We expect major upheavals in the financial markets over the next few years. In this article we explain our cyclical framework for these challenging times and why you should invest in commodities now.
Published: 16th of June, 2021
Energy Revolution – Part 9
Demand for Battery Metals from Clean Energy Technologies Could Increase 30-Fold by 2040
9th of November, 2021 - torck capital management AG
In Part 4 of our blog article series, we discussed electric vehicles (EVs) as a critical factor in all of the IEA’s scenarios that aim to most effectively decarbonise the energy system to meet the climate goals of the 2015 Paris Agreement by 2050. In this article, we take a closer look at how innovation in battery technology has enabled the commercial viability of EVs and how their widespread adoption will affect further battery demand and consequently battery minerals demand.
Lithium-ion (Li-ion) batteries (see Figure 1) were first commercialised by Sony in 1991 and quickly found their way into camcorders, computers, MP3 players and mobile phones revolutionising the consumer electronics market. Today Li-ion batteries are the most-common type of battery in use as they power most rechargeable devices, including our smartphones and laptops. Through the clean energy transition of the transportation sector – one of the most important targets of decarbonisation due to its responsibility for one quarter of global CO2 emissions – Li-ion batteries are set to play an even more important role.
The fundamental advantage of lithium-ion batteries over alternatives like lead acid or nickel cadmium batteries is their much higher energy and power density, which make them work particularly well in portable products. The four main components of a lithium-ion cell are the cathode, anode, liquid electrolyte and separator. As their name suggests, they use lithium ions to transfer a charge between the cathode and anode. While the anode is always made of graphite, the cathode materials vary across sub-types (e.g. lithium, nickel, cobalt and manganese). Thus, Li-ion batteries contain a number of critical minerals. These batteries stand out as such an important technology because they convert electrical energy, which can be readily generated from renewable sources, to chemical energy, store it in a very dense form, and then convert it back to electrical energy as needed without producing emissions in the process.
Historically, consumer electronics have dominated the battery market and accounted for nearly 90% of all battery manufacturing demand in 2013. But as consumer electronics have increasingly become multi-functional they have accelerated the rate of increase in power consumption demands much faster than the main battery technologies have improved. This performance gap has guided innovation in technology design and configurations by creating a global push to drive innovation in performance and cost improvements. Prices for a Li-ion battery pack have already fallen by nearly 90% in the past decade to around $110 per kW/h last year, according to consultancy Benchmark Mineral Intelligence, while its energy density has risen about 4% a year over the past two decades.
Significant policy support, implemented as early as the 1990s in Norway, 2008 in the US and 2014 in China, spurred the initial uptake of EVs and underpinned the scale up in EV manufacturing and battery industries. The measures – primarily purchase subsidies, and/or vehicle purchase and registration tax rebates – were designed to reduce the price gap with conventional vehicles. As Li-ion batteries are also the key technology for electrifying transport, their performance and cost improvements after having been developed for widespread use in consumer electronics was further accelerated by the policy support for increased EV deployment. In 2017, therefore, EVs became the largest consumers of batteries. By 2019 their share had increased to two-thirds (see Figure 2).
As outlined in Part 4 of our blog article series, the IEA's Sustainable Development Scenario (SDS) estimates that the global EV fleet would need to grow to 70M vehicles by 2025 and 230M by 2030, in a trajectory consistent with the 2015 Paris Agreement. As a result, annual battery demand could increase 20-fold to 3.2 TWh by 2030 (see Figure 3) and supercharge the demand for critical minerals. A typical battery EV requires six times the mineral inputs of a conventional vehicle, whereby the need for each mineral varies depending on the cathode and anode chemistries.
The base case scenario of IEA’s SDS sees passenger EVs shift from cobalt towards nickel-rich cathodes, in addition to a slow uptake of solid state batteries, which are considered the next generation of batteries. It has become evident that reducing cobalt content in the cathode is one of manufacturers’ and countries’ key concerns. It is the material with one of the most fragile supply chains as mining and processing of cobalt is highly geographically concentrated. Increasing the proportion of nickel in batteries helps to increase mileage. Additionally, nickel also costs half as much as cobalt. Unfortunately, more nickel-rich cathodes make batteries more volatile too.
But, improvements to safety and energy density without increasing the cost of battery packs have reached technical limits. A significant improvement in the energy density of batteries and a steep decline in battery prices would require the disruption of the present technology. Such a breakthrough is expected from the advent of lithium metal anode all solid-state batteries. Accordingly, Frank Blome, head of Volkswagen’s battery cells centre, describes solid-state batteries as safer, cheaper, more durable and less mineral intensive. They could even be fully charged within 10 minutes and achieve an energy density up to 70% greater than today’s Li-ion batteries.
The greatest challenge facing this new technology is scaling up the production of solid-state batteries to make it commercially viable, since a direct transfer of laboratory preparation methods to industrial-scale fabrication is not always successful. The company receiving the most attention is QuantumScape, a Silicon Valley start-up backed by Volkswagen and Bill Gates. It is aiming to achieve commercial production in 2024. The IEA assumes solid-state batteries to first become commercially available by around 2030 and requiring another 5 years for manufacturing capacity to build up. And even by 2040, the IEA expects them to remain more expensive than Li-ion batteries which could limit them to more premium or long-haul vehicles. The IEA’s projections are, therefore, driven by further near-term optimisation of existing Li-ion batteries.
In conclusion, battery demand from EVs in the IEA’s SDS grows by nearly 40 times between 2020 (160 GWh) and 2040 (6,200 GWh), whereby overall demand for minerals under the base case assumptions grows by 30 times between 2020 and 2040 (see Figure 4). In particular, nickel demand grows by 41 times, while cobalt increases by only 21 times, as cathode chemistries shift towards lower-cobalt chemistries. Moreover, lithium, copper, graphite and rare earth element demand respectively grow by 43, 28, 25 and 15 times.
The IEA also analysed the possible contributions from recycling and reuse of spent batteries to reducing primary supply requirements for lithium, nickel, cobalt and copper under the above discussed base-case chemistry assumptions. Recycling has the benefit of reducing the energy used for and emissions from the production of Li-ion batteries. The concentration of critical minerals is also four to five times higher in existing batteries versus mined materials. Although the volume of Li-ion batteries available for recycling or reuse today is modest and largely dominated by batteries in waste electronic products, real volume could be created when the industry recycles more EV batteries. The first wave of spent EV batteries, which on average last 15 years, is expected arrive in 2030 after which point the volume of batteries available for recycling grows rapidly (see Figure 5). By 2040 the IEA estimates that the secondary production from recycled minerals accounts for up to 12% of total supply requirements for cobalt, around 7% for nickel, and 5% for lithium and copper. The projected contribution of reused batteries is relatively smaller, reaching only 1-2% of total supply requirements for each mineral in 2040.
Nevertheless Li-ion battery recycling has yet to reach the maturity of technology needed to scale up sufficiently and become economically profitable. Technology bottlenecks include the lack of standardisation of designs for battery packs which are not optimised for easy disassembly and can include a wide variety of battery chemistries about which manufacturers tend not to disclose information. Commercial viability also depends on the costs of collecting and disassembling the batteries, as well as the value of the materials recycled. At the moment, there are no comprehensive systems that dictate and guide the material collection processes at a national level in most countries. Therefore, battery recycling does not eliminate the need for continued investment in virgin mining.
Continue reading with part 10 here.
About torck capital management
torck capital management is an asset management boutique based in Zurich. Well-established in the Swiss financial industry, our goal is for torck to become the leading boutique of choice for exponential opportunity investments. We aspire to both drive meaningful change with our investments and seize exponential return opportunities in times of market disruption. Our new “Energy Revolution Fund” – launched at the end of September 2021 – builds on the thesis that a worldwide clean energy transition will kick-start another “super cycle” of rising commodity prices, which was last seen in the early 2000s when China’s economic growth took off. With investments in hand-picked junior mining companies that ensure an adequate supply of minerals for the clean energy transition, we see the potential for our next exponential opportunity.
Follow our upcoming blog articles to learn more about how the clean energy transition will impact the demand for critical minerals and create a strong investment case for junior mining companies.