Financing the battery arms race: the $514 billion cost of bridging the global EV supply chain divide
Originally posted on Benchmark Source
Globally, the battery industry needs to invest at least $514 billion across the whole supply chain to meet expected demand in 2030, and $920 billion by 2035, according to a new analysis by Benchmark.
Demand for lithium ion batteries is forecast to grow to 3.7 terawatt-hours by 2030, up from around 1 TWh this year. Most of this growth is driven by an ever increasing demand for electric vehicles.
Producing the critical raw materials will require $220 billion (43% of the total), with nickel and lithium accounting for over half of that. Manufacturing the additional 2.7 TWh of batteries needed by 2030 will require $201 billion and the midstream production of battery materials will take the remaining $93 billion.
The amount is just a fraction of the estimated $35 trillion needed to be spent on the energy transition by 2030, according to the International Renewable Energy Agency. This includes spending on renewables such as wind and solar as well as grid and other infrastructure.
Global investment in technologies to help the energy transition reached a record $1.3 trillion in 2022, IRENA said.
“The energy transition is still in its early stages and massive capital deployment is going to be needed in order to meet the goals of industry and policy makers,” Andrew Miller, Benchmark’s chief operating officer, said. “Energy storage might form a relatively small piece of the overall financing required, but it is a strategically critical piece of the puzzle. Batteries are the platform technology for clean energy goals, so financing these supply chains is at the heart of the race towards net zero.”
Critical Raw Materials
This year is expected to see over a million tonnes LCE of lithium mined for the first time, according to Benchmark’s Lithium Forecast.
By 2030 this number will need to increase to 2.8 million tonnes, with almost all of this demand growth driven by the need for lithium ion batteries. Benchmark’s analysis shows that the expansion of the global lithium industry will need $51 billion of investment.
Benchmark’s view is that lithium, more than any other part of the supply chain, will be the bottleneck for the growth of the battery industry. To put the scale of the lithium challenge into context, more lithium will be needed in 2030 than was mined between 2015 and 2022, according to Benchmark’s Lithium Forecast.
Refined nickel, too, will pose a challenge. With a near two million tonne supply gap between what is in production today and what is needed globally by 2030, nickel requires the largest critical mineral investment of $66 billion.
Most nickel demand is for non-battery applications with stainless steel accounting for half of global nickel demand in 2030. However, batteries are the fastest-growing demand market for nickel. This year nickel demand from batteries is just 15%, but this is forecast to rise to 32% by 2030, according to Benchmark’s Nickel Forecast.
Natural and synthetic graphite are forecast by Benchmark to have a combined supply gap of 3.6 million tonnes, but the relatively lower capital requirements for graphite mines and synthetic graphite production facilities results in an investment need of $4.3 billion.
The rise of gigafactories
In 2030, Benchmark forecasts that annual global demand for lithium ion batteries will hit 3.7 TWh, as assessed in Benchmark’s Lithium ion Battery Database. This year, the world is forecast to produce 1.0 TWh.
Closing this 2.7 TWh gap will need $201 billion of investment. Most of this (56%) will be put towards building 1.2 TWh of new gigafactories on greenfield sites. The remaining $89 billion is needed to expand and develop brownfield sites where industry players such as CATL are already operating, and thus capex intensity is lower.
Cathodes and anodes
Although the lion’s share of investment into the battery supply chain is needed for critical raw materials and gigafactories, anode and cathode production still requires significant attention.
Indeed, Benchmark’s analysis suggests cathode production will require $40 billion and anode production $15 billion to close the supply gap currently looming over 2030.
Without investment into the midstream, the gigafactories won’t be able to operate at full capacity if access to anodes and cathodes becomes a bottleneck.
The bulk of investment into cathode production will need to focus on the two chemistries that are emerging as most popular: lithium iron phosphate (LFP) and NCM811.
Electrolytes and separators also need significant investment, with Benchmark’s analysis showing that the area needs $38 billion to close the supply gap by 2030.
Adding the cost of geopolitics
Currently, China dominates in every segment of the battery supply chain. With this, the country has built up substantial expertise in building the required production facilities at a relatively low cost.
The $514 billion bill for the industry will likely grow as countries increasingly look to develop regional supply chains. Take US lithium producer Albemarle, for example: their lithium refinery in Meishan, China, is projected to cost around $500 million for 50,000 tonnes LCE. Their equivalently sized facility in South Carolina, USA is projected to cost $1.3 billion.
IRA tax credits may lessen the burden on companies operating in the US, but ultimately the bill has to be paid, whether by a company or a government subsidising the industry.
Timeline considerations
A gigafactory can be built in two to five years. A refinery can be built in two. But the mines needed upstream of them take between 5 and 25 years to develop.
So even though gigafactories require the largest amount of investment, it is imperative that investment is made now in the mines. Otherwise, the gigafactories will stand idle with production constrained by limited feedstock.
The industry must use joined-up thinking to ensure all aspects of the supply chain grow in tandem to maximise efficiency, according to Simon Moores, chief executive of Benchmark.
