With increased attention on fossil fuels’ contributions to climate change, economies all over the world are promoting the use of electric vehicles (EVs) as a more environment-friendly alternative. However, many of the processes in manufacturing the batteries that power EVs are concentrated in one country – China.
Having the production of such a critical component like lithium in the global energy transition concentrated in a single country comes with a host of risks. This includes vulnerability to supply chain disruptions, such as natural disasters, political instability, or trade tensions. These could cause significant disruptions in the production of batteries, which could impact the entire electric vehicle industry.
Relying solely on one supplier country can lead to economic imbalances, as that country gains disproportionate power and influence over the entire industry. This creates challenges in terms of ensuring a reliable supply of batteries. The production of batteries can have significant environmental impact, including the extraction of raw materials, the use of energy, and the disposal of waste.
Research by management consulting firm BCI Global shows that China dominates the mining, material processing, and manufacturing/assembly stages of EV battery production. This is especially evident in manufacturing/assembly, with China responsible for more than 50% of cathode, anode, full battery, and electric vehicle productions.
According to CEO René Buck, while reducing the dependency on China is important, there are other factors to consider, including the wide gap between supply and demand for electric vehicle batteries. Estimates show that in Europe, there will be a gap of 657 kilotons of lithium carbonate equivalent (LCE) by 2032. In North America, the gap will be at 330 kt LCE.
“Europe and North America will not be able to catch up. We want to promote electric vehicles all over the place, but our industrial ecosystems are not ready to supply enough batteries to do that, which means that those programs will fail, because it will take at least four years to find alternative mining and processing sites, build the facilities, and set up the supply chain to supply EV batteries and components.”
Buck says that addressing the over-dependence on a single country and diversifying EV battery production involves three aspects: accelerating current efforts to produce in other countries, finding alternative technological solutions, as well as being more prudent with expectations and targets.
He says that the world is likely to remain dependent for a substantial part on China for lithium processing and battery production for the next 5-10 years, due to the time and money needed to set up alternative processing/manufacturing facilities, which could cost $500 million to $1.5 billion each.
In order to accelerate this process, governments and private industry should look at several location factors, including access to raw materials, proximity of customers, energy supply (preferably renewable), location, availability of labor, and economic incentives. The latter factor includes tax credits, cash grants, and other mechanisms from governments to stimulate economic production. Examples include the US’ Inflation Reduction Act, which gives tax credits to companies that put parts of their battery value chain in the US. In Europe, batteries are considered Important Projects of Common European Interest (IPCEI), making them exempt from restrictions on public subsidies.
“I think that the ambitions from US and European governments are so high that the chances that they will reach that are limited. Even with more local production there will still be a gap between demand and supply. We have to accept that full electrification of cars in the US and Europe is going to take a longer time than we hoped for."
However, not everything is doom-and-gloom for battery production in the West. North American lithium-ion cell capacity is expected to reach 813.6 GWh by 2030, up from 109.7 GWh in 2022. This proves that it is possible to ramp up production capacity. BCI Global has identified areas in the US with lower energy costs and availability of large sites. In Europe, there are already gigafactories that are operational or are expected to become operational soon, which can greatly contribute to existing capacity.
“Economic incentives play an important role, as well as the attitude of governments to hasten the start of production as soon as possible. These include reduction of red tape, loosening requirements, or speeding up the wait times for permitting, because month, quarter, and year saved is a huge boost in closing the huge supply-demand gap,” Buck says.
Overall, BCI Global states that governments and industry participants should intensify cooperation in diversifying the supply chain and increasing domestic production of batteries and components, in order to mitigate the various risks and create a more resilient energy transition.
Media Contact
Name: Rene Buck
Email: [email protected]
Original Source of the original story >> BCI Global on Diversifying the Global Battery Industry
