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Electric Vehicle and Battery Material Report - July 2022

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Energy & Related Policies


Driven by stronger policy support and ambitious climate targets announced during the COP26 climate talks at the end of 2021, global renewable electricity capacity is forecast to increase by more than 60% between 2020 and 2026 to 4,800GW. In 2021 alone, additions increased by 6% y/y to 295GW, the highest yearly increase on record, despite the prevailing supply chain bottlenecks, delays and rising commodity prices. According to FERC, renewables accounted for 83% of new power capacity expansions globally. The speed of growth, however, was slower than in previous years, following a significant jump in 2020 when Chinese developers rushed to finish the projects before the phase-out of feed-in tariffs.

In 2022, renewable capacity is expected to increase by 8% y/y, reaching the 320GW mark for the first time. Solar PV is to account for 60% of the new renewable capacity, and the new commissions are to reach 190GW, up 25% y/y. Offshore wind growth is expected to fall by 40% as lack of policy support drives the decline. Due to high commodity and energy prices, solar and wind costs are expected to remain elevated this and next year; however, their competitiveness actually improves, given a much stronger rise in gas and oil prices. IEA estimates that the overall investment costs of new utility-scale PV and onshore wind plants have increased by 15% and 25% in 2021 and 2022, respectively. However, given the scheduled phase out of incentives and tax credits globally, the growth in new capacity additions is likely to stall in 2024.

Renewable Net Capacity Additions

Solar energy will continue to be the main driver behind the renewable capacity growth this and next year.

China has been at the centre of the global market for renewable energy for several years, leading it to account for about 40% of new capacity growth from 2015 to 2020. The Chinese renewable market will decelerate following the exceptional expansion that resulted from developers rushing to complete the projects before subsidy phase-outs. However, the rest of the world compensates for China’s slowdown and maintains the pace of renewable expansion. As costs continue to decline, Europe’s capacity growth is forecast to accelerate due to further policy support and a growing power purchase agreement (PPA)* market. The forecast for the US is also optimistic given the federal tax credit extensions for the solar while wind decelerates.

To achieve ambitious goals the countries have set out, governments need to address many hurdles to help accelerate renewables uptake. For advanced economies, challenges regarding integrating renewables into the grid have meant that the capacity being awarded in government auctions has been lower than expected. In emerging countries, the stop-and-start approach, the lack of grid availability and risks concerning funding resulted in elevated financing rates. Lack of capital and a targeted policy approach for flexibility are prevailing issues globally.

Cumulative investment needs by sector in the New Policies, 2018-2040

Renewables take up a bigger share of investment in the next couple of decades.


Despite the persistent pandemic-driven supply chain challenges, construction delays, and high commodity prices, renewable capacity additions increased by 39.2GW in 2021, the highest level recorded since 2000, according to IEA. However, given lower production tax credit (PTC)* rates, onshore wind additions declined by 25%. Solar PV expansion continued to increase due to the investment tax credits (ITC) available until the end of 2023, providing a relatively stable policy environment, with the sector expected to grow by 19% y/y this year. The impact of the federal policy has had a positive impact on installation numbers in recent years and will continue to drive the general trend of renewable energy policy uptake. The US, in comparison to its counterparts in Europe, had faced more isolated impacts following the crisis in Ukraine, therefore implementing less policy alterations in response to these high volatility events.

2021 marked the first year of the Biden administration, which sought to quickly address climate change following Trump's presidency. The US re-entered the Paris agreement and sought to reassert leadership on the global stage with an extensive presence at the COP26 negotiations in November. The White House set a new target for cutting CO2 by 50% by 2030 and committed to net zero emissions by 2050 latest. However, the administration had mixed success pushing its energy transition agenda through a deeply divided Congress. The clean energy and energy tax package that was part of the Build Back Better bill, which would support the suite of economically viable clean energy technologies, passed the House of Representatives but stalled in the Senate. Some packages did pass the Congress and should provide additional financing for developers. In March, Congress approved additional spending on renewable energy of $1bn for international climate finance, with an additional $500m going to biodiversity and wildlife trafficking programmes. However, the final bill would increase the fiscal 2022 spending only by $387m over the last year of Trump's presidency.

US Fiscal Year 2022 International Climate Finance Appropriations

The Final Bill is significantly lower than the promised budget.

The US faces a number of key challenges to the expansion of solar PV and wind:

  1. The policy uncertainty past the phase-out of tax credits and means of financing projects with limited government aid.
  2. Increasing commodity prices impacting overall input costs, potentially delaying investment decisions in both sectors.
  3. Trade wars between the US and China for solar panel imports

In the meantime, installed offshore wind capacity is forecast to reach almost 8GW by 2026, although the progress is slower than seen in the solar sector. The driving forces behind this expansion shift from federal financing to incentives for companies to invest. Indeed, seabed lease auctions, coupled with tax and certificate incentives and long-term PPAs, give developers firm financials for future project development. The recently announced federal target of 30GW of new offshore wind by 2030 will be challenging to meet unless permitting processes continue to be streamlined and supply bottlenecks are addressed. 


Outside of China, the European Union is the second largest market in terms of net capacity additions for renewable energy, and in 2021, the region surpassed its 2011 highs to reach a record of 38.7GW, resulting in a 546.2GW in installed total capacity. Solar PV accounted for most of the bloc's expansion last year, growing by 34% y/y to 25.9GW, which was driven by a combination of government-led auctions and distributed solar PV incentives.

World Natural Gas Demand by Region 2017-2040

More natural gas demand will come from Asia Pacific in 2040.

In response to the crisis in Ukraine, many European countries announced plans to accelerate renewable deployment to reduce their dependence on Russian energy exports. In 2021, renewables growth already helped reduce the EU's dependence on gas, with more than 50% of new renewable generation since 2019 replacing gas; the rest was replaced by nuclear and coal. Coal-fired electricity generation, however, jumped by 18% y/y in 2021, disproportionally high relative to the rise in power generation, according to Rystad Energy. Notably, according to IEA, wind and solar PV have the potential to reduce the EU's dependence on Russia's natural gas by 2023. Still, safeguarding energy supplies in Europe will not be easy, and Europe is going to rely on readily-accessible energy sources, such as coal and oil imports from the Middle East.

EU Policy Goals vs Policies in Place

EU renewable energy policy in the last decade meant that the bloc achieved most of its targets. In 2020, Europe's 20-20-20 goals were achieved, by reducing GHG emissions, increasing the share of renewables and improving energy efficiency to 20%. However, achieving climate neutrality by 2050 will demand change at a much more rapid pace over the next three decades. EEA estimates that given the EU's sustained efforts to reduce emissions as well as the introduction of additional policies and measures, a GHG emission reduction of 41% from the 1990s is possible. Together, these would bring the EU's share of renewable energy to just over 33% by the end of this decade. To achieve the proposed increased target of 40% by 2030, more rapid deployment of renewable energy sources would need to be initiated.

Government-held auctions remain a critical policy driver of utility-scale growth in most markets. An increasing proportion of the growth is expected to come from corporate PPAs due to the competitiveness of wind and solar PV with wholesale electricity prices and the private sector's sustainability goals. By 2026, the EU's renewable capacity is expected to reach 750GW. European Green Deal includes financial support via the Recovery and Resilience Facility, committing billions to support a sustainable recovery from the COVID-19 pandemic, with at least EUR248bn dedicated to climate-related efforts up to 2026. According to IEA, to reach the existing 2030 target, the average annual decline in final energy consumption would need to be at least 9Mtoe across the EU, compared with an observed average of 7Mtoe in 2005-2020, which includes the effects of the COVID-19 pandemic. The EU policy approach has been in place for decades and frequent target updates as well dedicated support meant that the bloc is on track to achieve most of the targets it has set in the next couple of decades. In the shorter term, implementation of ambitious policy targets and already awarded auctions, coupled with continuous incentives for renewable installation, drive the expansion.

Renewable Investment Cost Structure by Commodity Breakdown

More natural gas demand will come from Asia Pacific in 2040.


In 2020, China announced that the country’s emissions would peak before 2030 and vowed to achieve carbon neutrality by 2060. To do this, it needs to prioritise the use of renewable energy sources. As of 2020, renewables contribute 5.4% to the overall primary energy consumption and are forecast to reach 35% by 2050. According to Zhang and Huang et al. (2022), to achieve the carbon neutrality goal by 2060, the proportion of renewable energy in primary energy consumption must surpass 65%. In the past decade, China has enforced a series of supporting measures to accelerate the uptake of renewables and, in turn, lower emissions. These policies were mostly market-oriented and aimed to raise the relative competitiveness against fossil fuels.

Shares of China Installed Power Generation in 2021

Whilst renewable energy takes up a larger share of capacity, majority of current generation comes from fossil fuels.

In 2021, however, China’s emissions reached 11.9bn tonnes of CO2, up by 4.38% y/y, accounting for 33% of the world’s total emissions for the year. This was despite the largest ever increase in renewable power output in 2021. However, at the same time, it has also faced an energy crisis that caused rolling blackouts across the country, causing homes and factories to diminish their use of heating, and coal was used to meet more than half of the rise in electricity demand. Following the crisis in Ukraine, China imported a record amount of coking coal from Russia as western customers turned away from it.

Even with the phase-out of subsidies diverted towards renewable energy capacity, China is set to continue to dominate in terms of new capacity additions. China has pledged to add at least 570GW of wind and solar from 2021 to 2025, more than doubling its installed capacity. However, as of now, the supply of renewable energy in China, as with the rest of the world, falls short of its economic needs, and the country remains heavily reliant on coal. The key to this transition will be ensuring coal power plants remain flexible enough to shift from supporting power sources to renewable energy.

With FITs and central renewable capacity auctions ending in 2020/21, centrally set renewable portfolio standards are expected to guide China’s provinces to achieve these goals. Chinese policymakers are expected to continue to provide strong support for renewable projects, but the focus is shifting away from direct handouts to tax breaks and low-interest loans for project developers. This is likely to be backed by policy guidance on renewable integration into the grid. In 2022, the expansion in China is due to continue given the multitude of factors:

  1. The solar and wind generation costs are lower than coal benchmark prices in most provinces
  2. China’s Ministry of Finance confirmed it would use $60bn to pay off debt subsidies this year owed to renewable developers, improving funds for new projects.
  3.  In the absence of national subsidies, provincial governments still provide the incentives mentioned above

In its energy plan for 2021-2025, China aims to increase the production of both fossil fuels and renewables to prevent electricity blackouts, as the economy chooses to prioritise energy security over climate action in the short term. While tackling climate change remains a goal of the Chinese government, the volatility in energy prices in recent months has pushed the government to consider its current energy reliance. Coal is expected to remain the mainstay power source in China to maintain energy security, and with Russia offering deep discounts on its oil and gas exports, China might even stockpile the energy resources. China has a wealth of policies it has thrown at manufacturers, however, it lacks a clear objective in line with countries like the EU , and so we expect the growth of new capacity to grow; however, the integration of these sources into the grid and diverting them to regions that are heavily fossil fuelled will remain a challenge.

Renewable Electricity Capacity Renumeration Policy types, 2020-2025

Auctions and PPAs are the key drivers behind the uptake of renewable energy following the phase out of government support.

Electric Vehicle Market


According to the IEA's net-zero emissions 2050 scenario – all new sales must be zero-emission vehicles (ZEV) by 2035. Even though electric vehicle (EV) sales have been strong, particularly battery electric vehicle (BEV), there is a long way to go. The IEA suggest that EVs represent 9% of the global market, and BEVs account for 70% of total EV sales.

World EV Sales & EV Share

EV shares as a percentage of total sales are increasing fast, we expect this to reach at least 12% in 2022.

In 2020, global cumulative sales surpassed 10m. In 2021, EVs more than doubled in volumes year-on-year; sales reached 6.6m, bringing EVs on the road to 16.5m. Ambitious government policy announcements, strategies, and budgetary commitments also characterised EV developments in 2021. This continues to be a dominant trend as the availability of EV models grow. Government expenditure on subsidies for electric cars doubled in 2021 through various policies to encourage market uptake. Global spending on electric cars reached $280bn, including $250bn from the consumer, with governments spending $30bn, keeping the government share of spending to 10%, down from 20% five years ago, according to the IEA. With 85% of EV sales in Europe and China for 2021, it is no surprise that consumer spending was the highest in these locations, at $120bn and $90bn, respectively, dwarfing America's figure of $30bn. Government spending for both locations increased, with China at $12bn and $12.5bn for Europe, and the US remained behind the curve at $2bn.

Encouraging a new, greener version of cars is essential, but it is also vital to ensure the phase-out of polluting models. More than 20 countries have announced the complete phase-out of internal combustion engine car sales over the next 10 to 30 years, including emerging economies. Moreover, over 85% of the global road vehicle fleet (excluding 2/3-wheelers) have announced economy-wide net-zero emissions pledges that aim to reach zero in the coming few decades. Many countries have incorporated the electrification of cars and trucks as a crucial part of their strategy to reduce emissions. Strategic direction and incentives provided by national and state governments can offer pivotal signals to shift investment to secure EV supply chains and for original equipment manufacturers to develop a wide variety of affordable ZEV car and truck models as manufacturing companies seek to meet stricter regulatory requirements and net-zero commitments.

Major BEV and PHEV Forecasts for IEA STEPS and APS Scenario


The US is significantly behind the curve, but new regulations, incentives and standards will cause the EV sector to expand dramatically in the coming years. The federal government announced 50% EV sales targets by 2030 and 0.5m public chargers by 2021. The Build Back Better Act includes provisions for additional subsidies, incorporating the existing federal tax credit for EV purchases. The bill is pending. It proposes to augment the federal tax incentive for purchasing an EV to $12,000. This would be restructuring the current $7,500 base incentive, plus an additional $4,500 for EVs equipped with batteries manufactured and produced with union labour in the US.

America's targets are underpinned by these existing incentives and new packages such as the Infrastructure Investment and Jobs Act pledging $7.5bn to build a charging network and $2.91bn to advance battery supply chains. In addition, President Biden signed another $500m to expend funds under the Defence Production Act to obtain critical battery minerals like nickel, cobalt, lithium, and graphite as part of the Ukraine help package. That adds to the $750m fund mining companies could access when the president invoked the Defence Production Act in March. Government grants are helping companies to seek partners and organise the supply chain, aiding businesses acquire battery materials.

US EV Charging Infrastructure

U.S. charging infrastructure is behind the curve, but new policy investment will improve availability.

The Global Commercial Vehicle Drive to Zero Programme is a multi stakeholder partnership program of over 130 government and industry leaders focused on accelerating the deployment of zero-emissions medium- and heavy-duty vehicles (M/HDVs). It recognises the disproportionate impact that the largest vehicles on the road have on fuel consumption, GHG emissions and air pollution. Drive to Zero's vision is that zero-emissions M/HDVs will be commercially viable in first success applications and early-mover regions by 2025 and will dominate new vehicle sales by 2040.

The Environmental Protection Agency has proposed new standards for heavy goods vehicles (HGVs) to reduce pollution and NOx; according to their estimations, 72m people live near truck freight routes, which has significant health implications. The new standards will reduce emissions from trucks by 60% in 2045. Momentum to catalyse ZEV deployment in heavy-duty vehicle segments picked up considerably in 2021. With decreasing costs and improvements in battery performance, the potential to electrify certain operations and vehicle types above 3.5t of gross vehicle weight is paired with a realisation of the transformative impact of electrifying these operations to achieve global climate goals. Although initiatives to roll out zero emissions HDVs at scale are generally aimed toward 2025 or later, these ambitions, coupled with broader model availability, have begun to set up the necessary regulatory climate to accelerate the electrification of HDVs.

US EV Sales

U.S. EV sales are significantly behind the curve and the market needs significant growth from companies outside of Tesla.

California is a key in the EV uptake, given its policy support and guidance in the past. In 2020, it was the first to propose a ZEV sales requirement for heavy-duty trucks. The number of states following California's LEV program and GHG emissions regulations now represents about a 1/3 of US car sales. Additionally, by 2035 all-new car and passenger light truck sales in California will be zero-emission. Other states are considering similar bans on internal combustion engines but are yet to implement them. The US took a less supportive approach to EVs at the national level than China and Europe in 2020. The CAFE standard was revised and rebranded as the SAFE vehicle standard with significantly weaker energy efficiency targets for 2021-2026 than those established under the CAFE standards.

EV sales in the US reached 630,000 units, 75% of which were BEVs, and EVs represented a market share of 4.5% in 2021. The evolution of more SUVs will be a boon for US sales due to the preference for large vehicles. We are seeing more EV models released in the US, providing more competition for Tesla. Sales in 2022 are on track to beat 2021, with Q1 figures at 158,689, up 60% y/y; March and April's figures doubled that figure, with sales at 82,987 and 86,342 units, respectively, according to SNE Research. Tesla represented 50% of US sales in March and April at 47,953 and 48,432 units; respectively, Ford was next at 5,709. However, Tesla do not have the scale to supply the whole of the U.S. EV market, Ford, and VW and other currently peripheral EV producers are the key to mass adoption in the U.S.


In Europe, transport represents 7% of GDP and directly or indirectly provides 14.6m jobs; the industry must maintain its stature in the economy. The EU’s tighter CO2 emissions standards are helping to drive their objective. The Fit for 55 packages from the European Commission will revise CO2 standards for cars and vans. The new proposal pushes for increased targets for 2030 and sets a new target of 100% for 2035, meaning that ICE cars and vans will no longer be on the market in the EU. Over 85% of car sales worldwide are subject to such standards. Gradual tightening of fuel economy and CO2 emissions standards in the EU played a crucial role in promoting EV sales. France, Germany, and Italy have some of the most generous tax benefits, with a maximum incentive of €12,000, €9,000, and €10,000, depending on whether the car is fully electric and the cost of the vehicle.

In Q1 2022, BEV sales increased 46% compared to 2021. BEV sales in the UK and Spain in Q1, albeit from a low base. In 10 European markets, PHEV sales have declined by a minimum of 8% y/y in 2021; however, this can be partly attributed to a lack of parts and raw materials. The market share of EVs is increasing and reached 50% for the first time in the UK in the top 5 markets; ICE vehicles could be the minority percentage soon as consumers transition swiftly towards BEVs. However, vehicle lead times are long, and we expect this to continue in 2022 and 2023. According to SNE Research, European sales reached 158,808 in April, down 5% Y/Y. BEVs represented the lion's share of these cells at 87,112, down from 158,004 the month prior. The EV penetration rate was 15% in April, from 18% in March. End-user demand is weak in Europe due to inflation, and we could see this cause some downside to auto sales; however, the EV market has not been impacted with consumers looking to make the most of subsidies and transition towards BEVs. According to SNE Research, BMW and Mercedes sold the most unit in April at 16,017 and 13,227, respectively, marginally lower than March at 20,768 and 20,180 units.


China EV Charging Infrastructure 

China represents 56% of the world's slow chargers and 83% of fast chargers. 

China is reducing per vehicle subsidies to close the gap between the purchase price of an EV and conventional cars and to push manufacturers to lower costs. However, the state of the Chinese economy could prompt the government to incentivise EV consumption with a new wave of policies to boost end-user demand. Currently, China's scheme incentivises longer-range batteries, and sales will likely remain strong for the remainder of 2022 and beat 2021 sales. China extended their subsidy scheme to the end of 2022, which may cause consumers to utilise these subsidies in H2 2022 before they end, specifically in December.

China has a progressive policy on HDV and e-buses; VI-a emissions standards for urban HDVs took effect in 2020, and these remain intact today. In July 2023, they will introduce VI-b emission standards that establish stricter regulations in testing and monitoring. Some reports suggest these regulations which require new energy commercial vehicles that are in development. The 14th Five Year Plan for Green Transportation has set targets for NEVs to account for 72% of public transport and 20% of logistical distribution by 2025. China accounted for 90% of truck registrations in 2021, equating to around 12,500; they registered over 80,000 buses and continue to hold the lion's share of the global bus stock, which stands at 670,000, approximately 4% of the global fleet, according to the IEA. The availability of HGV models is increasing, which is a boon for the sector and will drive down costs in the long run; however, the charging time and range are currently the main limitations.

China EV Sales 2010-2021

EV Sales continue to climb with a strong preference to BEVs.

Lockdowns in China significantly impacted EV end-users, with sales falling to 279,684 units, down from 454,353 in March. April sales showed 212,827 units were sold, and 66,857 PHEVs were significantly lower than the previous month; however, the market still favours BEVs. Sales continued to grow on a Y/Y basis, up 63% but declined 38% on the month; we expect equally weak sales in May but could see some upside in June and H2 2022. China's EV fleet reached 7.8m units in 2021, with 3.3m units sold, more than total sales across the globe in 2020. EV sales in 2022 could reach 5m units, and we expect strong sales figures in H2 2022 and Q4 2022. Interestingly, if you compare EV sales to ICE sales, most of the latter in China are foreign companies such as VW, Honda, and Toyota. Comparatively, EV sales are dominated by Chinese companies like BYD, except for Tesla.

Investment in EVs and Battery Sector

According to PitchBook, VC and PE firms invested approximately $42bn into battery technology start-ups across 1,700 deals. 75% of these deals have been carried out in the last two years. VCs have been investing in the battery space for some time, consistently hitting 50 to 60 deals a quarter. Over the previous two years, we have seen many quarters with $2bn or more invested, and the number of deals nearly doubled in 2021. PitchBook data also shows that VCs invested $17.8bn in EVs in 2021; Rivian and Weltmeister were significant beneficiaries of this capital.

On the other hand, private equity firms have increased their activity in the space, investing $13.4bn into battery materials, manufacturers, and recyclers. The R&D process for batteries is long, which is less appealing to VCs or has a 5 to 10-year exit plan or timeline for ROI. Previously, the risks associated with battery start-ups were substantial; however, while there is still a risk, the reward is even more enticing. Cruise, closed a $1.4bn round of investment in Q1 2022, and with impact start-ups raising $12.9bn globally in Q1 2022.

According to Reuters, automakers are looking to invest $515bn on EVs and related technologies by 2030, up from $300bn. VW has promised to invest over $100bn, Toyota and Nissan have committed a combined $40bn, and GM and Ford have committed $60bn by 2025. Panasonic is expected to invest $4.9bn in EV batteries and supply chain software; which includes $1.63bn on new energies and $3.25bn on batteries; this follows the investment of $7.1bn Yonder last year, which strengthened their supply chain. In Europe, the European Battery Alliance has indicated that in 2021 the total level of investment along the battery chain amounted to €127bn; additional investment of some €382bn is expected to create a self-sufficient battery value chain by 2030, meeting 69%-89% of its increasing demand for batteries between 2025-2030. The annual added value by the battery industry is estimated to be €625bn by 2030. According to the European Commission, the EU imports 80% of the necessary battery materials as demand increases 40-fold, with forecasts expecting 50% of vehicles sold will be fully electric. The European Commission approved the Important Project of Common European Interest (IPCEI) with a total value of €12bn, which compliments the IPCEI in 2019, which had a value of €8.2bn 2019. In addition, the Commission has indicated €160m for battery research projects; this brings €925m to be allocated to research by 2027.

Global Charging Infrastructure

Charing infrastructure is dominated by China who have over 1m charging points out of the worlds 1.75m in 2021.

Charging infrastructure is a key ingredient to EV adoption. As highlighted in the previous sections, there is a lot of government investment in charging infrastructure. As vehicle range is improving, this will help the EV case in countries with large land mass; however, when you look at the average daily car journey in the UK, US, China, and Germany are significantly lower than EV ranges. For example, the average daily trip in kilometres in the above countries is 32.19km, 41km, 39.1km, and 19km, respectively. The average EV range of 200km is sufficient for everyday tasks, and this range will be marginally higher in the summer. Continued investment into the battery chemistry, energy density, and efficiency will continue to increase the range of vehicles and make longer trips more feasible, such as the new CATL 4680 battery and Mercedes's battery, both have a range of 1,000km.

Government funding for EV charging support for countries with an EV share >10% is highest in the U.K., Sweden, and Germany. According to the IEA, the total funding available per LDV stock per year was $17 in the UK, $13 in Sweden and Germany at $3. In the UK, there are 21 LDVs per charging point, with the number of charging points per thousand vehicles at 1, and the US has 18 LDVs per public charging point with the number of thousand LDVs at 0.47. However, the land mass in the US makes this data significantly more problematic, even though California, New York, and Florida represent the largest EVs and charging share.

Battery Anode and Cathode Chemistry

Battery chemistry is the focal point of the EV and energy storage industry; battery types for EVs are focused on a lithium anode. The anode is a positive terminal of an electrolytic cell but is negative in a battery; the anode comprises 10-15% of the cost of a lithium-ion battery, according to Chloe Holzinger of Lux Research. Lithium is the dominant material across the whole industry and in a 532 NMC battery cell, with David Castelvecchi suggesting there is approximately 30kg of lithium in this battery. The energy density is the focal point of changing the materials and ratios within a battery, but even though it has a high energy density and is light, the material is unstable and slow to charge. Solid power indicates that a 35% increase in energy would theoretically improve the range by 35%.

Material Demand from Different Cathode Chemistries

High nickel batteries have less cobalt and manganese, but material costs are high and lithium hydroxide capacity is based in China.

Silicon in an anode has a lower density than lithium but is more stable. The specific capacity of silicon is 3,600 (MA h)/g, but the expansion and contraction cause damage during usage and causes the capacity to fade. Solid power has developed a solid-state battery with a 50% silicon anode; the cells undergo further testing before being delivered to BMW and Ford for qualification testing. Solid power will optimise their EV cells across different energy capacities ranging from 60 to 100 amp-hours (Ah). They will produce 15,000 cells, and their cells have stack-level-specific energy of 350Wh/kg.

Graphene is a potential material that could be used, the most promising technology is a graphene lithium-ion battery, lithium-metal solid-state battery, and graphene sodium-ion battery. The advantages of graphene are that it has a high porosity and surface area and possesses a high-charging capability. Graphene-based materials are good conductors of thermal and electrical energy, and this helps to increase the electrode density and accelerates the chemical reaction within the battery. This enables a better power transfer, improving the charge speed with less heat, helping to reduce the degradation of the compared to lithium which would prolong the battery's lifespan. Research suggests that graphene aluminium-ion batteries hold a higher energy density than pure aluminium batteries and have a faster-charging speed. However, the production cost for graphene is much higher than lithium, which stands at $15/ kg. This indicates that graphene is not yet commercially viable for EV and energy storage. CATL has dismissed the chances of solid-state batteries and expects 1% of electric cars to have a solid-state battery by 2030. CATL is raising $9bn to finance an expansion and intends to have a 430GWh capacity gap by 2025. They intend to start producing ultrahigh nickel batteries to increase the energy density and range of the EV.

Spot Prices for Cathodes

Prices have softened in recent weeks in line with raw materials but remain higher on the year.

Battery material costs have increased in recent months and according to BloombergNEF the average pack size could rise to $135/KWh this year, Benchmark Mineral Intelligence and Wood Mackenzie both expect costs to rise 10% and 20% respectively. We will see battery costs start to fall again in 2023, and again in 2024, due to a moderate correction to material prices and the easing of supply chains and shipping costs. In the immediate term, the preference for LFP cells is likely to continue, this was exemplified by the Tesla’s Q1 earnings call which outlined that 50% of their vehicles were built with a LFP battery. Our Next Energy (ONE) signed an agreement with BMW to integrate its Gemini battery technology into the iX, this has a range of 600miles. The Gemini battery pack is a is a combination of their Aires battery, which is a LFP battery with CTP technology (cell to pack) is coupled with a high-energy pack that recharges the Aires battery increasing the range. ONE has indicated that the lithium requirement could be dropped by 20% and graphite by 60% as well as the use of nickel and cobalt.

Battery Materials


Nickel Sulphate China Spot Prices vs Ni S 22% 0.05% Premium/Discount

Nickel sulphate spot prices have declined but the premium has increased.

The re-emergence of LFP cells for smaller city EVs will not impact nickel demand from the EV sector. Nickel prices have been very volatile in 2022, and the higher cost could impact the costs of batteries if prices remain high. However, buyers have secured contracts at lower prices limiting the upside of battery costs in the near term, although as these contracts are renewed, and material prices remain elevated, the costs of battery cells will likely increase. Medium nickel batteries represented 47% of the battery market in 2021 for light-duty EVs, with high nickel cells that will grow in market share in the coming years. Medium nickel cathodes, 622 or 532, will continue to be demanded, but the 811 preferences could be used to ensure a larger range. CATL is releasing the 4680-battery cell, which will have a higher capacity of 13%, the range for this cell is 1,000km; CATL is also working on an ultra-high nickel battery. The 4680 cells will rival the Mercedes 1,000km battery cell. Mercedes have focused on the battery efficiency and weight, traditionally, EV cells run at a lower efficiency, but Mercedes used their F1 technology, which runs at an average efficiency of 95% and used air vents rather than liquid as the vehicle doesn't need ultra-fast charging. These longer-range vehicles are likely to use higher nickel cathodes, but other materials such as cobalt and manganese are also likely to be used.

In the 1st four months of 2022, BEV sales in China represent 1.229m of the 1.556m EVs sold, and the remainder are PHEVs. BEVs have a higher material content, and this will cause upside forecasts; this shift is replicated in Europe as well, with BEV sales in 5 European markets growing 46% compared to 2021, PHEV sales declined in 10 markets, including France and Germany, by 8% and 13% respectively, this outlines their declining importance in the EV market. As efficiency improves in batteries and the ranges increase due to R&D investment, we expect this trend to accelerate and EVs to take up more market share. Using the figure that medium nickel cathode batteries represented 47% of the EV market in 2021 and 6.2m units were sold, this meant approximately 130,000 tonnes of nickel, with the remainder coming from high nickel batteries.

IEA Class 1 Nickel Emission Intensity

Nickel matte production is very emission intensive, even before factoring in soil and coastal erosion and water depletion.

Class 1 nickel is used in batteries; Russia represents 15-20% of production, and 67% of this material was exported to Europe, with 33% to China. This shows that Russia's output is integral to the decarbonisation trend; it may be possible for Australia and Canada to fill the gap from a nickel sulphate perspective if Europe was going to ban the Russian material, which it has not done. HPAL and nickel matte are two other options for producing class 1 nickel, which is predominately produced in Indonesia. These processes can turn lower-grade laterite resources into battery-grade nickel; however, it is incredibly emission-intensive. The conversion of NPI to matte is expected to have little impact on GHG. Trytten Consulting Services "estimates the impact of mining, drying, reduction, smelting, refining, and conversion to matte based on coal-fired power with a GHG intensity 1,000kg/MWh2". The GHG impact is driven by the energy required to heat the ore to smelting temperature to reduce the iron and nickel content to a metallic state. Nornickel estimate that 92,000 tonnes of nickel matte will be produced in 2022. HPAL and NPI to matte produce at least 45kg CO2/kg due to the coal power plant as the electricity source (Nornickel). When you factor in deforestation, soil and coastal erosion, water depletion and contamination, the carbon footprint reaches 60 kg CO2/kg Ni. This raises significant questions over the ethical and ESG impact of the processes, especially when the material is destined to decarbonise the global economy through EVs and energy storage.

China Lithium-Ion Output Y/Y and Cumulative

China output of Li-ion output has declined from the highs of 2021.

The nickel market is balanced due to weaker demand as stainless production shifted towards the 200 and 400 series. EV demand is becoming increasingly important in 2023; batteries will represent 430,000t of nickel; in our opinion, you will see a deficit in class 1 nickel by 2024. Between 2024 and 2026, the class 1 market will be balanced if all projects come online, but in the final years to 2030, we see another deficit appearing; secondary supply could help mitigate this risk, and nickel matte will also increase production. However, this will increase supply soon, specifically in Indonesia and Oceania. Investment from China into Indonesia is substantial to improve resource security; Indonesia may reduce new NPI and FeNI plants and redirect to HPAL. China is also integrating operations such as refineries for batteries, and we believe this will continue as battery producers and automakers secure resources. The government has announced it intends to restrict new NPI smelters by 2024 and impose a tax on nickel products <70%, indeed, they have proposed a $5/t carbon tax, and the industry is pressuring producers to switch to greener sources of power, such as hydro, solar, and wind. We continue to see companies investing in the refineries and the supply chain, with Huayou Cobalt building Huashan Nickel-Cobalt which will produce 120,000 tonnes of nickel content and nickel cobalt hydroxide.

Nickel Sulphate Production Costs

Nickel briquettes is the highest costs from a raw material perspective compared to NPI which has the highest processing cost.

Nickel sulphate production in China was stronger in June at 120,500t physical content, up 13.9% m/m and 12.04% y/y; this led to the weaker profits from nickel salt factories due to high costs and weak demand. July output is expected to increase 4.27 m/m as downstream demand improves. According to SMM, nickel sulphate produced with nickel briquettes accounted for 13% of production, with high-grade nickel matte and intermediates increasing to 62%. Chinese imports of intermediate products and high-grade nickel were higher due to new Indonesian capacity. MHP, crude nickel sulphate, black powder has the lowest production costs around $21,000/t, briquettes have a high production cost around $24,800/t, 94% of that is Ni sulphate. Output is expected to rise in June by 5.6% M/M, and 3.8% y/y, nickel salts profits will be slightly higher in May, but demand is still poor and will continue to be until lockdown restrictions are lifted and battery demand improves. China's output of NMC cathode materials declined 8% M/M and 36% Y/Y; this is due to weaker demand and previous re-stocking from battery producers, reducing consumption. Material prices remain high, even though they have retreated marginally from the highs in the last few weeks as inventories are drawn, export demand is robust, and NMC material output is 44,742 tonnes in May, marginally lower than April, which was 45,784 tonnes. LFP production was 46,837 tonnes in April, up 70% Y/Y; this is expected to increase to 53,163 tonnes, up to 86% Y/Y. Nickel sulphate 22% co 0.05% EXW is at a strong premium over Ni sulphate 22% Co 0.04% EXW. The 21.8% nickel sulphate Jinchuan premium has been declining as Chinese EV demand has wavered, Chinese nickel sulphate output from briquettes is significantly below full capacity at 1.8m tonnes Ni content.


China Cobalt Prices

Cobalt prices have eased in recent months due to weaker end-user demand and improved deliveries from DRC.

Cobalt has cemented itself in the battery market following years of fears the supply and governance issues in DRC were going to prompt a cobalt-free battery. While LFP cells continue to increase their market, share was 40% in China and will be 50% in 2022, LFPs are predominately used in small mini EVs; they hold a 25% share on a global scale for light-duty EV cathode chemistry. NMC battery cells make up the rest of the market, with medium nickel chemistries representing 47%, according to CRU. Consequently, demand for cobalt will remain robust. Outside of the chemicals and, therefore, battery sector, cobalt metal consumption has been increasing at around 4% CAGR in the last 6 years, and growth will continue, especially in the aerospace sector as Rolls Royce and Boeing have seen orders increase significantly for this year, and cobalt metal demand will be more robust. However, batteries represented 2/3rds of the market, with EV batteries comprising 1/3rd of that, making it the largest end-use sector for the first time; total cobalt demand was 170,000 tonnes in 2021, up around 30,000 tonnes. EV demand has beaten forecasts in recent years and months and has been resilient compared to ICE vehicles. Medium nickel battery cathode demand in China is bullish cobalt consumption, as 622 and 532 chemistries contain more cobalt. In our opinion, these chemistries will dominate the market share for NMC in the near term. NMC is unlikely to be substituted by LFP due to its higher energy density; however, from a cost perspective, LFPs are considerably more competitive the prices of the components are less volatile. This is also why we could see sodium-ion batteries increase in popularity.

The robust demand for cobalt from batteries, in conjunction with the supply issues, has created a substantial disparity in the market. High shipping costs, a flood in the port of Durban, and a Chinese lockdown have prevented the material from reaching refineries despite stronger output from DRC. Container shortages caused the WCI benchmark rate per 40ft box price to rise to $10,360.87 as of September 30th, up from $1,262.38 per box in September 2020. As of May 26th, the cost was $7,635 per box, which is still historically high; the bottlenecks in Shanghai due to the lockdown and the lack of transportation in China will keep costs elevated. All-in sustaining costs have increased in the last 9 months, and energy and shipping costs have risen sharply. Indeed, higher energy costs will also massively contribute to reduced margins, especially with the higher diesel premium for mining equipment and the need to truck material to the port of Durban. The diesel price in South Africa has surged to ZAR2,199/l as of May 4th, up from ZAR1,792.48/l at the beginning of 2022 and ZAR1,245.42/l. Using this diesel increase, AISC would increase from $1.31/lb to $2.31/lb for 2022. The cost of credit has increased due to interest rates and transportation; as mentioned above, this has caused the AISC has at least reached $10/lb. This has reduced the payable metal, which stood around 90% for nickel intermediates such as hydroxide; margins declined to less than 10%.

Cobalt in Rotterdam vs Baltimore and Shanghai Chanjiang Co Spot

European and US prices have softened but remain elevated due to reduced availability due to supply-chain constraints.

Supply-chain constraints are impacting the market balance and creating a deficit, but as these issues ease, the market deficit will dissipate, causing prices to correct to the downside. However, due to strong market growth, we expect prices of cobalt chemicals to remain elevated. This highlights the inefficiency of the extended supply chain and the lack of refining capacity outside of China. Mine supply of cobalt in DRC has been rising, and production reached 74% of total mined output in 2021; this was attributed to the restart at Mutanda, Kalongwe, Tenke, Kamoya, RTR, and Pump, prompting a 15,000 increase. Total production of cobalt increased by 17,000 globally as Indonesia HPAL improved. These supply increases will continue in the next few years to 2025, as the copper/cobalt mines in DRC ramp up production due to copper profitability and strong demand for both minerals. According to Minespans data, the copper full sustaining costs, including royalties, stand at $6,443/t; we see this marginally higher at $6,503/t due to shipping and energy costs. However, the LME price is $9,433/t, and this premium will incentivise investment in DRC due to high ore grades and structural deficits expected after 2025 due to delayed projects in Chile and Peru. DRC all the increased mine supply out to 2025, with the majority coming from Tenke Fungurume, Kamoto, Mutanda, RTR, and Mutoshi, all are contributing a cumulative 86,900 tonnes, according to S&P Global Market Intelligence.

Cobalt Oxide vs Cobalt Sulphate vs LME Cobalt

The decline has been across all cobalt products, and this will aid cell price inflation in 2023.

Cobalt sulphate is a premium over the metal, and we expect this trend to continue in the long run as EV batteries are now the dominant source of consumption, and this trend will only widen. Cobalt sulphate prices in China have recently declined as demand has weakened due to lockdowns. Auto demand for April was down 45% to 299,000 units, slower growth than the rest of 2022. However, sales for 2022 are up 112% at 1.556m units, but BEVs represent 1.229 units as the shift to BEVs and not PHEVs continues. Shanghai saw feeble sales, but as restrictions are eased, we expect consumption to pick up the pace. China's sales of two and three-wheeled vehicles now account for half of China's sales. A lot of the smaller vehicles use LFP cells due to lower costs. Conversely, we saw a significant increase in zero-emission buses and HGVs; in 2021, the global stock of e-buses was 670,000, and e-HGVs were 66,000 units. China represented 90% of electronic truck registration in 2021; the larger batteries in HGVs and buses will consume more materials; however, in our opinion, hydrogen cells are more likely to be used in heavy vehicles. This is evidenced by Anglo American releasing their new hydrogen-fuelled truck, which would reduce emissions at open bit mines by 80%.

Li Cobalt Oxide 4.35V vs Li Cobalt 60% DEL

Cobalt oxide is used in a large array of battery chemistries.

IEA scenario analysis indicates that cobalt demand will increase 45% using the Stated Policies Scenario. Announced Pledges Scenario suggests that cobalt demand will increase by 65% more than the stated policies, and an additional 17 cobalt mines are required by 2030, compared to 11 mines. The potential for recycled cobalt will not be significant enough in the near term but will be a considerable source of material in the following 2028. In our opinion, the spread between cobalt metal and chemicals will increase; cobalt oxide and sulphate are the chemicals that highly sort after. The supply chain logistics prevent material from reaching China for refining and then back to Europe or the US for battery production; this highlights the weakness in the inefficient supply chain. Highlighting that if we continue to see supply chain bottlenecks in the EV market will prompt long lead times for vehicles and batteries, specifically in Europe, where there isn't enough refining capacity. China dominates the battery supply trade, producing 75% of all lithium-ion batteries and 70% of production capacity of cathodes, as well as 85% of anode output and +50% of cobalt processing and refining capacity. In our opinion, cobalt oxide and sulphate prices will remain elevated due to EV demand, especially in Europe, due to lack of material. The easing of lockdown restrictions in China will boost demand for EVs, and we expect stimulus to target EVs, another boon for EVs.


Lithium Iron Phosphate vs Lithium Carbonate Battery Grade vs Li Hydroxide Monohydrate 56.5% DEL

The cost of LFP is significantly below other battery chemistries, but the range is a lot smaller.

Lithium supply security has become incredibly important to tech, battery, and auto firms as they attempt to provide a constant supply of lithium. This is done through joint ventures and strategic alliances, much like Trafigura's partnership with Green lithium to build refineries in Europe, starting in the UK. Green lithium's refinery and Vulcan resources geothermal plant in Germany will initially provide nearly 100,000 tonnes of lithium. Vulcan Resources are expected to produce 40,000 tonnes of lithium hydroxide as Europe has favours high nickel batteries. This is an effort to reduce the dependency on China for battery materials. Currently, Europe is the second-largest EV market in the world and, combined with China, representing 85% of EVs in 2021. However, China represents 90% of the battery market. This creates a reliance on China and limited resource security for Europe and the US, not to mention a very long, inefficient supply chain which is costly and emission intensive. This is especially prevalent given the energy crisis in Europe due to the overreliance on Russia; it would be lunacy not to improve resource security for the EV and energy storage transition. Recycling and the circular economy will help in the long run; however, the supply chain needs to diversify away from China.

Australia Spodumene Concentrate Exports to China vs China Spodumene 6%min CIF vs Spodumene 6% Australia FOB

Exports from Australia have been volatile and prices have remained high in recent months.

Mine production in 2021 was dominated by Australia and Chile, contributing approximately 80% of global output. Three mineral operations in Australia, two brine in Argentina and Chile and two brine exports of lithium carbonate in USD FOB have increased by 687% Y/Y in April, with prices reaching $764m FOB; we were unable to access tonnage data. Spodumene exports from Australia have been more volatile and were 20,498 tonnes in April, down from 42,547 tonnes in March. Due to strong demand, we expect Australian exports to increase as Mineral resources have started exporting products 3 months ahead of schedule. Goulamina lithium and indirectly Ganfeng Lithium have begun construction of a spodumene concentrate project which will produce 726,000 tonnes p.a. The mine life is 20 and will make Mali the third-largest producer in the world, the total explored ore resource currently amounts to 108.5m tonnes which equates to 3.89m tonnes LCE with a grade of 1.45%. Despite the expansion in lithium projects and investments into new refineries and plants globally, there is likely to be a structural deficit for years to come. McKinsey data suggests that 2021 LCE output was 540,000 tons; this will increase to 3.3m tons with a CAGR of 25%, one benefit for lithium is the shorter lead times for new production which should cause 2.7m tons of lithium to come online in 2030. We expect demand to beat expectations in the long run, and there is a strong need for unannounced supply to fill this void. Many companies are investigating direct lithium extraction (DLE) projects.

Benefits of DLE technology:

  • Eliminating or reducing the footprint of evaporation ponds
  • Reduce production times compared to brine
  • Increase recoveries from 40% to 80%
  • Lower usage of fresh water, a deciding factor when applying for mining concessions
  • Lower reagents usage and increased product purity compared to brine

Types of DLE Tech Table

Direct Lithium Extraction Technologies

Lithium carbonate output in China has improved in recent months, and April was no different, with production up 2% m/m to 26,676t, an increase of 30% y/y. The pandemic reduced production at some operators due to a lack of material and maintenance. Limited forces would have likely impacted output in May, but June production will be higher due to the easing of lockdown restrictions; brine lakes will likely improve on a month-on-month basis. The increased LFP cells caused strong demand for lithium carbonate; however, as demand has wavered due to lockdowns in China, lithium carbonate prices have softened. Battery grade and industrial-grade lithium carbonate prices have declined, and the supply and demand are balanced through to October, but the introduction of new policies promoting NEVs could see this switch to a deficit and prompt gains going into Q4 when we could see production cuts in Qinghai according to SMM. The drop in output will be due to the cold weather in Qinghai, and production will remain low through to March. According to SMM, major producing regions Sichuan and Jiangxi might also see a more moderate drop in output by 10-15%. This, in conjunction with robust demand for BEVs and LFP cells, will keep lithium carbonate prices higher; therefore, we favour buying weakness.

Lithium Carbonate Prices

Prices have surged high in the last year and are expected to remain high in the medium term due to structural deficits.

Lithium hydroxide prices have also been rising, and we see more robust demand due to medium and high nickel batteries representing over 50% of the market. We see an increase in lithium hydroxide prices as consumption remains strong, the spread between the lithium hydroxide and carbonate shows the preference for hydroxide in recent months, the hydroxide premium is at $10,355/t, the mean is -$514.74/t carbonate over hydroxide. Despite the robust pipeline of lithium production coming online, demand is expected to continue to surprise the upside, especially with China's policy set to promote the consumption of NEVs and with the market favouring BEVs; in our opinion, hydroxide will extend its premium. The structural deficits are expected to reach 250,000 by 2030, with some research houses forecasting a 200,000 as soon as 2025. The race to secure products has just started, but there is no material available on the spot market; if battery producers and EV makers sleepwalk, then they will be unable to secure lithium.

Lithium Hydroxide Prices

After a very modest correction, Li hydroxide prices have started to edge higher due to high Ni battery demand.

According to Wood Mackenzie, global lithium capacity is set to rise to 5,500GWh by 2030; this is higher than McKinsey's forecast of 4,500GWh; the shared capacity based in Asia will decline to 69% by 2030 in North America and Europe. Europe will represent 20% of global capacity. However, Chinese manufacturers are expected to increase output by 3,000GWh, and CATL is leading the expansion with 800GWh by 2030. More plants are expected to be announced in the remainder of the year, with the UK announcing various projects so far this year. The US has promised $3bn on EV battery manufacturing in Biden's Infrastructure Law; the capital will go towards new EV battery factories and help the US increase their capacity 10-fold by 2030, likely by even more. We expect significant M&A activity in the EV and battery storage space; OEMs will look to secure battery material by investing directly in mines and refineries. This has been seen with partnerships between Vulcan Resources and auto producers such as Renault. Batteries represented less than 30% of lithium demand in 2015, with ceramics and glasses at 35%, metallurgical powders, polymers, and other industrial uses at 35%, according to McKinsey. In 2030, battery demand will represent 95% of lithium demand, with total needs reaching 3.6m tons LCE.



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