Raw materials—the next constraint on EV adoption

Posted on June 09, 2022 by Charles Morris

The timeline of a transition to a new technology can be seen as a series of constraints—obstacles that temporarily prevent the new technology from displacing the old. These obstacles aren’t always technological—sometimes they have to do with economic or social factors. 

Above: Tesla Model 3 (Photo by Charlie Deets on Unsplash)

Of course, to the croakers and boo-birds of the world, every constraint or obstacle is a reason to abandon the new technology and stick with the old one (electricity was too dangerous, the internet would never catch on because it was too slow, etc. etc.). Deeper thinkers realize that constraints (bottlenecks, hurdles, roadblocks—choose your favorite metaphor) represent opportunities for those who can find cost-effective solutions.

For most of automotive history, the constraints on EV adoption were technical ones—battery technology couldn’t deliver the range and performance required in a highway vehicle, so EVs were relegated to niches in which these things weren’t important, but attributes such as silence (the UK’s milk floats) or the ability to operate in airless conditions (lunar rovers) were critical.

The advent of the lithium-ion battery eliminated this constraint, and the electric car motored on to face the next set of obstacles, which were corporate and societal.  Automakers had no interest in building EVs, and consumers still saw them as golf carts.

Tesla neatly did away with both of these obstacles, but the technological limitations resurfaced in a new form.  Model S demonstrated that modern batteries could deliver performance far superior to that of an ICE vehicle, but the price was still luxury-level.  As Tesla worked its way through its three-part master plan, technological advances and economies of scale brought battery prices down, and EV prices came down along with them—then hit a brick wall.

As Tesla explained, once Models 3 and Y hit their strides, the company became production-constrained, rather than demand-constrained—in other words, it could sell cars as fast as it could make them, even at high prices.  Under these circumstances, simple business sense eliminated Tesla’s incentive to lower prices.  Meanwhile, the legacy automakers, due to a combination of the famous Innovator’s Dilemma and good old corporate shortsightedness, still had little interest in selling EVs (although they insisted the contrary when speaking to the EV press). 

So, at this point—circa two or three years ago—the biggest constraint on EV adoption was the fact that only Tesla was selling the things in any volume, and it couldn’t be expected to transform the world’s transportation system all alone.  Fast-forward to the present day, and this constraint has largely been eliminated.  Several automakers have set up shop as Tesla competitors, and are now not only producing a larger selection of electric models, but (will wonders never cease?) actively marketing them.

Another set of constraints has been dealt with—automakers are now keen to produce EVs, and consumers are keen to buy them.  The price differential with legacy vehicles is still too large for lower-income buyers, but thanks to a combination of higher gas prices, greater consumer awareness, and just higher prices in general, more affluent drivers are willing to pay premium prices to go electric.

As one barrier falls, another comes into view, and now all automakers are finding themselves to be production-constrained, as anyone who has recently tried to order a new EV can attest.  This is a temporary situation—the large automakers have access to plenty of capital, and the more forward-looking among them are converting production lines to build EVs, and planning to build gigafactories to secure battery supplies. Within a year or so, they should be able to whittle down the waiting lists.

So, what now?  Many industry observers believe that raw materials represent the next major obstacle to the EV transition—and this roadblock may require much more time to clear.

As Dr. Qichao Hu, founder and CEO of Massachusetts-based battery maker SES, recently told Charged, “It takes about 2 years to build a new battery gigafactory, but it takes at least 8 years (sometimes more than 10 years) to build a new lithium mine.”

Contrary to the flood of silly articles warning that lithium will become “the new oil,” there’s plenty of the light white stuff—it’s the 25th most abundant element in the Earth’s crust, and it’s found on every continent. The problem is not availability, but the time required to scale up production. “Most of the large producing lithium mines around the world already have their offtakes committed to 2026, and the other junior mines have yet to go through exploration, feasibility, permits, and are many years away from production,” says Dr. Hu.

Other critical materials also face shortages. Commodities analysts are sounding warnings about graphite, a critical mineral for battery anodes. Again, there’s plenty of graphite out there, but the supply chain for battery-grade graphite isn’t adequate to meet the surging demand. Benchmark Mineral Intelligence predicts that a looming graphite shortage could “push out the timeline for wider integration of electric vehicles.”

Two more pending pain points are nickel and cobalt. Tesla has been sounding the alarm about nickel for some time—last year, it signed a deal with BHP, the world’s largest nickel miner to obtain sustainably-produced nickel from Australia. In January, the automaker inked an agreement with Talon Nickel to buy quantities of the metal from a mine the company is building in Minnesota.

Tesla and other automakers are also working around the issues with nickel and cobalt by using alternative battery chemistries that use iron and phosphate, which have more stable and lower prices, instead of the more volatile Ni and C.

Other OEMs, such as Rivian, GM and BMW, are also paying much more attention to their battery supply chains these days, and some are following Tesla’s example and moving to secure sources of raw materials. Automakers that take a proactive approach to address the raw materials constraints may well enjoy a competitive advantage in the EV-dominated market of the near future.

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Written by: Charles Morris

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