Electric vehicle (EV) makers are facing a materials conundrum. On the one hand, they want to secure the metals, minerals, and molecules for the batteries that power their automobiles. On the other hand, they want to produce these vehicles quickly. Reconciling those two objectives can be difficult.
EV Materials and Market Forces
Automakers can opt to invest in or buy a metal-producing mine for security of supply and cost control, but the focus to date has been instead to add, or partner on, cell making and battery pack manufacture. They can continue outsourcing most of the latter process and compete against other carmakers for supplies and expertise with third parties, but this subjects their business to market forces and a dominantly Asian supply base today.
Getting raw materials ready for use in the EV value chain takes many years and requires collaboration and precise planning. The process is lengthy because of the long value chain: mining, processing, refining, material transformation/activation, cell manufacture, pack making, and — finally, at the bottom of the stream — an automaker’s EV platform.
For the most part, the EV value chain has traditionally worked on a contract waterfall basis:
- Automakers contract with cell manufacturers.
- The cell manufacturers contract with the active material manufacturers.
- The active material manufacturers contract with raw material suppliers.
- And so on.
Automakers have now started contracting directly with upstream (mine, refine, and active material) partners; however, the strategy is variable, and it’s uncertain how coordinated the approach is today given the many steps and players in an evolving value chain and the many challenges to this shortcutting approach.
EV Value Chain Challenges
The required coordination presents a big challenge, especially given the growing number of new entrants or scale-ups at every step of the value chain. Raw material sources must be up and running at least three to four years before vehicle production starts, refineries must come online shortly after the mine, and so on. This is because the downstream players all the way up to the automakers must qualify each step in a future product value chain for EV reliability and safety requirements. An automaker teaming up with a mine/refinery that’s coming online in 2025 at the same time that a new platform launch is scheduled to use the materials is already too late based on today’s qualification model.
Speed to EV production is therefore at loggerheads with a need to qualify materials. The sufficiency of physical supply is already in question, so change is needed to prevent raw materials from becoming a more sizable bottleneck for the EV market build-out.
EV Integrations and Partnerships
Some automakers are looking to integrate with midstream parts of the value chain, and this could possibly mitigate some challenges by shortening the qualification time. Volkswagen, for instance, has launched its own cell-making company, PowerCo, and has partnered with Umicore to supply cathode active material. BYD, a company that started in battery making, has transitioned to auto manufacturing and is now the biggest EV producer in China. It too has worked on integrating cell and active material manufacturing, and it has investments upstream. CATL is ahead of both in terms of upstream integration, having active material and raw material investments, making it an attractive partner to automakers. The integration landscape across other Chinese as well as Korean and Japanese cell manufacturers is variable, but relationships are strong even when there’s no cross-ownership.
Thus far, most value chain integration in Asia has happened upstream, with refining and processing companies taking steps toward active materials and the active material production itself, or vice versa. The expertise around refining and processing raw materials is closer to active materials production, at least in terms of equipment and sites, than battery and EV making (both largely involving the assembly of many parts). It makes sense to do a lot of these steps under one roof where you can share services and also for efficiency and cost competitiveness. Longtime players China, Korea, and Japan lead in this capacity, and it may come as no surprise that Chinese companies dominate the upstream value chain, having played a long game on strategic raw material supplies, including significant investment overseas. They also have strong partnerships with midstream players.
Ford and Tesla: Lessons (to Be) Learned
To illustrate the potential issues facing automakers, we look at Ford as an example, which is comparatively late to the EV market vs. Tesla. Ford currently plans to expedite its EV production goals aligned with U.S./state and EU policy, projecting the manufacture of at least 2 million EVs by 2027, and has laid out how it would meet its targets. The announcement included 5–10 key relationships with suppliers that have been struck upstream of vehicle production — some cell manufacturing, some active material manufacturing, and a lot of raw material manufacturing entities, including projects that are yet to start construction.
Ford’s ambitions in vehicle electrification, based on the lithium equivalent for the number of EVs its planning, is roughly 150,000 tons of lithium carbonate equivalent (T LCE), which is 25 times its consumption in 2021 (when Ford rolled out 50,000 EVs and used <5,000T LCE). Ford must find raw materials to back out its supply chain as competition for supply grows. But here’s the question: Is four years enough time to bring these on stream, let alone to qualify sources to meet that 2027 goal effectively? There will surely be hurdles around simple, actual production of materials and qualification into its supply chain to make that happen.
Tesla has been there and done that. It originally followed a time frame for EV production goals similar to what Ford proposes, and it learned hard lessons in the EV manufacturing steps. Tesla tried a few different approaches to raw material supply early in its history, but its experience ultimately matured into contracts with established suppliers, even if they were reluctant at first to deal with a start-up. Nowadays, Tesla, a more mature EV maker, is planning further in advance and also developing its own refining using raw material project partners (albeit still with no up-front investment). Ultimately, Tesla has taken the approach of picking reliable partners that can be quicker to get into production, are qualified, and are into their products, and even doing some of the steps itself.
More legacy auto manufacturers are following Tesla’s playbook on how to secure and integrate raw materials but are faced with limited established supply options. Volkswagen may be going about integration slightly differently than Tesla, but its value chain may emerge similar to Tesla’s in the future. But a lack of experience in coming into this space very quickly will likely hinder at least part of its — and Ford’s — plans. Technology might come to the rescue, from the perspective of new cell chemistries that can lessen the strategic raw material supply constraints, as might financial incentives encouraging raw material processing and active material investment — for example, under the U.S. IRA — but both will not likely solve everything in the short term. Ultimately, aggressive EV production targets will likely be missed.
About Robert Baylis
Robert has 15 years of raw materials company and market analysis, consulting, and commercial experience. Most recently, he was a Value Chain Expert responsible for Johnson Matthey battery materials’ strategic metal (nickel, cobalt, lithium) supply chain strategy. Before this, he led Roskill as its Managing Director for almost 10 years, while also having responsibility for the company’s consulting activities.
This automotive industry article is adapted from the GLG Webcast “Battery Value Chain — Raw Materials Resourcing.” If you would like access to this event or would like to speak with experts like Robert Baylis or any of our approximately 1 million industry experts, contact us.