Battery demand for lithium stood at around 140 kt in 2023, 85% of total lithium demand and up more than 30% compared to 2022; for cobalt, demand for batteries was up 15% at 150 kt, 70% of the total. To a lesser extent, battery demand growth contributes to increasing total demand for nickel, accounting for over 10% of total nickel demand.
Almost 60 percent of today''s lithium is mined for battery-related applications, a figure that could reach 95 percent by 2030 (Exhibit 5). Lithium reserves are well distributed and theoretically sufficient to cover battery demand, but high-grade deposits are mainly limited to Argentina, Australia, Chile, and China.
The increase in battery demand drives the demand for critical materials. In 2022, lithium demand exceeded supply (as in 2021) despite the 180% increase in production since 2017. In 2022, about 60% of lithium, 30% of cobalt and 10% of nickel demand was for EV batteries.
Further upward pressure on raw-material prices is likely to come from significant increases in demand. For instance, the battery industry''s demand for lithium is expected to grow at an annual compound growth rate of 25 percent from 2020 to 2030, while demand for nickel could multiply as battery demand shifts to nickel-rich products. 4 Marcelo
Of the two principal battery chemistries of today, nickel manganese cobalt oxide (NMC) and lithium iron phosphate (LFP), the former is particularly well suited for recycling because it contains greater quantities of valuable metals.
As the world shifts up a gear in its transition to electric vehicles, the demand for batteries has skyrocketed in major automotive markets in Europe and the United States. Automotive and battery manufacturers face a difficult period of uncertainty in the battery supply chain, and many are turning to building their own battery gigafactories or forming joint ventures to address squeezed supply.
This speed of scaling new technology leads to notable challenges: shortages of labor and materials, delays in the construction of gigafactories to produce batteries at scale, and competition for resources in the supply chain, among others. In fact, the battery supply chain risks facing a situation similar to the current semiconductor chip shortage, where demand growth has outstripped capital investment in new supply. Furthermore, environmental, social, and governance (ESG) factors will play a more significant role—raising another set of issues that companies need to address.
The situation is difficult and novel. Yet it presents significant opportunities for growth across the value chain for those who choose to address the issues at hand and accelerate their move into the EV battery market. These players are of three primary types: incumbent battery manufacturers expanding their operations, auto OEMs entering the space to support their EV ambitions, and smaller new entrants using disruptive technologies.
This article focuses on three key measures for preventing or responding to EV battery shortages: industrialization and scale-up of gigafactories, strategies to find and retain talent, and establishment of a robust and efficient supply chain.
Once facilities come online, first-year yields are often only around 60 percent of nameplate capacity, with losses split evenly between higher-than-expected yield losses and machine downtime. Quality issues during battery manufacturing also present a challenge in terms of both reputation and finance; for example, recalling batteries for 100,000 vehicles could turn a 5 percent profit into a net loss of more than 150 percent, due to lost sales and reimbursement costs.
To build in flexibility, companies could consider factory designs that are as modularized as possible, including prefabricated complex factory components. Companies could also adjust standard factory design in line with local battery plant design standards and optimize for space (such as clean-room volume) and cost.
Factory layout based on simple process flow, combined with a serious reduction of material conveyance, could further reduce operating expenses and production time. Reconsidering the different production processes not as separate areas but as pieces that fit together seamlessly could also help drive design efficiency. Allowing enough room for additional capacity would avoid extensive factory redesign down the line.
Coordination between factory design engineers and base construction workers—using an integrated digital twin of the factory to support ideation and action—is the key to effective construction planning. Critical-path lengths could be reduced by running as many construction steps in parallel as possible, while digital and lean construction tools could be leveraged to improve the productivity of inexperienced workers.
All employees would need to be trained as early as possible, leveraging company and industry experts. Having leadership present can avoid bottlenecks in decision making. Principles such as ownership and flexibility to pivot on decisions can provide the basis for training and company culture.
Companies could consider offering training to local supervisors at existing facilities to transfer best practices and navigate cultural differences. They also may need to look beyond the local labor market to fulfill the demand for technicians and battery technical specialists.
To avoid delays and cost overruns, companies need to consider sourcing—particularly battery manufacturing equipment and raw materials—during construction and production operations. All aspects of the battery value chain are expected to grow rapidly through 2030, with cell production and material extraction being the largest markets (Exhibit 2). That growth will likely create ongoing supply chain challenges.
For battery-specific equipment, lead times of one and a half years from ordering to commissioning are common because of the rapid growth in gigafactory construction. In fact, some OEMs are starting to secure critical equipment now for construction planned for 2025.
To secure the supply of battery manufacturing equipment, companies can choose from four approaches. The ideal scenario is to secure supply from equipment suppliers that have existing battery expertise; the next best option would be to find ones with similar expertise. A few OEMs might also leverage their own equipment expertise from other industries to revolutionize the production of battery manufacturing equipment or—in the most disruptive scenario—redesign the cell manufacturing process through technological innovation.
Developing a robust strategy for procuring raw materials can help companies control costs and secure factory ramp-up. Raw materials comefrom either newly extracted and refined metals or recycled end-of-life batteries or production scrap.
Newly extracted materials present challenges. They are expected to represent the vast majority of total supply through 2030, so battery manufacturers are highly dependent on commodity material prices. And recent supply chain disruptions have significantly increased the price of key materials by more than 20 percent, which caused the costs of lithium-ion batteries to increase in 2021—the first time in many years.
Further upward pressure on raw-material prices is likely to come from significant increases in demand. For instance, the battery industry''s demand for lithium is expected to grow at an annual compound growth rate of 25 percent from 2020 to 2030, while demand for nickel could multiply as battery demand shifts to nickel-rich products.
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