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The transition to electric vehicles (EVs), a key component of
the broader energy transition that most major governments profess,
will shape the demand for electric vehicles batteries and their
mineral feedstocks such as lithium. Sourcing these minerals,
however, comes with political and security risks. Ahead of the
United Nations (UN) climate change conference (COP 26), IHS Markit
assesses the risks associated with the prevalent cathode types
(battery chemistries).
In this reading, we will cover the political factors that drive
the transition to electric vehicles and country risks that might
affect EV battery supply chain and take a deeper look into lithium
supply chain risks.
Political drivers in electric vehicles transition and EV
battery supply chain
Energy transition has become a pillar of policy for most major
governments. All Group of 20 (G20) members have published targets
to reduce greenhouse gas emissions over the coming decades - even
if the targets, the regulatory infrastructure around them, and the
political will to meet them vary widely. Transport, a major
component of energy policy, often centres on shifting to electric
vehicles.
Indeed, this shift to electric vehicles - and the supply chains
that underpin it - have been elevated to strategic importance. In
June 2021, United States President Joe Biden's administration
issued preliminary findings from a 100-day review of supply chains
providing critical goods to the United States (US) government and
industry, including high-capacity Lithium-Ion (Li-ion) batteries as
well as the minerals and materials used in EV battery
production.
The US government aims to strengthen
the lithium-ion battery industry by securing the upstream
supply of 35 minerals in total that are critical in the production
of leading-edge technologies, including the cobalt and lithium that
are essential for producing the cathodes in Li-ion batteries.
Likewise, the European Commission in September 2020 issued an
Action Plan on Critical Raw Materials, which lists cobalt, and, for
the first time, lithium, as essential in the electric vehicle
supply chain and other technologies. Japan and Canada also identify
nickel as a critical mineral.
Cobalt, lithium, and nickel are exposed to a range of supply
chain risks because their production and processing are
geographically concentrated and dominated by jurisdictions that
have been alleged to violate labour and human rights and are
geopolitical rivals to the US and Europe.
Country risk and reliability in EV battery cathodes supply
chain
Whilst the cost of manufacturing Li-ion cathodes will be highly
influenced by evolving battery feedstock prices, their geographic
concentration implies high political, security, and reputational
risks. The charts below weight trade flow data from the
Global Trade Atlas by the concentration of total exports of
that mineral from the main countries of origin and the dominant
national-level
Country Risk scores for those geographies.
The resulting country risk exposures are then adjusted for the
molecular mass of the critical minerals that are used to produce
the two dominant types of cathode technology:
nickel-manganese-cobalt (higher energy density, higher cost, likely
to be used in higher-end EV models); and lithium-iron phosphate
(lower energy density, lower cost, likely to be used in entry-level
models).
The Global Trade Atlas covers 98% of merchandise imports and
exports and is based on calibrated and harmonised official data;
the 21 Country Risk scores cover political, security, and business
risks for 211 geographies, are set by regional experts and
calibrated by senior analysts.
Nickel-manganese-cobalt oxide (NMC) cathodes are among the most
exposed to country risks because of their high cobalt and nickel
content. Cobalt and nickel exports are highly concentrated in
countries with above average country risk scores, particularly
legal and regulatory risks that can result in the revocation of
production contracts and prohibitive regulatory costs to producers.
A vulnerability affecting all cathode technologies relates to the
lithium sourced from Latin America and lithium that is processed in
Mainland China, where policy instability and regulatory uncertainty
can disrupt supply.
Lithium-iron-phosphate (LFP) supply chains are relatively
resilient since these cathodes do not contain cobalt or nickel.
Instead, they use two diversely sourced inputs, phosphate and iron,
that are supplied by lower risk countries. Although LFP cathodes
are less energy-dense and less recyclable than NMCs, they are
cheaper to produce and the risks to cobalt and nickel supply chains
are motivating EV original equipment manufacturers (OEMs) to
explore battery production with these cathodes.
However, these electric vehicles battery supply chain risks are
of course diverse and idiosyncratic; and can be assessed, managed,
and mitigated only by understanding their local context.
Country risks to the lithium supply chain
Mainland China's dominance of lithium refining is a significant
geopolitical risk to the large-scale adoption of EVs by the US and
its allies. Over 96% of spodumene exports from Australia, a
US-ally, go to Mainland China, where it is processed into lithium
carbonate and the higher-grade lithium hydroxide, mostly for use in
mainland China itself although mainland China is also the largest
exporter of lithium hydroxide.
The remainder of these processed lithium compounds is almost all
exported to South Korea and Japan. Increasingly, Chinese lithium
producers are vertically integrating extraction to processing,
having acquired, or farmed into assets in Australia and Latin
America.
Mainland China's
14th Five Year Plan, released in 2021, highlighted
"self-sufficiency" in core technology, resilience in industrial
supply chains, and a leadership position in emerging technology
-including EVs - as development targets.
Lithium concentrates in Latin America are extracted from brines
and processed into lithium carbonates, after which they are
processed into the higher-grade lithium hydroxide. These resources
are more expensive to produce but supply is also more contested.
Production from brines is concentrated in Chile and Argentina's
salt flats.
Mainland China is projected to be the largest importer of
Chile's lithium carbonate, accounting for around 43% of Chile's
total exports in 2021 - nearly double the share reported in 2020.
The US imported 44% and 46% of all its lithium carbonate and
higher-grade lithium hydroxide, respectively, from Chile. The
remainder of the US's lithium carbonate is largely sourced from
Argentina, and the remainder of its lithium hydroxide is sourced
largely from Russia.
Major Latin American governments, however, are increasingly
under pressure to favour state ownership and domestic
value-addition - particularly affecting the development and
production of the world's largest lithium deposits in Chile,
Bolivia, and Argentina.
Written with contributions from our Batteries Raw Materials
Service, Chemicals team, Country Risk team, and Global Trade
Atlas.
Posted 20 September 2021 by Chris Suckling, Associate Director, Risk Quantification, S&P Global Market Intelligence and
Keerti Rajan, Research and Analysis Director, Economics & Country Risk, S&P Global Market Intelligence and
Sam Wilkinson, Director, Clean Technology and Renewables, S&P Global Commodity Insights and
