nickel, manganese and other key material needed to make battery packs.
Ganfeng Lithium in Jiangxi province, which owns mines in Australia and Argentina, topped the world’s production of lithium compounds last year, with 53 per cent share of the global output. That was followed by Tianqi Lithium in Sichuan province with a 27 per cent share, according to a Daiwa Securities.
After more than a decade building an integrated cobalt mining, processing and refining supply chain in the Democratic Republic of Congo, Zhejiang Huayou Cobalt – China’s biggest refiner of the metal – has the capacity to produce 39,000 tonnes of cobalt compounds annually, enough for nearly 30 per cent of China’s demand, a Dongxing Securities report said.
Cobalt, the most expensive material in an EV battery, plays a key role in an EV battery’s usable life and safety, especially in preventing overheating of nickel-intensive batteries. Where China has less control is over nickel, the metal that gives EV batteries the energy density – an attribute highly sought after by EV makers and consumers seeking longer mileage per charge.
The nickel content of electric batteries has been rising at the expense of cobalt over the years. The shift in demand has forced Huayou to diversify into nickel, with a plan to raise 6.25 billion yuan from selling A-shares on the Shanghai exchange to fund its nickel mine and refinery in Indonesia, as well as a high-nickel battery plant in Zhejiang province.
China’s vehicle market, the world’s largest since 2009, also sells more electric vehicles than anywhere else. As many as 1.05 million EVs were sold in China last year, equal to 54 per cent of the global total, and about 3.3 times more than what was sold in the US in second place, according to Credit Suisse. Growth may surpass 25 per cent to 4.5 million EVs by 2025, bolstered by the support of government policies, declining battery costs, and a rapidly expanding infrastructure for charging the batteries.
That is putting pressure on supply chains, said Castilloux.
“Given the ambitious EV sales target for the next five to 10 years, and the ambitious vehicle electrification targets that cities and nations have, there will be major challenges for suppliers to keep up,” he said. “That will ultimately translate into higher material prices, which will present economic challenges for carmakers trying to reduce costs of electric vehicles to compete with petrol and diesel ones.”
EV batteries, currently in oversupply, is likely to swing into a shortage by 2023, as demand surges nearly fivefold from this year to 916 GwH, according to SNE research’s forecast cited in a Business Korea report.
The growth will be spurred by continuous fall in battery costs. Having fallen 82 per cent over the past eight years, the average cost of a lithium-ion battery is expected to decline further to US$100 per kWh by 2023 and to as low as US$73 by 2030, according to IHS Markit. The average price in two years, at US$100 per kWh, will be a critical milestone in making unsubsidized electric vehicles cost-competitive with oil guzzlers, Castilloux said.
“The biggest contributor to falling battery costs throughout the coming decade will be reductions in manufacturing costs through larger factory sizes and improving economies of scale,” said IHS Markit’s associate director Sam Wilkinson.
Tesla, the world’s largest EV maker, with more than 1 million vehicles delivered, is doing exactly that.
Besides producing more, the company is also bringing more of its batteries, some components and raw material in-house to pass the cost savings to consumers.
“One of the things that trouble me most is, we don’t have a truly affordable car,” co-founder and CEO Elon Musk said during a “Battery Day” event last month, setting a target of having a US$25,000 electric vehicle on the road as early as 2023.
The world needs to produce 10,000 gigawatt hours (GWh) of batteries every year for 15 years to convert the entire global fleet of vehicles into electric. More than double that output is needed if electricity generation powered by fossil fuels is also to be replaced by alternatives, Musk said.
Tesla aims to have 100 GWh of its own battery manufacturing capacity by 2022, rising to 3,000 GWh, while continuing to source from suppliers, he added. It currently has around 35 GWh of capacity – through a joint venture with Japanese partner Panasonic – in its EV and battery plant in the state of Nevada in western United States.
Tesla aims to slash its battery production cost – on a kilowatt capacity basis – by 56 per cent, through reducing parts, simplifying the manufacturing processes, automation and localising supplies, the carmaker’s senior vice-president of power-train and energy engineering Drew Baglino said. This involves building its own cathode electrode plant in North America and lithium production facilities in Nevada, where a novel and environmentally-friendly method using sodium chloride to extract lithium from ore will be deployed.
Still, some analysts said it is uncertain whether and when this may become commercial reality.
“This method will be cheaper, faster and have less environmental impact than anything currently available,” Wood Mackenzie’s analysts wrote in a note. “However, it needs to be proven at a commercial scale before the lithium industry will take it seriously and move away from the conventional processing routes. It would be surprising, although of course not impossible, for Tesla to discover the Holy Grail of extraction so soon.”
Nickel supply is also a concern. Batteries require Class 1 nickel, mostly produced from sulphide ores where the extraction process is easier. Oxide ore dominates current nickel supply, mostly used to make stainless steel. Besides high operating cost, this production method raises environment concerns, as shown by the multiple acid spills at Vale’s plant in New Caledonia, according to a June note by S&P Global Market Intelligence.
“The real vulnerability in Tesla’s supply chain is nickel,” Castilloux said. “They have been actively looking, but it is yet unclear where the nickel will come from. Some Chinese companies in Indonesia said they have the technology to convert to battery-grade nickel, the question is whether it can be done cost effectively … it is a waiting game.”
Also in the growth mode is ACC, a newly formed venture between the French energy giant Total and car producer PSA Group, which unveiled plans last month to build two “gigafactories” in France and Germany.
With their combined 2023 annual capacity at 8 GWh, rising to 48 GWh in 2030 – enough to power one million electric vehicles – ACC aims to capture over 10 per cent of the European market.
Still, control over the global supply of EV batteries are expected to remain in the hands of the Chinese, Japanese and South Korean producers.
“A lot of the manufacturing capacity being built in Europe will still be owned by Asian manufacturers,” said Roskill Information Service’s battery and materials analyst David Merriman in London.
South Korea’s LG Chem, making 24.6 per cent of the world’s EV battery market in the first eight months, and China’s CATL at 24 per cent share, own plants in Europe, according to SNE Research. LG Chem has a plant in Poland and is building another with General Motors in Ohio, while CATL – with annual capacity of 53 GWh last year – is constructing a €1.8 billion euro (US$2.1 billion), 14 GWh plant in central Germany to start production next year.
As global EV and batteries capacities ramp up, regional supply chains are being set up for to cut costs.
“You can’t really support yourself if you have to ship lithium concentrate to China for processing, then over to South Korea, back to China and over to Europe, it is too costly,” Merriman said. “There may also be some geopolitical influence with security of supply for major industries a concern.
“Europe is very nervous now because of the reducing power of the internal combustion engine, which is a major strength of the economy,” he said. “There is a push to develop regional EV expertise and build capacity to keep jobs and economic growth robust.”
In the first of a three-part series on the drive to electrify China’s vehicle market, the world’s largest, Daniel Ren, Pearl Liu and Ji Siqi look at the challenges of selling new energy vehicles in the countryside, where manufacturers must not only balance performance with price for lower-income buyers, but also contend with limited facilities to charge their cars
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