Driving the global EV battery supply chain

EV battery supply chain: A global outlook

Demand for critical minerals in electric vehicle (EV) and battery storage applications is expected to grow by at least 30 times by 2040. The International Energy Agency estimates that 40 times more lithium and up to 25 times more graphite, cobalt, and nickel are required to meet the demand projections over the next two decades.¹ Without these critical minerals, the entire green energy transition may be at risk.

China currently dominates the global EV battery supply chain with 75% of lithium-ion battery cell capacity; 80% of graphite mining; and more than 50% of lithium, cobalt, and graphite materials processing. Additionally, the global landscape for critical mineral deposits is limited to a select number of countries: 50% of lithium is mined in Australia, and 70% of cobalt is mined in China.²

To lessen dependencies on China and to mitigate potential supply chain vulnerabilities that could result from the industry’s geographic concentration, other nations—especially in the West—are competing more aggressively for market share. The proposed strategy? Significant incentive packages designed to attract upstream and downstream processors and to also expand domestic battery production capacity.

The green subsidy race is on

Last century, the world witnessed the nuclear arms and space races. This century, countries are competing for supremacy in the green energy transition and battery production with substantial subsidies.

The Inflation Reduction Act (IRA) continues to bolster the United States’ favorability for battery-related manufacturing operations. According to the Environmental Defense Fund, more than $92 billion in battery-related investments have been announced in the United States since the IRA’s passing in August 2022, at which time it became the single-largest legislative measure for climate funding globally.³ The act provides a combination of supply and demand-side subsidies, including credits for EV battery purchases and production tax credits for manufacturers.⁴ Additional information on credits pertinent to battery-related operations in the United States is available here.

Following the passing of the IRA, other nations reacted with incentive packages to enhance their attractiveness to manufacturers across the battery and clean energy industries.

Canada proposed the Clean Technology Investment Tax Credit (ITC) in March 2023. This provision includes a refundable tax credit valued at 30% of total machinery and equipment investments critical to the production of clean technologies, including batteries and the extraction, processing, and recycling of critical minerals. The ITC will be in effect from January 1, 2024, through 2034.⁵ Ford Motor Company, SK Battery Manufacturing, and EcoPro BM have already announced a new $1.2 billion cathode factory in Quebec.⁶ Meanwhile, Volkswagen plans to open its first battery gigafactory under its PowerCo SE subsidiary in Ontario by 2027.⁷

The Green Deal Industrial Plan is the European Union’s attempt at growing its share in the sector. The plan seeks to reinforce the European Union’s commitment to climate neutrality and outlines four key pillars: a simplified regulatory environment, fast-track subsidy and financing approvals, skill development programs, and open trade agreements.⁸ The European Union is known for its intensive bureaucratic approvals and scrutiny of state aid to private enterprises; however, as part of its overall proposal, member countries are permitted to offer state aid if they can demonstrate that a company may otherwise locate elsewhere.⁹ Member states such as France are already moving full speed ahead by offering large subsidies to wind, solar, and battery companies. The French government’s current proposal would enable companies to qualify for tax credits equivalent to 25% to 40% of their total capital expenditures.¹⁰

Other nations, including Japan and India, have also unveiled green subsidies over the past few years, but it is difficult to compete with the sheer size of programs available in the United States, Canada, and European Union.

Market movement: The future footprint of the battery industry

For the foreseeable future, China will remain the market leader in battery-related production activities. North America, followed by Europe, will continue to gain market share as battery-related production operations take advantage of federal incentive programs and the region’s lower energy costs.¹¹

Interested in exploring where your company should target its next investment? A comprehensive location strategy is necessary to balance cost and non-cost factors. Utility costs and service solutions, skilled labor availability, supply chain efficiencies, and incentives are just a few factors a company must consider when making a site selection decision.

Endnotes

¹ Institute for Energy Agency (IEA), “The role of critical minerals in clean energy transitions,” 2021.
² Institute for Energy Research, “Electric vehicle battery costs soar,” April 25, 2022.
³ Environmental Defense Fund, “US electric vehicle manufacturing investments and jobs,” August 2023.
⁴ IEA, Global EV outlook 2023, 2023.
⁵ Government of Canada, “A made-in-Canada plan: Affordable energy, good jobs, and a growing clean economy,” Budget 2023, March 28, 2023.
⁶ Fred Lambert, “Ford and SK announce new massive battery cathode factory in Quebec’s battery valley,” Electrek, August 17, 2023.
⁷ Volkswagen Group, “Volkswagen Group steps up activities in North America—Canada chosen as location for first overseas gigafactory of its battery company PowerCo SE,” press release, March 13, 2023.
⁸ European Commission, “The Green Deal Industrial Plan,” February 1, 2023.
⁹ Economist Intelligence Unit, The Global Green Subsidy Race, 2023.
¹⁰ Reuters, “France to offer new tax credit for investments in green technologies,” May 11, 2023.
¹¹ Clean Energy Associates, Energy storage system supplier market intelligence report (H2 – 2022), May 2023.