The first article in the Critical Mineral blog series – Be Patient & Think Long-Term, explores the challenge of supporting the energy transition and the opportunity for collaboration between automotive OEMs and tier 1 mining entities within the sphere of the critical mineral industry. Our second instalment in the series considers the need for adaptive, perceptive and proactive supply chain strategies to keep up with EV demand – Nothing Ventured, Nothing Gained.
Developing sustainable sources of critical raw materials for use in Electric Vehicle (EV) applications is limited by constraints that are more complex than those of a traditional internal combustion engine (ICE) supply chain. For the world to remain in line with IEA (Net Zero Emissions) targets, such constraints must attract proactive and realistic solutions at the speed and scale required to supply energy transition technologies. Can OEMs revolutionise their existing supply chains at the pace required to meet the ramp-up in EV demand?
Pricing volatility of the raw materials critical to EVs (lithium, nickel, cobalt and copper) is influenced by unsettled outlooks for demand and supply. Such pricing volatility is impacted by the long lead times necessary to develop new sources of critical minerals. Historically, significant volumes of such material has been sourced from challenging operating environments, such as cobalt from the Democratic Republic of Congo. Sources of raw materials exposed to sensitive operating conditions present a very real risk in limiting the scalability of EV supply chains. This risk is amplified further as the demand for EVs experiences exponential growth. In 2022, EVs represented 14% of all new cars sold, tracking well ahead of schedule against an end-of-decade target of 60% EV market share1. Recently, the IEA has revised their 2023 EV sales growth rate forecast to 35%. This estimate was 25% only 12 months earlier1. Such a revision to a higher growth rate suggests there is looming demand volatility for the raw materials critical to an EV.
At a high level, mined raw materials require complex chemistry to refine into battery-grade products. Refined products are the key inputs in the assembly of the battery cell – the power source for a conventional EV. As there is no commercially available substitute for the refined battery-grade inputs into a battery cell, changes to the forecast EV growth rate have meaningful implications for the supply chains of OEMs and manufacturers of batteries alike. Therefore, OEMs must address a unique set of supply challenges that are distinct from their ICE vehicle counterparts.
One such challenge is the varying lead time required to build out components of the EV supply chain. The primary issue lies in securing the raw material (feedstock) required to produce the refined, battery-grade materials. OEMs will need to employ a range of mitigation strategies that minimise the risks of delayed permitting, construction and commissioning schedules, and sharp increases in capital cost requirements affecting the suppliers of critical raw materials. OEMs that effectively manage their supply chain risks will find themselves strategically positioned to capture the immediate value of the global EV opportunity.
Conversely, if such risks aren’t addressed, a sustained deficit of battery raw materials may expose the OEM to unfavourable pricing terms to secure the required material volumes. OEMs with fleet emissions and EV sales obligations may be forced to use low quality raw materials, with implications on production schedules, performance, range and/or durability.
Several options exist to counter the risks of shifting critical mineral demand and supply forecasts. The first is targeted government policies and incentives. Policy to date has been significant in steering the corporate strategies of automotive OEMs, cell manufacturers and miners participating in the EV supply chain. EV market participants benefit from subsidies, improved access to capital and tax incentives for their investment in the onshore development of EV supply chains – supporting the resilience of existing and emerging battery supply chains. Incentivising onshore development could minimise any actual or perceived geopolitical risk. Separate from direct government support, accelerating innovation in technologies used to develop, manufacture, and extend the useful life of batteries, as well as exploring alternative battery chemistries, could realise greater material efficiencies and reduce total demand for battery raw materials.
Automotive OEMs employing proper risk mitigation and constructive corporate strategy, and driving the development of agile supply chains, could minimise the risk of volatile pricing outcomes for battery raw materials. A constructive approach to collaborating with governments could also benefit automotive OEMs with more closely aligned supply strategies relevant to their local jurisdiction.
We want to acknowledge the contribution of Amy Wang, Tony Wilson, Cooper Taylor, and Jason Goh in preparing this blog.
(1) IEA, 2023, Global EV Outlook 2023, https://www.iea.org/reports/global-ev-outlook-2023