Europe’s carmakers face raw material bottleneck for EV batteries

Major carmakers like Volkswagen, Daimler and Stellantis have been racing to secure battery cell supplies in Europe, but may face a bigger challenge as they seek to go electric — finding enough battery raw materials.

Failure to obtain adequate supplies of lithium, nickel, manganese or cobalt could slow the shift to electric vehicles (EVs), make those vehicles more expensive and threaten carmakers' profit margins.

"There is a serious question as to whether supply can keep up with demand across the battery supply chain," said Daniel Harrison, an auto analyst at Ultima Media.

Until recently, Europe was seen as having lost the battery race to dominant Asian manufacturers like CATL in China, South Korea's LG Chem, and Japan's Panasonic, said Ilka von Dalwigk from EIT InnoEnergy, which has set up a company network funded by the European Union in the "European Battery Alliance".

"Nobody saw that as a problem," said Von Dalwigk.

"The thinking was that we can import battery cells."

However, forecasts from banks like UBS that EV sales would soar over the coming decade shook the political establishment and carmakers, and forced a rethink of battery production.

Plenty of battery plants

This was followed by EU funding programmes worth billions and major battery plant announcements by car manufacturers and suppliers. Volkswagen alone plans six battery plants in Europe, while Daimler will build four with partners.

Recently, battery cell factory announcements have come thick and fast, and EIT InnoEnergy lists almost 50 planned projects in the EU.

If all those plans become reality, local production should meet demand around 2030. About 640 gigawatt hours (GWh) would be available, enough for average annual production of 13-million cars.

By 2030, Ultima Media estimates global worldwide supply at 2,140 GWh, with demand at 2,212 GWh.

Ultima Media's Harrison projects Volkswagen's six planned plants would allow the Wolfsburg-based company to cover around two-thirds of its own battery needs.

Supply chain gap

The problem lies with raw materials like lithium, nickel, manganese and cobalt.

Market experts from Benchmark Mineral Intelligence (BMI) speak of "the great raw material disconnect" — high investments in cell factories, but missing investments in raw material extraction.

Within a year, the price for lithium carbonate has more than doubled, said Caspar Rawles, head of price and data analysis at BMI.

In the case of cobalt, where the largest deposits are located in Democratic Republic of the Congo and are sometimes extracted under miserable working conditions, an increase in price is also expected.

At the beginning of the supply chain, it takes around seven years for new mines to be developed.

"Europe is not the only region raising its e-car targets and reducing CO2 emissions," said Rawles.

A global race is under way.

The automotive industry is experiencing painful production disruptions due to the shortage of semiconductors.

Some carmakers, including Volkswagen, are trying to secure the supply of raw materials with exclusive supply contracts.

So far, lithium has mainly come from Australia and Chile, cobalt from the Congo, and graphite from China. The largest processors of cathode and anode material are also located there and in Japan.

But imports can become more expensive due to tariff increases in trade disputes and interrupted by logistics problems, as a tanker accident that blocked the Suez Canal recently showed.

Long journeys are bad for those focused on making batteries with as few CO2 emissions as possible.

Homegrown resources

One answer is investments in raw material extraction in Europe — lithium is particularly available.

Startup Vulcan Energy is working on obtaining lithium CO2 neutrally from thermal water in Germany's Upper Rhine plain and has signed up Renault as a customer.

"We would need a lot of projects like Vulcan Energy. With one in every European country we would have a chance to build the supply chain in Europe," said Harrison.

EIT InnoEnergy estimated by 2030 Europe could tap a quarter of the raw materials it needs so it is working on raising more money that could trigger further investments.

Recycling is another option. But here, too, Europe lags far behind China.

Currently, quality issues mean only 10% to 20% of demand could be met with recycled material, said Von Dalwigk.

There is a risk the shift to e-mobility will be slowed, said  Harrison.

However, he said he believes the European Commission and EU member states will have to take action, such as more subsidies for exploring reserves and recycling, "because so much is at stake economically and ecologically".