Demand for electric vehicle batteries continues to grow worldwide
Electric vehicle (EV) sales accelerated in 2021 and have remained high since. In 2022, EV sales exceeded 10 million units. Overall, 14% of all new cars sold were electric in 2022, compared to about 9% in 2021 and less than 5% in 2020.
However, supporting the future of electric vehicles requires greater efforts to diversify the production of batteries and critical mineral sources. In the short term, the most significant obstacles to consistently high EV sales are the rising cost of several important minerals needed for battery production, as well as supply chain bottlenecks caused by Russia's war against Ukraine.
Electric vehicles (EVs) have become the focal point of clean energy policies worldwide. Original equipment manufacturers are increasingly realizing that the future of their vehicles lies outside the internal combustion engine (ICE) ecosystem. As a result, they are changing their business strategies to prepare for the future. The battery is the most crucial component of an EV. Not surprisingly, the struggle for control of the EV battery industry is intensifying among global car manufacturers and battery producers. This rivalry also contributes to technological progress. EV batteries are among the most important and expensive parts of electric vehicles. Since transport now accounts for 27% of global greenhouse gas emissions, ICEs can be replaced to significantly reduce pollution on a global scale.
In 2022, the global revenue from the EV battery market was estimated at USD 53.08 billion, and by 2030, it is projected to increase to approximately USD 276.40 billion with a noticeable CAGR of 22.9% over the forecast period from 2022 to 2030.
LFP Batteries – A Global Solution for Electric Mobility
Lithium-ion battery technology is at the forefront of automotive innovation. Lithium-ion batteries of various designs, comparable to those used in mobile phones and laptops but on a much larger scale, are used in EVs. Lithium-ion batteries have a high energy density and are less prone to losing their charge when not in use than other types of batteries. Due to their high energy density per unit of mass compared to other methods of storing electricity, lithium-ion batteries are used today in most portable consumer gadgets, such as mobile phones and laptops. They also feature a high power-to-weight ratio, outstanding performance at high temperatures, and low self-discharge. Most components of a lithium-ion battery can be recycled, but the costs of recovering the materials remain a business problem.
Nickel-metal hydride batteries, which are commonly used in computer and medical equipment, provide sufficient specific energy and specific power. Nickel-metal hydride batteries have a significantly longer life cycle than lead-acid batteries, and they are safer and more resistant to misuse. The main difficulties with nickel-metal hydride batteries are their high cost, excessive self-discharge, and heat generation at high temperatures, as well as the requirement to control hydrogen loss.
The LFP battery is a global solution for electric mobility. Its advantages make it a desirable alternative to typical NMC (nickel-manganese-cobalt) batteries, a more established commercial technology, in the energy sector. Although they are both lithium batteries, their internal structure differs significantly. The most important raw elements for NMC batteries, nickel and cobalt, have recently faced problems. The conflict between Russia and Ukraine has affected the supply of nickel, while floods in South Africa, which forced the closure of the port of Durban, have strained the global cobalt supply chain.
LFP uses lithium carbonate rather than the hydroxide used in nickel-rich chemistries. And together with the lower price, the LFP battery has become a leader in the global EV market. Lithium-ion batteries that use lithium iron phosphate as the cathode material are known as lithium iron phosphate (LFP) batteries. Compared to other types of batteries, it has better performance because it can be charged and discharged quickly.
EV Battery Production Capacity by Region
The demand for automotive lithium-ion (Li-ion) batteries grew by approximately 65% to 550 GWh in 2022 from about 330 GWh in 2021, primarily due to the growth in sales of electric passenger cars, with the number of new registrations increasing by 55% in 2022 compared to 2021.
China is the world's largest hub for EV battery production capacity: in China, the demand for vehicle batteries grew by more than 70%, while EV sales increased by 80% in 2022 compared to 2021.
According to the China Association of Automobile Manufacturers, battery electric vehicles accounted for about 20% of total passenger car sales in China by the first half of 2022. In fact, China sold more than twice as many battery electric passenger cars compared to the previous year by June 2022. In 2022, 35% of exported EVs came from China, compared to 25% in 2021. Europe is China's largest trading partner for both EVs and their batteries. In 2022, the share of EVs manufactured in China and sold in the European market increased to 16% compared to about 11% in 2021.
Meanwhile, sales of hybrid cars in China grew by more than 150 percent compared to the first half of 2021. Therefore, it is not surprising that a Chinese battery manufacturing company dominates the automotive industry.
LFP production is mainly limited to China, which has long been the main hub for LFP battery production: about 95% of LFP batteries for electric vehicles are produced in China. One of the reasons for this is LFP patents. The research group that owns the patents has reached an agreement with Chinese battery manufacturers under which they are not paid license fees if LFP is used exclusively in China.
Large car-producing countries want to expand their reach in the supply chain, from the production of EV components and cars to stable supplies and recycling facilities for minerals and metals. Some governments have recognized battery and EV production as important industries and are working to increase local production. Some of them are actively directing investments into this sector.
Although the European Union has made significant investments in R&D and production capacity in recent years, the development of the supply chains needed for the EU's battery production sector will likely take time.
Similarly, the United States has recently refocused on developing local supply chains for batteries and EVs, leveraging its key mineral supplies and particularly the automotive sector. The demand for vehicle batteries in the United States grew by approximately 80%, despite EV sales increasing by only about 55% in 2022.
Growth in Investment in Electric Batteries
The demand for the basic metals used in battery production has grown significantly as a result of the high demand for batteries.
Over the next 10-15 years, political and regulatory pressure on automakers worldwide will increase for them to begin phasing out the production of fossil fuel-powered cars, including gasoline-electric hybrids, while simultaneously increasing the production of fully electric models. By 2030, several countries, such as Singapore and Sweden, want to ban the sale of new cars with internal combustion engines.
By 2030, VW, Daimler AG, BMW AG, and other German manufacturers intend to jointly invest USD 185 billion in EVs, while GM and Ford in the United States expect to spend almost USD 60 billion.
To get parts for EVs, such as batteries and motors, in 2022, Mahindra raised USD 250 million from British International Investment for this division.
To replace the expensive minerals used in batteries with more affordable and common materials, an entire industry of businesses has emerged. For use in anodes, the electrodes through which electricity exits batteries when a vehicle is in motion, OneD Material from San Jose makes a material that resembles old coffee grounds. To eliminate the need for graphite, which is more expensive and in short supply, the material is made of silicon, which is abundant and cheap. In the future, solid-state batteries will replace the liquid lithium solution at the core of most batteries with layers of a solid lithium compound. Solid-state batteries will charge faster because they are more reliable and resistant to overheating. They will also be lighter.
EV supply chains are increasingly at the forefront of EV-related policy development to create resilience through diversification.
The Net-Zero Industry Act, proposed by the European Union in March 2023, aims to ensure that almost 90% of the European Union's annual battery demand is met by EU battery manufacturers with a production capacity of at least 550 GWh in 2030. Similarly, India aims to stimulate domestic production of EVs and batteries through special production incentive schemes. In the United States, the Inflation Reduction Act emphasizes strengthening domestic supply chains for EVs, EV batteries, and battery minerals, as outlined in the criteria for receiving clean vehicle tax credits. As a result, in the period from August 2022 to March 2023, major EV and battery manufacturers announced total post-IRA investments of at least USD 52 billion in North American EV supply chains, of which 50% is for battery production and about 20% for each of battery components and EV production.