Are you ready for the upcoming transformation in the global lithium industry?

Published on 12 Nov, 2019

From mining to production, the race is on to dominate the lithium supply chain. While Chinese companies are aggressively expanding through mergers and acquisitions, new entrants to the market are expected to disrupt the supply dynamics. Lithium production is expected to grow driven by the overwhelming demand for lithium for use in electric vehicle batteries. However, changing demand dynamics are throwing up challenges in areas of capacity utilization, future opportunities, battery packing, and new chemistries. It is thus vital for companies to track the ecosystem so they can plan sustainable actions.

Lithium is mainly extracted from brine water (83%) and mineral ores (17%). Brine-water lithium is usually in the form of chlorides, carbonates, and hydroxides, while mineral-ore lithium is generally in the form of spodumene and petalite.

Global lithium mining: China attempts to outpace competition

According to the US Geological Survey (USGS), in 2018, eight countries accounted for the major share of global lithium production estimated at 85,000 tons (a sharp 23% increase over the figure in 2017). The eight together have unmined reserves of approximately 14 million tons. Global explorations further revealed about 62 million tons of untapped reserves of lithium amongst these eight countries.

As of 2013, three key lithium mining companies held about 85% of lithium mining: SQM (headquartered in Chile), Albemarle (headquartered in US) and FMC (headquartered in US); by 2018, this share dropped to approximately 53% with the entry of several Chinese players.

Chinese companies have strategically taken control of lithium mining operations of key companies through mergers and acquisitions, thus gaining about 40% of the global production share by 2019. For instance, in 2018, Tianqi Lithium, a subsidiary of the Chengdu Tianqi Group, took a 24% stake in SQM.

Growth in lithium production is primarily driven by consumption for battery production. Between 2010 and 2018, lithium-ion battery consumption increased by an average 24% year-on-year. In 2018, battery production accounted for 60% of the global lithium consumption, a share expected to rise to 75–80% by 2025, mainly due to electrification trends in the mobility industry.

Lithium mainly used in battery production; China dominates space while new players seek foothold

As of 2018, the global consumption of lithium-based batteries was mainly (about 80%), taken up in two key applications: electronic devices such as mobiles, laptops, and tablets, which accounted for a near-51% share; and mobility uses, which accounted for about 30%.

By 2030, electric cars alone are expected to consume about 217,000 tons of lithium, compared with approximately 13,000 tons of lithium to be consumed over 2019.

By 2025, mobility applications are expected to account for 60–65% of lithium-based battery production.

Currently, China (approximately 50%), South Korea (20%), and Japan (15%) together account for 85% of the global lithium battery production meant for electronic devices.

In the space of mobility applications, three battery-making companies dominate the space.

Contemporary Amperex Technology (CATL): Based in China, the company is expanding the capacity of its 64 GWh plant to 88 GWh by 2020.

Gigafactory: A joint venture (JV) between Panasonic and Tesla, the US-based Gigafactory is expected to reach a capacity of 35 GWh by the end of 2019.

BYD: A China-based vehicle manufacturer, BYD has two lithium plants with a combined capacity of 36 GWh; this capacity is expected to reach 60 GWh by 2020.

By 2018, multiple battery manufacturers across key countries had plans to invest in production of lithium/lithium-ion batteries.

Indian companies like Amara Raja and Exide have developed plans to commence lithium-based battery production by 2020, with a focus on export markets. Among regions, Europe is expected to register the fastest rate of growth in battery production, overtaking the US with an annual production capacity of 130 GWh by 2025.

The vision of countries like China and other European nations for 100% electrification of transportation modes is the key driver of ramped-up production plans. However, electric vehicles (EVs) are costly and competing with the low-cost gasoline-powered vehicles is a challenge. Reducing the price of batteries is key to boosting growth in the EV market as the battery accounts for approximately 30% of the vehicle’s cost.

Lithium prices continue to rise driven by strong demand from battery segment

The rapid growth in demand for lithium for battery production has affected prices of the commodity, raising these significantly year-on-year. Furthermore, after processing, lithium is traded in the 99% grade and 99.9% (battery) grade. Prices of battery-grade lithium are 8–10 times that of mineral-grade lithium, depending on process technology and production scale. Most battery manufacturers are now focusing on breakthroughs in battery chemistries, battery packing, and scale of production to reduce battery costs.

Energy storage innovation, and substitutes at play: US, Europe lead in innovations
All key players have a common strategic intention: to bring down cost and consequently the selling price of lithium batteries. One of the drivers of price is the cycle life, referring to the number of times a battery can be recharged. This factor is decided by the chemical make.

Lithium titanium oxide (LTO) cells, with the lowest energy density, cost about USD1,000/kWh and offer up to 7,000 charge cycles. Tesla, a leading electric car manufacturer, uses nickel, cobalt, aluminum (NCA) cells, which have the highest energy density costs of approximately USD350/kWh (tesla’s model-s battery capacity range from 75 to 100 kWh), but charge cycles of about 500. Currently, LTO and NCA cells account for the majority (about 65%) of global lithium automotive battery production.

Innovations in chemistry mixes (like lithium polymer and lithium tin) are expected to increase the energy density of batteries; for instance, the use of tin in lithium-ion batteries in high-capacity anode electrode, solid-state, and cathode materials. This chemistry has advantages over others in cost, weight, and energy density. These innovations, however, are currently at the early stages and mostly constrained to private institutions (universities and independent research centers) in the US and Western Europe. Markets like China and India are yet to develop capabilities in battery research and development.

Even as innovations are underway, alternatives like hydrogen-fuel cells and aluminum-ion ones are gaining attention from the perspective of long-term sustainability as well as battery costs. Countries like Japan and others in Western Europe have invested in developing hydrogen-fuel cell technologies to store power from renewable sources like wind and solar. In Japan, Toyota has developed commercial hydrogen-fuel-cell-powered cars and is now partnering with the government to deploy large-scale hydrogen cells for energy storage from wind turbines. Current challenges for this technology is the cost of storage and logistics. However, with scale from sales of hydrogen-fuel-cell cars, the technology could become more cost-effective than gasoline and electricity powered vehicles.

As more countries start producing lithium, prices of lithium-based batteries are expected to reduce. However, more challenges are expected in future, specifically in three key areas mentioned here.

Optimum production capacity: An oversupply scenario could to result in underutilization of plant capacities. It is therefore critical that companies plan manufacturing locations and plant capacities based on robust research on the ecosystem of lithium applications.

Recognizing opportunities: Lithium application in batteries has disrupted industries like automobile, which traditionally had put up strong barriers to entry. The automotive industry is now witnessing an influx of new players challenging incumbent market leaders. It is thus critical for battery makers and buyers to anticipate future applications to secure their market shares.

Substitution: Industry experts speculate that fuel cells and other alternative technologies could replace lithium-based batteries in the long term. A company like Toyota, which already launched a commercial hydrogen-fuel-cell car, is now working with the Japanese government to launch large-scale energy storage infrastructure for wind turbines using fuel cells.

In conclusion, visibility and robust research on technology, supply chain dynamics, and potential opportunities are key elements for battery buyers and sellers to consider to minimize the risk in their decisions.