Electric dreams, raw realities: The critical supply chain of electric vehicle batteries

Future outlook

Two significant regulations are pressuring both OEMs and suppliers to improve their battery supply chains: the SDDA, which became effective on January 1, 2023, and the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), expected to come into force in 2025 or 2026. We anticipate that companies along the value chain will continue their efforts to sustainably source lithium, nickel, and cobalt to comply with these regulations. However, the primary optimism is focused on technological advancements through two main paths.

First, in terms of cell chemistries, the adoption of lithium iron phosphate (LFP) cells is already widespread in China. With advancements in silicon anodes and battery pack design, LFP cells are projected to achieve energy density levels comparable to today’s NMC cells in the foreseeable future. Since LFP cells do not contain nickel or cobalt, they could greatly enhance supply chain resilience and reduce ESG concerns. Efforts are also being made to further develop NMC cells that minimize cobalt usage. Specifically, the novel approach of NMx chemistry aims to eliminate cobalt entirely, making these cells more sustainable and slightly less expensive. Although some manufacturers have already introduced NMx cells, they have not yet been widely adopted in the market. Sodium-ion batteries, which use sodium instead of lithium, are also in the developmental stage. This technology, while not yet widely embraced, has the potential to utilize abundant materials as alternatives to lithium, such as sodium and other materials. For instance, Altris recently unveiled a sodium-ion cell with an energy density of 160 Wh/kg, using a Prussian White cathode. Sodium-ion cells are expected to be significantly cheaper than the current lithium-based chemistries and offer safer batteries. Although some budget BEVs in China use sodium-ion cells, their current energy density makes them more suitable for stationary storage solutions. As development continues, sodium-ion batteries could localize supply chains, reduce mining-related ESG issues, and address major consumer concerns.

Second, when it comes to sourcing, innovative mining methods such as direct lithium extraction (DLE) are being increasingly utilized. DLE enables lithium to be extracted from brine without the need for evaporation ponds. This technological advance is particularly useful in countries such as Germany, France, Italy, and the UK, where the climate does not permit the use of evaporation ponds commonly employed in regions such as South America. The DLE method makes it possible to extract lithium and localize its supply in Europe. The expansion of recycling is also crucial. Given the limited availability of end-of-life BEV batteries, around 70% of recyclable material currently comes from cell production scrap. In fact, end-of-life batteries are not expected to make up the majority of recyclable material until after 2030. Combined with current BEV demand levels, recycling is unlikely to significantly impact overall material sourcing in the short term. Despite extensive initiatives, these efforts are expected to have only a limited impact on the overall supply of raw materials in the short to medium term, as demand significantly exceeds the current supply of end-of-life batteries.