Why the Sustainable Energy Transition is Under Serious Threat
Mining will be essential to the success of the energy…
Growing supply chain risk, however, could soon pump the brakes on this development. While battery output has expanded rapidly in recent years – up 33% since 2019 – the raw materials essential to their production have become much harder to source, particularly lithium.
Unprecedented Pressure on Lithium Supplies
As outlined in our latest Supply Chain Resilience Index report, lithium scarcity is creating headaches for manufacturers across the automotive sector and is contributing towards a supply chain resilience score of 44.9 – less than five points higher than the 40% ‘high-risk’ threshold.
By 2030, excess demand for lithium is expected to reach somewhere between half a million and 1.5 million metric tonnes a year, meaning that demand for this critical component in battery production will vastly exceed supply.
It must be understood that the problem doesn’t stem from availability of lithium reserves, but rather the capacity to mine this resource. While intensive mining is taking place, there would need to be exploitation of less accessible sources to sufficiently upscale supply. This is a more costly and energy intensive process that will inevitably force price fluctuations.
Supply chain disruptions and price spikes are already set in motion, with the price of lithium soaring almost 500% in the past year. To make matters worse, the cost of nickel – another essential element in EV batteries – is also rising to record levels. Russia’s invasion of Ukraine has wreaked further havoc across the global supply chain, with nickel being among the material shortages directly impacted.
How Will the Shortage Impact EV Manufacturing Output?
With supply chains in such a volatile state, questions are raised as to what this means for the future of EV market production. Our report goes on to reveal projections made by the Centre for Automotive Research (CAR) to shed some light here. Its findings predict that the market for automotive batteries will not reach equilibrium until 2030 at the very least. As a result, the chip shortage could reduce production of cars by up to 10 million from 2021-2023, with emerging reports suggesting that the number of EVs taken out of production between 2022 and 2029 could double to 20 million.
EV manufacturers are presently faced with two choices that certainly leave them between a rock and a hard place. While there is the potential for EV batteries to gradually shift to non-nickel design such as LFP, this may result in lower performance moving forward. To this end, the EV market will have to come to terms with halting the rollout of EVs or potentially compromising battery efficacy, as a means of supply chain management. This could, in turn, also have a knock-on effect on the raft of businesses looking to make the switch to lower emissions vehicles as a way to achieve their wider caron reduction goals.
If you need help navigating the challenges posed by the EV supply chain, get in touch to talk with our team of experts.