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Battery cathodes boost metals as electric vehicle market expands

The growing electric vehicle market will spur global demand for metals due to their use in a wide range of chemistry combinations within the cathodes of lithium ion batteries.

BMI Research is a unit of the Fitch Group.

We expect additional demand for metals associated with lithium-batteries such as lithium, cobalt and nickel but also for iron ore, phosphate, aluminium and manganese.

Downside risks to this positive demand outlook will nevertheless emerge as rising ethical and environmental standards in the technology industry shine a spotlight on metal supply chains.

Following the recent publication of our Autos Team electric vehicle (electric vehicle) forecasts, in this piece we give an overview of how and which metals are set to be impacted on the demand-side through use in electric vehicles and Plug -in hybrid electric vehicle (PHEV) batteries.

Lithium-ion batteries used to power both electric vehicles and PHEV’s, contain several key metals.

With our Autos team forecasting over 24% average y-o-y growth in combined PHEV and electric vehicle global fleet growth over the next ten years, we expect nickel, cobalt and lithium to witness the largest demand impact, while manganese and aluminium also stand to benefit.

The widespread use of iron-containing batteries in China will also provide upside risks to the demand outlook for less talked about metals, such as iron ore and phosphate.

Cathode chemistries to determine demand outlook

As highlighted in previous analysis, we expect lithium-ion batteries to dominate the electric vehicle segment and the broader battery market in the coming years due to their ability to perform energy storage tasks across multiple sectors.

Lithium-ion batteries contain cathodes that can function on several different chemistries, comprised of various metal combinations.

Nickel, cobalt, manganese (NCM)

Among the different variants of chemistries currently being used in batteries by manufacturers, NCM is proving to be the most popular at present, buoyed by their practical and low-risk qualities.

Containing roughly an equal ratio of nickel (30%), cobalt (30%) and manganese (28%) as well as lithium (12%), NCM cathodes are appealing to electric vehicle manufacturers mainly due to a low self-heating rate which improves the overall safety of the battery in use, as it lowers this risk of over-heating.

Furthermore, this chemistry type maintains a good overall performance in terms of energy density.

One key downside to NCM cathodes is their relatively high cobalt content, which exposes manufacturers to a significant price risk.

Cobalt prices rose over 120% in 2017 due to a global supply shortage – a trend that we expect to continue in years to come.

Battery makers such as SK Innovation and Panasonic are already anticipating this price risk and working to increase the ratio of nickel in their cathodes, making nickel the key demand beneficiary on the metals side.

A majority of EV/PHEV-manufacturers currently in the market use NCM cathodes in their batteries, including Kia, Hyundai, BMW and Mercedes-Benz.

NCA cathodes

While NCM-cathodes currently dominate the electric vehicle battery market, we envision significant growth potential for the use of NCA cathodes.

For one, based on our own preliminary estimates, NCA cathodes seem to have the highest energy density of all key chemistries currently used in electric vehicle battery cathodes.

As an example, based on battery size and weight, we estimate that Tesla’s Model S has an energy density of approximately 0.16 kwh/kg compared with an average of 0.11kwh/kg for NCM cathodes used by several other EV/PHEV manufacturers.

Another key advantage for NCA cathodes compared to NCM cathodes is their relative price competitiveness, due to the higher nickel content (73%) vs more expensive cobalt used (14%).

These factors will build a strong case for higher adoption of NCA cathodes by electric vehicle manufacturers in the coming years.

Finally, aluminium will also see an upside to demand from the growing use of NCA-cathodes, although to a lesser degree than the metals aforementioned due to the smaller content used (4%).

LFP cathodes

Another popular cathode chemistry currently being used by electric vehicle manufacturers is LFP, which aside from lithium consists of iron and phosphate rather than nickel or cobalt.

This chemistry type is mainly used by Chinese electric vehicle manufacturers due to its lower cost compared to other cathode compositions as well as a long cycle life and thermal stability.

On the downside, data we have gathered from a number of electric vehicle manufacturers indicate that LFP cathodes have a lower energy density than both NCM and NCA cathodes, making them less practical, particularly for high-end EV manufacturers like Tesla looking to maximise efficiency.

As a result, we do not expect adoption of LFP cathodes to become widespread among developed markets in Europe and North America, where electric vehicles will have the highest market penetration.

However, the already widespread use of LFP cathodes in China as well as their lower relative costs, may position LFP as the chemistry of choice for electric vehicle manufacturers in the country over the coming years.

Considering we are forecasting Chinese electric vehicle sales to average the second highest annual growth rate globally over the next ten years (24.2%) buoyed by strong government support, we see potential upside risks to an otherwise bearish demand outlook for iron ore.

Downside risks: Not-so-green EV’s may erode consumer demand

While the projected dominance of lithium-ion batteries in the growing electric vehicle market introduces a wide range of upside demand scenarios for the metals, there remain considerable challenges ahead.

On the one hand, the realisation among consumers that electric vehicles are not as clean or ethically sourced as they are marketed may lead them to consider alternative fuel cars (eg: hydrogen-powered), weakening the positive electric vehicle demand outlook forecast over the coming years.

Indeed, the mining and processing of metals in the initial stages of the supply chain for lithium-ion batteries are a considerable source of pollution.

For instance, the smelting of nickel to produce nickel sulphide used in batteries releases significant sulphur dioxide pollutants into the air, while hard-rock mining of lithium is energy intensive and therefore has a significant carbon footprint.

Another risk stems from the ongoing use of child labour in the sourcing of cobalt, as most reserves are found within the DRC, where illegal mining is rampant, and origins of supply chains are hard to verify.

Additionally, our Power team highlights that substantial growth in the electric vehicle market could lead to a situation where they add to peak power demand in countries like China, which would in turn require more back-up generation, likely from fossil fuels such as coal.