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November 23, 2021updated 12 Apr 2022 10:41am

Navigating the lithium battery value chain

As the automotive industry transitions towards renewable energy sources, lithium batteries are shaping the future – and are increasingly in demand. We look at the impact, the complex challenges and the business opportunities for lithium batteries in the automotive value chain

“What Tesla started in 2008 with the Roadster, the world’s first battery-electric vehicles (BEV), has morphed into a transformative global force in transport. 15 countries and 31 cities, at the last count, are now setting timelines to phase out internal combustion engine (ICE) vehicles to help reduce carbon emissions, with Norway leading the parade by banning them completely in 2025,” says Michael Orme, senior analyst at GlobalData

Despite the headlines and hype, says Orme, the growth of “the Tesla cult” and government incentives for their citizens and companies to ‘go electric’, especially in China, “the electric vehicle market remains small, with electric cars accounting probably for only 10% of the global auto market this year and hybrids accounting for two thirds of that. They are more ICE than BEV. By 2025 the balance between hybrids and BEVs will remain the same but nearly 25% of vehicle sales will be for electric vehicles.”

According to Orme, from 2025 the momentum behind BEVs will build, particularly for BEVs as the cost of batteries, which account for about for between 20%-30% of build cost, continue to fall. “With every doubling of battery production, battery prices drop by 18% due to the learning curve effect – thus making buying BEVs over ICEs a live option for more consumers,” he says.

Meanwhile, a vastly over-capitalised BEV sector that is “rattling with overcapacity,” says Orme, will be “radically shaken out by mid-decade to yield a market in which the auto majors such as Toyota, GM and VW can actually make money making BEVs and bring their manufacturing prowess to bear in the process. China alone has 300 companies in EVs,” he says.

Plugging the gap

Yet, there is still exists a substantial gap to close in supplying the battery materials that will be needed by the world’s gigafactories, most of them in China, led by lithium, cobalt, nickel and graphite, says Orme. “Despite the abundance of lithium across the world, its mined supplies are largely confined to Chile, Argentina and Australia and there has been a marked lack of capital investment in opening new lithium mines and expanding capacity at operating mines.”

This is reflected in today’s soaring lithium price, says Orme. “Leading auto companies such as Tesla and VW are writing long-term supply contracts directly with mines as hedges, bearing in mind that they are competing at base with the smart phone industry for the same minerals that go into lithium-ion batteries.”

At the same time there is an urgent need in the US, Europe and Japan to shorten supply chains. “Minerals can travel thousands of miles to different countries on route from mines to smelters and refineries to component manufacturers (for example, cathodes, electrodes and membranes) to cell makers before they power the batteries in a BEV,” says Orme.

The battery materials supply chain is similar in complexity and vulnerability to the global semiconductor industry, he adds. “It is vulnerable to political strife, cases such as the Suez Canal blockage earlier this year and shortages of long-haul truck drivers. The chip industry is dramatically skewed towards Northeast Asian foundries, likewise the battery materials industry. China has large stakes in South American and Australian mines but does not control the global mining industry.”

But, says Orme, while the US and Europe slept, China built up an 80% control of global raw material smelting and refining, so Chinese chemical companies account for 80% of battery materials output – lithium, cobalt and graphite. “It accounts for over 60% of battery cell component supplies and it will host over 100 of the 136 gigafactories active or planned by mid-decade. Its leading battery cell maker CATL has a near 30% share of the global Lithium-ion battery market, much of which is currently focused on China – the world’s biggest BEV market by far,” he says.

The US and Europe have been woken up to this, says Orme. “The most interesting example of ‘wake up’ is Tesla co-founder JB Straubel’s start-up, Redwood Materials, backed by $700m in funding so far, which will make battery components and cells in the US and most significantly create a vanguard operation in recycling battery materials – breaking down older batteries and scrap to reacquire their base materials for reuse. Battery recycling at scale globally could, and should, be a game-changer.”

Oversight of the entire lithium battery lifecycle

As the demand for electric vehicles continues to grow, and the “game continues to change”, how lithium batteries are managed and delivered throughout the supply chain is therefore increasingly critical, says Matthias Hodel, SVP Global Head Commercial Integrated Logistics at Kuehne+Nagel. “Looking into the supply chain challenges related to lithium batteries, you have to look at the entire lifecycle of the battery. That starts with the extraction of the precious materials that go into batteries. Then, once the battery is produced and ready to ship it is considered a dangerous goods item, so that requires certain precautionary measures. As a fourth-party logistics (4PL) solutions provider, we can support companies in what they have to consider, ensuring Logistics Service Providers (LSPs) are instructed accordingly and the proper checks are being executed.”

That comprehensive oversight, says Hodel, continues until the end of a lithium battery’s life too. “If a used battery is shipped, for example, you must make sure you check whether it’s an end-of-life battery, if it’s empty or whether it’s broken. If it’s broken, it must be classified by an engineer. Then you must take the corresponding steps and put it in a fireproof container, for example. As a 4PL we ensure all of those different regulatory requirements are met during the entire execution of the operation.”

Integrated Logistics (IL) offers a holistic overview of this entire process. It’s not necessarily required for the inbound element of lithium cells for battery pack production,” says Achim Glass, Global Head of Automotive + New Mobility, Kuehne+Nagel, but “it is very much so required when it comes to second life, where used EV batteries are deployed as stationary energy storages after they are no longer fit for their original purpose. End-of-life transportation of batteries is not only subject to dangerous goods regulations but also requires adherence to strict waste legislation and hence can become expensive and complex compared to transportation of new batteries. If there is no recycling facility available in the country where the waste originates, cross borders moves will be required, which adds to the complexity. Hence, the expeditors dealing with end of live batteries are not only especially trained and but also must constantly keep up to date with changing legislation.”

The service delivery has moved away from manual handling to a very data-centric operating model, says Hodel. “So, with a strong focus on data quality upfront and active data management, we can really leverage the power of the data that we generate. Ultimately, what we can deliver as a 4PL is, is a comprehensive view of what companies get out of their supply chains in terms of optimization potentials and differentiation potential in the market towards competitors,” he says. And that’s increasingly important with regards to shipping materials, such as lithium batteries, which must be handled correctly – and carefully. “Companies along the lithium ion battery supply chain have realized that failing to meet the respective legislation will result in paying fines and penalties. Kuehne+Nagel specialize in this niche and helps its customers to navigate through the legislation jungle to comply with all respective laws,” says Hodel.

A growing, truly global market, engrained with complexity and vulnerable to political pressures and powerful market forces, the demand and, crucially, the supply, of lithium batteries will remain a hot-button issue for many years to come. To fully understand how to navigate the life cycle of lithium batteries throughout the automotive value chain as BEVs become an increasingly live option for consumers requires serious insight and know-how – from production through to second life and finally end of life.

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