12 minute read 19 May 2020
Kids loading black electric car trunk against house in back yard

How the balance of power will change the chemistry of an EV future

Authors

Frank Jenner

EY Global Chemicals Industry Leader

Visionary in markets and business development for the chemical industry. Enjoys race boarding in the mountains. Enthusiastic golfer.

John Simlett

EY Global Future of Mobility Leader

All things mobility. Innovative thinker. Entrepreneurial mindset. Strategic partner and consultant for the auto and transport industries.

12 minute read 19 May 2020

Show resources

Automotive and chemicals companies must consider today’s battery trends to address tomorrow’s potential supply chain and sustainability concerns.

Thanks to declining battery costs, electric vehicles (EVs) are expected to achieve cost parity with internal-combustion-engine vehicles by the mid-2020s, EY analysis shows — triggering greater demand and forcing a reckoning with how their batteries are designed, produced and reused, with dramatic implications for the automotive and chemicals sectors.

Annual global sales of passenger EVs in 2018 reached just over 2 million, but by 2030, they are poised to reach 28 million,1 representing over 25% of global passenger vehicle sales.2 Currently, passenger EVs are powered by lithium-ion batteries, and analysts predict that battery pack costs will plunge: from US$176 per kilowatt-hour in 2018 to a rate of US$62 by 2030.3 Furthermore, accelerating innovation and expanding manufacturing capabilities will deliver economies of scale.

Battery EVs reaching cost and performance parity with combustion engine vehicles was one of three crucial tipping points that we identified as a game-changer for the energy sector. In the short term, the steep decline in oil prices amid the COVID-19 pandemic adds a complicating factor to that equation: global sales of EVs are likely to drop by 43% in 20204 but, over the medium to long term, the shift could still have a lasting impact.

Power surge

8.3%

compound annual growth rate (CAGR) in the global demand for battery materials in 2019 (estimated at US$46.8 billion).

The impact on global demand for lithium-ion batteries is expected to be enormous, reaching 1,748 gigawatt-hours (GWh) by 2030 from about 220 GWh in 2019.5 By 2029, the battery cathode market is expected to surge to US$12 billion (at a CAGR of 19%), and the next-generation anode material market will follow suit, reaching US$6.3 billion (at a CAGR of 17%).6

Amid this expected upswing in demand, more efforts are underway globally to rethink the designs and the chemistry inside for longer charges from smaller packs at a lower cost.

The push to create the next generation of battery chemistries and compositions has initiated a new era of partnerships between automakers and chemicals companies, raised questions about how best to approach the entire EV supply chain, and prompted renewed debate about supplies of crucial minerals and the need for sustainability.

What must the automotive and chemicals industries do now to position themselves to thrive?

Worker on production line for the assembly of new vehicles
(Chapter breaker)
1

Chapter 1

Inside the batteries

Efforts to build smaller, cheaper and more sustainable energy-dense batteries are advancing on multiple fronts. Which is the most promising?

In 2019, global demand for battery materials was estimated at US$46.8 billion, with a CAGR of 8.3%, primarily driven by expanding production of advanced battery types for hybrid and electric vehicles and portable electronics.

The chemicals segment is expected to capture high growth from this continuing trend, with the strongest gains in lithium and nickel chemicals.7 In response, leading chemicals companies and automakers are putting more money into R&D, hoping to create smaller, cheaper and more sustainable energy-dense batteries.

One leading chemicals company expects to create car batteries that are half the typical size of today but with twice the capacity, with a charge time of 15 to 20 minutes, by 2025. It has invested in cathode active-material research with that goal in mind; in early 2020, it announced that it would be upgrading a plant to efficiently produce cathode materials.

While such claims may not pan out as expected, efforts to expand the manufacturing capacity of lithium-ion batteries are advancing on multiple fronts. Global annual production capacity is expected to increase from 297 GWh in 2018 to 1.6 TWh in 2028.8 Companies are building materials factories by investing in new ways to scale up production, as the demand for batteries is expected to overtake demand for chemicals used in internal combustion engines (such as automotive catalysts).

Energy sources being used now or explored include:

1. Lithium-ion batteries

Currently, these batteries are expected to remain the most prominent through the near term, perhaps the next 15 years. Passenger EVs are expected to account for 85% of the overall demand for lithium-ion batteries by 2030, totaling more than 1,748 GWh by 2030.9

However, lithium, cobalt and graphite — all typical components used in the batteries, along with nickel, manganese and aluminum — may face supply shortages as demand surges in the medium term. As a result, battery minerals may enter a deficit in the near term over supply disruptions. On the other hand, this may act as a push for mining and automotive giants to invest in a battery minerals portfolio, a trend not witnessed significantly as of now. 

The global market for graphite is expected to grow at a CAGR of 5.3% from 2018 to 2027 to reach US$21.6 billion with electric vehicle anode as one of the major applications. A world bank report estimates the demand for graphite to increase by 383% over the next 30 years.10 Some predict a shortfall of 100,000 metric tons for lithium by 2025, and because of cobalt’s relative scarcity, some industry experts foresee a 20% gap between supply and demand in 2025.

At the same time, experts expect cobalt content to decline as companies’ initiatives are directed toward increasing the energy density of batteries, reducing costs and ensuring an ethical supply chain. Other research focuses on how the metal anode battery could be followed by lithium-air batteries, which use oxygen molecules to generate energy. Development is also possible on the cathode side, which would reduce the lithium mix.

2. Redox flow batteries

While in many ways still in their infancy, these batteries promise greater lifespans at a lower cost, with less of an impact on the environment in manufacturing and recycling.

In a flow battery, a membrane separates two liquids that are circulated, and the electrolytes are isolated. However, at this point, they typically require vanadium, which is rarely found in nature and hard to extract. (Iron is being explored as an alternative.)

This energy storage system also requires pumps and moving parts, requiring more maintenance. The value of this battery market is expected to reach US$370 million by 2025, at a CAGR of 14.3%, up from US$130 million in 2018.11

Through vehicle-to-grid integration, any EV with a battery can act as an asset for electricity grids as a virtual power plant, in which spare capacity is leveraged during peak hours. This would generate cost savings for consumers, as utility companies would offer them compensation.

However, the batteries would be charged and discharged more frequently than anticipated by the car manufacturer. In this scenario, automakers must raise awareness of the resulting battery degradation so they are not unduly blamed.

3. All-solid-state batteries

Unlike traditional lithium-ion and redox flow batteries, these do not use a liquid electrolyte, so they can be more durable and are able to resist temperature changes. A liquid electrolyte requires a separator between the cathode and anode that can raise the cost of the battery and make it bulkier; by contrast, a solid-state electrolyte does not need a separator or protective casing. Also, in lithium-ion batteries, the liquid electrolyte is flammable, which can present safety concerns.

Automakers are seen as more enthusiastic about the potential of all-solid-state batteries than most battery makers, who believe it could take at least 10 years before they are widely in use. One ambitious Japanese automaker is striving to introduce an EV powered by an all-solid-state battery by 2022, while some German automakers are hoping to put forth their versions by the mid-2020s. In a 10-year forecast until 2029, IDTechEx predicts that the market for these batteries will reach over US$25 billion.12

4. Hydrogen storage and fuel cells

Enthusiasm is growing for this option, which is virtually emission free and requires less time for refuelling compared with battery-operated EVs. Energy densities by weight or by volume vary broadly, based on how the hydrogen is stored. Various methods exist for storing hydrogen. But a solution that is efficient, light and low-volume enough for small passenger cars, to rival how common liquid fuels are stored, while remaining competitively priced, is still in its infancy.

Even so, the market for hydrogen fuel cells is expected to grow from US$860 million in 2018 to US$49.12 billion by 2026, at a CAGR of 64.6%,13 as this option has proven successful for forklifts, buses, trucks, and trains and ships.

“As demand for hydrogen increases dramatically among various industries, industry convergence could further accelerate price reductions,” said Andreas Bliersbach, EY Global Energy Storage Lead. “This will in the short term challenge the concept of battery long-haul trucks and grid-scale battery storage and thereby disrupt battery demand forecasts and use cases.”

Perhaps, looking 15 years or so into the future, battery EVs may become a “bridge” solution for hydrogen-powered vehicles even for passengers, although currently the two types coexist under different use cases.

Charging of an electric car
(Chapter breaker)
2

Chapter 2

Proactive players in the market

Companies should consider what battery chemistries are likely and then map out their supply chains. But that’s just the minimum to do.

In this evolving marketplace, the automotive and chemicals sectors face fundamental challenges in their business and operating models. To position themselves for the future, they must consider strategies on how to:

  • Secure sources of raw materials
  • Identify the most effective battery technologies
  • Build the right alliances and ecosystems
  • Drive standardization over the next five years

At a minimum, companies should consider what chemistries are likely and then map out their supply chains. For example, cobalt costs around 30% more per kilogram than lithium and twice as much as nickel, and most of it is mined in the Democratic Republic of the Congo, a nation that presents transparency and human rights concerns.

For those reasons, automakers and other groups are exploring alternatives to cobalt (particularly nickel) and seeking ways to reduce cobalt usage. ECO COM’BAT, a European project led by the German research body Fraunhofer ISC, was able to cut cobalt requirements by 20% using a special electrode coating and a high-voltage electrolyte in a specific type of battery.

For automakers, playing a key role in battery design and configuration efforts can yield dividends. For instance, one major US-based EV manufacturer recently partnered with a Japanese electronics industry player to develop a factory that is expected to bring the cost of batteries down to US$100 per kilowatt-hour in 2020.

Forward-thinking companies should set up centers of excellence to study battery performance and consumer charging behaviors. One automaker did exactly that in 2019, focusing on cell chemistry and collaborating with supplier companies.

Other differentiators

While most automakers are outsourcing battery cell production, a few are looking to keep a proactive and tight control over supply chain as a differentiator, because sales of EVs rely on consistently available key materials. Chemicals companies should be cognizant of the trends.

Direct procurement by automakers from miners, and even purchases of mines, may be worth exploring, not only to create access to a reliable supply of minerals but also to lock down some associated costs. For example, most automakers do not have a proper long-term contract for the supply of lithium, likely the most crucial component of batteries, at least in the short to medium term.

One automaker (through its trading arm) purchased a 15% stake in an Australian company that produces lithium in Argentina, and it owns a stake in a large nickel smelter. Another automaker CEO raised the possibility of moving into the mining business to go further down the lithium-ion battery supply chain. Chinese companies — particularly car companies and car supply companies — have invested more than US$1 billion in transactions for lithium mines.14

Joint ventures are also an important avenue in this space. A leading automaker has formed a partnership with a chemicals company in Ohio to produce battery cells for EVs. The automaker is planning at least 20 all-electric cars by 2023, but the joint venture could decide to supply batteries to other companies as well.

Chemicals companies also have a role to play in battery safety. One company has designed a new battery pack with composite materials, from polyurethane resin and fibers such as glass or carbon, that offers greater crash protection for the flammable components in lithium-ion batteries.

Worker on car production line in car factory
(Chapter breaker)
3

Chapter 3

The power of sustainability

Sourcing materials ethically, determining carbon footprints, and focusing on recycling and reusing shouldn’t be overlooked for an advantage.

The trend away from cobalt and the increasing demand for lithium illustrates how companies have a vested interest in evaluating the sustainability of the materials comprising their battery supply chain. And when marketing a product that is supposed to be better for the environment, there is more of an advantage for those who can deliver on that promise through accountability and transparency.

Sourcing materials ethically — by avoiding child labor and inhuman working conditions, for example — and computing carbon footprints over the entire battery life cycle are likely to be major considerations for battery manufacturers.

Manufacturing a battery takes a lot of energy, swelling its carbon footprint if the energy used to produce it is not a green source. A battery’s lifetime emissions — the greenhouse gases from electricity production used in charging — are increasingly a point of focus as well.

One automaker has responded by creating a rating for suppliers, and those who breach the code cannot participate in contracts. Executives say that suppliers must self-assess their sustainability conduct (across areas such as corruption, environmental protection and human rights) through a questionnaire and provide supporting documents, and qualified third parties perform reviews, with on-site checks if necessary.

Another automaker has recently reduced the amount of rare-earth elements used in an EV. It is prepared to eventually eliminate its dependence on these elements, as well as procure its materials such as lithium and cobalt directly.

Reuse and recycling

The chemicals industry has long been investing in R&D to produce products that are technologically advanced and can be recycled and reused repeatedly — a “circular economy” model that should be applied to batteries as well. This issue gains urgency because, if global EV sales surge as expected, we will have an ever-growing stockpile of batteries.

With the right systems and markets in place, batteries that may appear to be spent can go on to enjoy second, third and even fourth lives in less-demanding uses. Alternative uses that can be economically viable include storage of power generated by solar and wind, grid stabilization, and backup power supplies.

Automakers that set up divisions focused on the recycling business can continue to capture this value. The battery capacity is one factor to be considered: some cars are intended to be more powerful than others, and as a result, the future uses of their batteries may be better suited for different purposes.

In some cases, reuse may be a regulatory imperative — for example, in China, the sellers of the battery assume responsibility for how it should be repurposed, motivating them to consider longevity, performance and recyclable technology.

Reuse and recycling are already facets of the automotive and chemicals sectors: with vehicle catalysts, what remains usable as a raw material is separated from what isn’t, with the precious metals harvested and melted down. Similar efforts for batteries may fit within these already existing ecosystems. And if companies produce standardized cells in batteries, those cells have stationary and mobile applications as well, beyond uses in cars.

Looking ahead

In this complex and ever-evolving time, we offer three main points for consideration:

  • For passenger EVs, lithium-ion may be the preferred technology for the next 10 to 15 years, but value chain participants need to be agile and flexible as the technology (even within this battery class) will keep upgrading.
  • The worldwide commercialization of batteries is best served by an integrated ecosystem, including the mining, chemicals, automotive and infrastructure sectors. Partnerships are essential.
  • Industry participants, governments, academia and research bodies should come together and develop EV battery value propositions that are commercially viable while securing the required supply of critical minerals.

Summary

To thrive, automotive and chemicals companies must confront the duality of growth, plotting for an immediate future where electric vehicles become much more prominent in the market, while looking further out onto the horizon, where other possibilities such as hydrogen power become more commercially viable. Flexibility, sustainability and partnerships hold the key for success in this rapidly changing world.

About this article

Authors

Frank Jenner

EY Global Chemicals Industry Leader

Visionary in markets and business development for the chemical industry. Enjoys race boarding in the mountains. Enthusiastic golfer.

John Simlett

EY Global Future of Mobility Leader

All things mobility. Innovative thinker. Entrepreneurial mindset. Strategic partner and consultant for the auto and transport industries.