Could shortages of key minerals derail the Electric Vehicle transition?

In the past few years, government around the world have set ambitious transition targets to phase out internal combustion engine (ICE) vehicles and move toward a battery-driven future of transport. In 2021, the UK government announced a 2030 target date for ending the sale of new ICE light vehicles. The EU, US and China have all followed with pledges to do so by 2035. This will require an expansion of electric vehicle production that might reasonably be described as monumental. Perhaps the major barrier to such a transition is access to the raw minerals that will enable this shift. There are several key metals and minerals, ranging from the better known (Aluminum, Iron, Silicon, Copper, Zinc and Lithium) to the more obscure (Chromium, Manganese, Graphite, Phosphorus and Molybdenum). Below, we’ll look at whether these plans could succeed, or if the plans for an EV revolution could go up in smoke.

The International Energy Agency recently reported that mineral extraction capacity will have to increase very substantially by 2030, to service the expected 1,000% increase in demand for EV batteries, from 340 GWh to 3,500 GWh. Among the major minerals required for BEVs, lithium supply needs to increase by 500%, nickel by 100% and cobalt by almost 100%.[1] While there are large uncertainties in the equation as battery technology continues to advance and change mineral demand, it seems certain that total mineral extraction will have to increase very rapidly in the coming years.

How likely is it that such a task could be achieved? The geopolitical analyst Peter Zeihan points out that to the best of our knowledge, humanity has never yet managed to increase production of any significant raw material input by a factor of ten within a decade. However, for certain metals, there are some encouraging signs. Reducing the Cobalt content of batteries has been a major priority, as the metal is both very expensive and mined unsustainably, often in conflict zones. Additionally, according to the Economist, Cobalt supply may finally be starting to outstrip demand, as supply has increased in response to the very high prices for the metal earlier this year. The largest producer, the Democratic Republic of the Congo, is expected to increase production by 38% in 2023.[2]

Of the world’s major mining firms, none has bet more heavily on EVs in recent years than Glencore. The Swiss company has been convinced of the business case for some time, doubling Cobalt and Copper production, and quadrupling nickel output, in the five years to 2016. More recently, Glencore has been signing long-term supply agreements with major carmakers to capitalise on its strong position in these strategic minerals. The company is one of the world’s top three producers in all three minerals. In 2020, the company signed deals to supply Nickel and Cobalt to EV market leader Tesla and is also the main Cobalt supplier to BMW.

The IEA report mentioned earlier suggest that battery supply will have to increase by around 600% to meet demand, require approximately 90 additional battery factories within 7 years, together with a 1,000% increase in anode and cathode production. Here, there is some good news, as companies in the United States, Europe and China all have well developed plans to develop dozens of battery gigafactories in the near term. China’s top battery manufacturers, including CATL and BYD, have announced over $10bn of investment to scale-up output.[3] The Inflation Reduction Act is set to turbocharge battery production in the US, with at least 29 factories planned.[4] Almost three dozen such factories are planned in Europe by 2035. According to the EU’s IPCEI fund, this will increase European lithium-ion battery production by a factor of approximately 20, from its current level of 35 GWh. Interestingly, the fund also predicts that global lithium-ion battery production will increase by a factor of 7 during that time, implying the world will meet its goals.[5]

As is inevitable with such a complex subject, the conclusions we draw must be nuanced. The scale of the EV and battery production buildout certainly seems to give the world a plausible chance to meet its decarbonisation goals by mass adoption of competitively priced electric vehicles. Perhaps we should feel a sense of guarded optimism – governments, multinational corporations and intergovernmental groups have understood the scale of the challenges and are working diligently to overcome them. Equally however, the risks and opportunities for derailment in coming years should not be underestimated, with many potential pitfalls still to be avoided – not least the fast growing geopolitical risks.