Advantage Tesla: Cobalt could be a sticking point for legacy automakers

Posted on July 13, 2018 by Charles Morris

Just one word, young man: Cobalt. The silver-gray element (no, it’s not actually blue, sorry) is considered a strategic metal, as it’s a critical ingredient in products from jet engines to drill bits to (who knew?) EV batteries. Tristan Cole, writing in Medium, argues that it’s the most important metal of the 21st century. The price of cobalt has quadrupled in the last two years, and this could be just the beginning - Bloomberg New Energy Finance estimates that global demand could grow 47-fold by 2030.

Above: Tesla's Model 3 (Image: Tesla)

However, element #27 also has a dark side - 63% of the world’s supply comes from the Democratic Republic of Congo, a war-torn land in which child labor is common. Furthermore, most cobalt is produced as a by-product of mining for other minerals such as copper and nickel, so its supply/demand profile is complex. Mr. Cole’s detailed study of the cobalt market has convinced him that future shortages are all but inevitable.

So what does all this mean for the auto industry? It’s doubtless bad news overall, but there are reasons to believe that the coming cobalt crunch will hit the older generation harder than it will our favorite California carmaker.

With Model 3 production ramping up and the legacy automakers (BMW and VW among others) scrambling to secure battery supplies, there can be little doubt that EVs will be driving cobalt demand for some time to come. As Mr. Cole points out, to pick the winners and losers, it’s important to understand what specific battery chemistries each company is using.

Tesla’s battery cells use an NCA chemistry, which means they use about 80% nickel, 15% cobalt and 5% aluminum. Most other automakers (Toyota is a notable exception) use NMC cells, which have roughly equal proportions of nickel, magnesium and cobalt. So, compared to other EV-makers, Tesla’s batteries already use substantially less cobalt.

Above: A majority of the world's cobalt supply comes from the Democratic Republic of Congo (Chart: Medium via Bloomberg)

In May, Elon Musk and JB Straubel explained to shareholders and analysts how Tesla got hip to the issues with cobalt early in the game. Together with partner Panasonic, it has reduced its cobalt usage by 60% since it produced the Roadster in 2009. In 2012, Tesla’s average cobalt usage was 11 kg per vehicle. In 2018, it’s 4.5 kg per vehicle.

Tesla has been working to trim its cobalt bill “for literally several years now, and this has been extremely helpful in the overall cost per kilowatt-hour, especially with recent commodity price movements,” said Straubel.

The Sages of Silicon Valley intend to reduce their cobalt craving even further. “We think we can get cobalt to almost nothing,” said Musk. (Tesla has also established a “responsible sourcing” policy that monitors supply chains to ensure that the company isn’t contributing to human rights abuses.)

Tesla's battery partner Panasonic plans to halve the cobalt content "in two to three years," according to Yoshio Ito, the chief of Panasonic's automotive business. "At the research and development level, we've already achieved such batteries... but we need to go through various evaluation processes" before mass-producing them, he said.

Each Tesla vehicle currently contains “a few kilograms” of cobalt. By Cole’s calculations (based on a battery size of 60 kWh), it’s about $357 worth, whereas a typical EV from one of the other automakers contains 10 times as much, costing around $2,518.

Above: A discussion about the future of electric vehicles and some of the challenges surrounding cobalt (Youtube: The Economist)

Cole is skeptical about the prospects of slashing cobalt usage: “It’s really hard to build cobalt-free batteries. Cobalt provides longevity and safety to the battery cell. As you decrease the amount of cobalt in a cell, you reduce the life cycle of the cell and increase the propensity for the cell to overheat, which can lead to combustion.”

He also points out that, even as automakers use less in each battery, overall demand is going up, and is bound to accelerate as the EV market grows.

Unfortunately, batteries aren’t subject to Moore’s Law. “Batteries are limited by their chemistry, thus radical improvement in battery technology can only be made by switching to a different chemistry,” writes Cole, who describes himself as “a massive Musk fan, but also a realist.”

“The majority of viable low-cobalt or no-cobalt alternatives are still in the lab....and are not going into mass production anytime soon,” Cole continues. “While Tesla is leading in battery development, cobalt is not going away overnight. Low-cobalt batteries are at least a decade away.”

If Cole and others are right about the coming cobalt crisis, all automakers, including Tesla, are bound to feel the pain. However, Tesla should be less vulnerable to cobalt price hikes and/or shortages.

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Written by: Charles Morris; Source: Medium