SINCE exuberance for electric vehicles (EVs) started to gain traction in recent years, there has been no shortage of bullish forecasts predicting that the end of the internal combustion engine is nigh.
In other words, cars as we know them are on their way out.
Governments are setting ever more aggressive targets on reducing – or even banning – conventional petrol and diesel vehicles, while carmakers have been jockeying to outdo each other by laying out bullish production plans for new electrified models.
Wood Mackenzies current EV view is a little more cautious. It has electric passenger cars accounting for six per cent of sales by 2025, 11 per cent by 2030, and 36 per cent by 2040.
These projections – certainly more conservative than many in the market, but possibly slightly more realistic – still generate seismic change.
The conversation right now is dominated by questions of whether countries will have enough charging points or how much the price of these vehicles must fall before they become a mainstream option.
But there is another consideration that gets significantly less attention: as the demand for EVs increases, so does the demand for the metals that make up their batteries.
Three metals are particularly crucial when it comes to EV batteries: lithium, cobalt, and nickel.
Lets start with lithium. So far, its the metal which has seen prices hold up the best. But it is probably the metal we are most bearish on, despite increased demand thanks to EV manufacturing. We retain the view that we are entering a prolonged period of latent oversupply for lithium, primarily as a result of new hard rock mine supply coming out of Australia.
Good news for EVs, you might say. But for nickel and cobalt, the supply picture is altogether more challenging.
Cobalts idiosyncrasies have become well-known as the EV battery story has gained coverage. Yet a solution to the cobalt conundrum remains elusive.
The metals reliance on supply from the Democratic Republic of Congo is only going to increase over time, while the risks in that country too are rising. Imminent elections, the continuing Ebola outbreak, sporadic outbursts of violence, small-scale mining practices, and the revised mining code are all high concerns.
It is in the longer term, however, that the real test for cobalt emerges.
By 2025, the market slips into deficit, and its hard to see where supply might come from. Efforts to safely thrift cobalt from batteries have so far proved difficult, with the delayed deployment of “low cobalt” cells this year a clear example.
For nickel, long-term fundamentals were already looking tight even without the added pressure of EVs. The metal has endured several “wilderness years” of low prices and underinvestment, with the net result that the market will start to need additional supply as early as 2023.
The additional demand from EVs and energy storage creates a widening supply gap that will need investment in the near term to plug. Yet with financiers still nursing wounds from the last cycle of nickel projects, the current appetite for investment remains tepid at best.
What does this mean for the EV revolution? The path ahead is by no means easy. Most of the worlds carmakers have or are in the process of adopting so-called ternary batteries that contain nickel and cobalt as part of their electrification strategies.
With potentially tight markets down the road for both metals, prices could escalate – something that could easily scupper the downward trend in battery costs, and therefore slow the march of EVs.
With the current crop of battery technology, achieving vast increases in EV sales by 2030 is going to be very challenging indeed.
