What follows is a general listing of takeaways from recent conferences I attended both here in the US and in Europe in 2022. Some of these may seem obvious, but I wanted to include them here as there are ideas that have more momentum behind them than I initially thought (like reshoring.
· The three most talked-about topics I encountered were:
o Raw material pricing and inflation along the supply chain
o The outsized role of China in overall EV demand and the general economic outlook for the country
o How different technologies will affect the supply and demand balance of battery raw materials in the future. Examples include recycling, anode technology, and cathode blending
· Reshoring of supply chains has enormous momentum behind it
o Much of this has been turbocharged by the signing into law of the Inflation Reduction Act in the US
o Every supply chain participant I surveyed throughout the year (auto OEMs, battery component producers, miners – close to two dozen) were actively planning on building a more localized supply chain infrastructure
o There was widespread agreement that this will take years to materialize and is driven more by geopolitical concerns than cost (it’s hard to see how costs won’t increase as this infrastructure is built and operated)
· The Inflation Reduction Act (IRA) entered into every conversation in both the US and Europe
o There is a gigantic lack of clarity around how the law will be implemented (the eligibility for the EV tax credits is a major issue) and by when
o It appears that the IRA will benefit the downstream portion of the supply chain (refining, cathode/anode production/cell and pack manufacturing/recycling)
· The fatal flaw in the IRA is that it does not directly address mine permitting reform. As such the US will remain reliant on foreign allies (and some adversaries) for battery raw materials
o The Department of the Treasury won’t issue guidance on the IRA before Q1 2023 – a slight delay owing to the enormous economic impacts to all involved
· Traceability has the auto OEMs and battery manufacturers worried
o As most Western auto OEMs do not have a vertically integrated EV strategy, the ability to trace a battery throughout its entire life has become very important (and exceedingly difficult) as battery manufacturer and EV manufacturer are often different entities
· Auto OEMs I speak with would generally prefer to see batteries go through a second life use rather than recycling
o This was a surprise to me as I think second life is much more manual and more of a hassle relative to recycling (which has its own set of challenges)
o Cathode producers disagreed and were more in favor of recycling scrap and producing CAM and pCAM
· Western OEMs announced that they are “fully supplied” with respect to batteries to 2025
o This is new in that these same OEMs historically hadn’t been willing to make these claims. Color me skeptical given that many product offtake agreements are non-binding and with mining companies that either have no production experience or are not currently in commercial production
o This also begs the question about what happens after 2025 given the decade of lead time needed to bring greenfield mine supply to market and get it qualified for automotive battery use
o GM has announced a goal to secure 75% of their battery raw materials from the US by 2030. I think this is unlikely unless they plan on producing a miniscule number of EVs.
· Inflation throughout the battery supply chain feels stickier than many would like
o BNEF announced that lithium-ion battery pack pricing has flatlined at ~ $151/KWh (up 7% YoY) and this is due mainly to high raw materials and input pricing
o Another longer-term concern is adequate expertise and labor along the supply chain (recycling, for example)
· There was a sense that Chinese companies will still have a presence in the North American EV market despite the IRA rules around “foreign entity of concern”
o All eyes are on potential tie ups between Ford and CATL and VinFast and Gotion to see how they thread the needle here
Happy to discuss any of this in more detail, so please do reach out.