Fossil fuels are rising in price and administrations are accelerating the transition to electric cars. However, this also poses difficulties and challenges that the automotive industry must overcome.
The energy crisis has made many users consider the transition to an electric car more seriously. And this does nothing but establish a trend that has occurred in recent years: that more and more plug-in cars are being sold and fewer combustion cars.
But this implies the appearance of new challenges that both administrations and manufacturers must overcome. One is the need to create a reliable and extensive recharging network that guarantees an adequate supply of electricity. Another is the increase in demand for batteries and their components.
The five challenges arising from the ‘boom’ of the electric car
The increasing presence of electric cars in the market and on the roads has generated a significant investment by manufacturers in these technologies. This includes batteries, which have become the key to the success of sustainable mobility.
The average price of batteries will rise to 135 dollars/kWh in 2022, 2% more than the previous year
More efficient, more powerful, with greater autonomy and charging speed; that is what the user demands. But all this poses challenges that little by little are becoming a bigger problem.
1. Limited supply of metals
Cobalt, manganese, phosphorus, iron, nickel, graphite, aluminum, copper, lithium…there are many metals needed to manufacture electric vehicles and their batteries.
And demand has started an acceleration that threatens to destabilize the supply flow of these expensive and limited materials.
Bloomberg NEF notes that a 50% increase is expected (4.8 million metric tons) of metal demand for batteries this year and that, by the end of this decade, at least 17.5 million metric tons will be needed. In fact, the demand for lithium, the star material, will multiply by seven between now and 2030.
According to this same organization, the supply of lithium, nickel and manganese could be slowed down as early as this year. «The extraction capacity of the mines is limiting the supply of lithium and nickel refinerieswhile manganese – which is used to make battery cathode precursors – faces problems stemming from underinvestment in sulfate refining capacity.
2. The price of lithium
Another problem derived from the rise of the electric car, the need to manufacture batteries and the enormous increase in the demand for materials is the increase in the price of lithium.
Specific, lithium carbonate and lithium hydroxide they are crucial in electric car batteries while other technologies have not matured enough.
This has seen lithium carbonate prices rise from $5,000 per tonne in July 2020 to around $70,000 per tonne in July 2022. “The rapid growth in demand as supply stagnates is the main driver of the increase”says Kwasi Ampofo, head of metals and mining at BNEF.
The price increase, together with the limited production of lithium carbonate and hydroxide due to the limited availability of raw materials, threaten to cause a limitation in supply this year.
“While mine-level risk-adjusted capacity is projected to reach some 673,000 tonnes of lithium carbonate equivalent (LCE) in 2022, demand is expected to exceed 676,000 tonnes of LCE»indicates BNEF.
This makes it clear that the lithium industry could find it difficult to meet the growing demand for electric vehicles, unless the new projects started come online quickly in the next two years.
3. The cost of batteries
All of the above results in a notable increase in the cost of producing batteries, which in turn weakens the rise of electric cars.
this can end generating a turning point in its growth and reversing the trend. One of the keys to the ultimate success of the electric vehicle is that its price drops considerably until it is equal to that of combustion cars. But the battery is the component that most influences the cost of production and the final price of the product.
Although the rate of decline has slowed, prices are getting closer to the $100 per kWh markfrom which electric vehicles are expected to reach parity with internal combustion vehicles in terms of initial cost,” notes BNEF.
«However, this year there could be a bump in the road. Amid rising costs for raw materials and components, battery prices could rise for the first time since at least 2010.
According to forecasts, the average price of batteries will rise to 135 dollars per kWh in 2022, that is, 2% more than the previous year. “If inflationary pressures persist, this could push back two years, to 2026, when EVs hit the $100/kWh threshold.”
This is already noticeable in the prices of certain electric cars, as brands such as Tesla, Rivian and General Motors have increased the prices of their models this year.
4. The rise of cheap chemicals
Rising costs are already driving manufacturers to switch to less expensive battery chemistries.
An example of this is the replacement of cobalt by nickel, which has increased in the last three years. Added to this are the ethical implications derived from the use of cobalt, which comes mostly from the Republic of Congo through artisanal mining in which workers must face inhumane conditions.
The latest BNEF forecast is that cobalt demand will grow by 28% from now to the end of the decade, until exceeding 150,000 tons. However, this is less than half of what was estimated in 2019.
5. Dependence on China
Europe and the United States are working hard to reduce their dependence on China for the supply of materials and batteries. Currently, the Asian country controls more than 50% of the refined of metals for batteries.
Chinese companies have no intention of stopping there and are already investing heavily to increase their production capacity. Also, China is also a powerhouse in battery manufacturingwith almost 75% of the current total capacity.
Although Europe and the United States are called to break into the market, China is expected to remain the leader and retain a 69% share of global manufacturing capacity in 2025.
Font: BloombergNEF
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