The great cross-sector convergence in the battery mineral value chain

Mining, manufacturing, and power and utilities sectors must collaborate now to accelerate electrification across Canada.

Authored by: Harrison Bontje, Senior Director, Americas Mining & Metals, EY-Parthenon

There’s no easy button to accommodate the projected 85 million electric vehicles (EVs) set to roll out on roads in Canada and the United States by 2035. Though there has been a significant uptick in battery electric vehicles across Canada, +85.4% (year-over-year from Q3 2022), this pales in comparison to the total vehicles on the roads where internal combustion engine (ICE) vehicles account for nearly 90%. Closing this gap requires close collaboration across mining, utilities and manufacturing players — as well as ample government support.¹ The challenge is: to meet electrification targets, these stakeholders and industries must be in lockstep, delivering against goals from critical mineral extraction right through to power and infrastructure. This is required to ultimately support and sustain the energy transition.

What obstacles are driving this need to collaborate?

1.       Demand for critical minerals to support EVs is intensifying.

Demand for critical minerals is exploding. Based on 2022 figures, it will take a 40-fold increase in lithium production and 20 times the amount of nickel, graphite and cobalt to fulfill that need. The industry can’t produce — or bring new mines online fast enough — to meet that demand under current conditions.

The surging demand for critical minerals will require more intensive mining going forward. Given that it can take more than a decade of investment and development to bring a mine to production, we are quite simply running out of time. These gaps need to be bridged at every single stage of the process. That means ramping up investment in exploration, partnering with governments to accelerate regulatory and permitting necessities — without compromising environmental factors — and innovating to drive more efficient extraction while continuing to decarbonize operations. And the mining industry cannot be the sole actor pushing for these changes. Making progress will take concerted effort from all stakeholders in the value chain.

Those challenges come full circle when we consider the bigger picture: if there are fewer exploratory or junior mining companies coming online, larger organizations will have limited paths to expand or acquire.

All of this is expensive. Investors, though, remain cautious about pouring finances into relatively high-risk mineral processing facilities. The length of time from initial funding to definitive ROI is a deterrent that the industry doesn’t need. Mining is already working to change perceptions by decarbonizing operations, preserving water and producing green. But environmental, social and governance (ESG) issues continue to be ranked as the industry’s top risk. That can make investors skittish.

While ESG and climate change come first and third on the industry’s risk list, geopolitics takes second, up from fourth in 2021. Challenges like resource nationalism are expected to impact operations as governments seek to fill post COVID-19 pandemic spending revenue and capitalize on higher commodity prices through new or increased mining royalties.

Taken together, these factors squeeze the battery mineral value chain, disrupting EV adoption and decarbonization overall.

How can industries collaborate to effectively tackle critical mineral shortages?

• Dismantle barriers to educate stakeholders. Many audiences fundamentally don’t understand the impact that minerals have on everyday life. To foster cross-industry collaboration, we need mining and government to invest and educate people, demystifying the industry and building awareness. At the industry level, we’re seeing initiatives like this take shape through Canadian mining associations. Now’s the time to double down and help amplify that messaging to bring stakeholders — new recruits, potential investors, local communities and others — on board.
• Address ESG issues strategically. Each of these sectors has a significant impact on the environment, spanning the end-to-end value chain. As they continue to progress and meet ESG targets, there must be greater reward from investors and capital markets, encouraging stakeholders to make decisions and allocate capital to alternative sources or models that are greener. Capturing the opportunity cannot be at the expense of the progress made on the ESG agenda.
  
• Create clear ownership. Miners will need relationship brokers operating at the heart of organizations and the industry itself. This piece is foundational. It applies across industries but has a particular significance for mining. Who will bring disparate players together? Who will rally conversations and action? Mining must prioritize collaboration alongside any other strategic business imperative to really make this work.

2.       Mass electrification requires massive infrastructure investments.

Upstream, downstream and consumer power needs are poised to change dramatically as EV adoption takes hold in Canada and beyond. High adoption scenarios that suggest 30% of all cars on Canadian roads should be EVs in the next seven years would require a significant national charging infrastructure. Looking beyond the charging stations themselves, that kind of undertaking also necessitates major expansions to everything from hydro poles to wires, transformers and more. And that’s all just to support the actual cars.

Electrification at scale would require a tremendous network of charging infrastructure. Right now, that represents a big gap in Canada. Even so, it’s not just the cars themselves that will require more power. Ramping up critical mineral extraction means building and extending power networks in new and sustainable ways to offset the uptick in carbon emissions as production grows. Building out additional capacity at automotive and manufacturing production sites — including automotive manufacturers — could necessitate similar growth of the power network. That’s to say nothing of the uptick in home-charging stations and private facilities, and the work that would entail.

What’s more, as we continue to retire coal plants and look for cleaner generation as part of the energy transition, load balancing will also become a critical challenge requiring strategic thought. That discussion should likely cover the use of intermittent wind and solar power, the short-term need for more hydro and natural gas generation — and a fulsome, longer-term dialogue about the role nuclear can or should ultimately play.

All of this comes at a time when utilities continue to be plagued by regulatory conflicts of interest between their core purpose - providing accessible and affordable energy — and the need to adapt, innovate and build for a very different future. Making good on EV uptake targets will also likely require broader regulatory and policy change. That’s critical to support the lightning-speed growth necessary if power and utilities giants are going to keep up with decarbonization and EV adoption in Canada. Anything less could widen existing geographic disparities.

Case in point: incentive and tax credit programs for EVs vary significantly from British Columbia to Ontario to Québec. Put that in the context of power and utilities, and it’s clear that the regulatory environment doesn’t really support the industry in thinking or innovating outside the box.

Utilities themselves are mandated to manage rate costs while delivering enough safe and reliable energy to meet current needs. That doesn’t leave much room to proactively adapt to what’s coming down the pike with EVs. What’s more, it begs the need for reaching across industry and sector lines to make progress quickly.

The oil and gas industry offers prime examples of massively collaborative approaches to fuel innovation. Companies are investing significant dollars to better understand the transition through their significant retail footprints. We’re already seeing big energy brands move into the power generation space with a focus on renewable energy: think solar and wind. As a sector overall, oil and gas companies are also converging around high-impact possibilities like hydrogen, carbon capture utilization and storage (CCUS) and natural gas — all necessary to support Canadian electrification. 

How can industries collaborate across the battery mineral value chain to quickly build needed infrastructure?

• Align with government to get a national infrastructure strategy in place. Find synergies with utilities and with miners and governments to get things in place. Macroeconomic uncertainty leaves a lot of questions, but one thing we do know is that stimulus programs may very well focus on a sustainability agenda if a recession arises.
• Abandon linear thinking. Utilities today tend to be very linear. Going forward, power generation will become part of the equation so utilities can intake and ingest and monitor where they’re pulling electrons from. That brings new questions about transactions. For example, will businesses or consumers be compensated for sharing battery charge during peak demand periods? The need to think differently extends beyond the systems themselves to how utilities will communicate with customers in the future, logging and tracking data for energy being giving back into a system, owning batteries and letting utilities use them, and controlling systems to provide new advanced monitoring processes. Utilities will need to account for all of this going forward, and that requires a real shift in strategy.
• Adjust utility models to meet the demand. No one industry or even private player can afford to pay for the entire infrastructure necessary to support mass EV adoption. In reality, we’ll need a combination approach to make this work. And the rate-focused nature of utilities means this will require partnerships. As EVs proliferate, are there opportunities to use them in ways utilities haven’t before — for instance, as mass storage devices? We’re seeing this with initiatives like the Pathways Alliance in the private sector.² There are undoubtedly opportunities for utilities to embrace similar approaches — or even consider collaborative private-public relationships to transforming infrastructure.

3.       The value chain must become more agile to succeed.

Making meaningful progress requires us to address the key challenge of the fragmented value chain itself. We need to create agility, flexibility and responsiveness in the value chain to manage anticipated volatility.

Today, Asia dominates the midstream for battery materials. China leads midstream refining capacities, holding 61% of the world’s lithium, 72% of the cobalt and 21% of the nickel. That represents a bottleneck — as well as opportunities for Canadian-based cell production. Creating a more agile value chain by bolstering the midstream for battery minerals and closing the downstream and upstream loop can help. But we need to figure out how.

The Canadian critical mineral and EV industries present a unique opportunity for various stakeholders, from mining organizations and manufacturers to utilities and government bodies, to collaborate towards the shared objective of reaping mutual benefits. However, the question arises: is Canada ready to fully take advantage of this opportunity and seize the battery mineral value chain? While the potential is evident, it’s imperative to note that the landscape is rapidly evolving, with large automotive manufacturers making significant investments and decisions with far-reaching implications.

Building a culture of openness, innovation and collaboration among Canadian organizations can fuel success. By embracing these values, stakeholders can unlock the potential to capture a greater share of the battery mineral value chain market and compete on a global scale. As the demand for critical minerals continues to grow, the importance of a collaborative approach cannot be overstated. By working together, Canadian organizations can tap into the full potential of the critical mineral value chain, create a robust ecosystem and emerge as global leaders in the field.

As industry leaders embrace new operating models and innovate to bring more aspects of the EV buying process in-house, change is taking hold. Future success, though, will rest on industry’s ability to continue innovating not only within a given sector, but right across the value chain itself. Doing so will create greater agility and tighter integration. What’s more, it’s important to get more elements of the e-mobility value chain making progress in tandem rather than at different speeds.

How can industries collaborate across the battery value chain to bolster consumer certainty and alleviate pricing woes?

• Get comfortable with new market entrants. Non-traditional players are already beginning to emerge in this space as industries integrate more aspects of the EV buying process to deliver a seamless consumer experience — for example, purchasing the EV as well as the entire energy ecosystem through a single, non-traditional supplier. To become part of that solution, utilities must think creatively about integrating into these ecosystems.
• Pool resources to build optimal technology. Do we need the same size of EV battery that we have today? Or could it be smaller or use less or come from recycled materials in the next 10 years since it will be constantly charging? How might working with miners and utilities help develop not just technology we need today, but the elements we’ll need in the future? These are questions manufacturing and mobility companies should be asking. Pooling resources can help uncover solutions. True, too, for redoubling the focus on talent to show employees what they could be a part of, and engaging them in collaborative, cross-industry progress.
  
• Use what’s already out there to learn and develop faster. The sustainability agenda is shaping the mobility agenda. But looking across mobility and transportation more broadly can uncover ideas. How are mass people movers like high-speed electric trains capitalizing on infrastructure? What can be learned from this approach and applied here?