Electric vehicles: Europe is chasing lithium closer to home

The EU ban on the sale of new com­bus­tion engine cars from 2035 is shift­ing the European car industry towards the most com­pet­it­ive exist­ing altern­at­ive: the elec­tric car. By 2028, we expect the glob­al mar­ket for elec­tric cars to grow by almost 10% a year. In auto­mot­ive terms, the European industry has his­tor­ic­ally been com­pet­it­ive, but it is no longer so when it comes to elec­tric cars. This industry is dom­in­ated by the Chinese com­pany BYD, and Tesla in the United States (respect­ively 17.5% and 12.5% of the mar­ket in 2023).

The defin­ing com­pon­ent of elec­tric cars is the bat­tery. To con­quer the bat­tery mar­ket, Europe has decided to invest in so-called giga­factor­ies. In Octo­ber 2023, for example, the European Invest­ment Bank announced that it would be invest­ing €450m from 2025 onwards. These giant factor­ies, ded­ic­ated to bat­tery design, are only com­pet­it­ive if sourcing of the neces­sary raw mater­i­als is avail­able. Yet, to achieve the 2035 tar­get, both the raw mater­i­als and refin­ing mar­kets need to be prop­erly assessed.

To pos­i­tion itself in the elec­tric car mar­ket, Europe will have to invest in the whole bat­tery sup­ply chain. From an eco­nom­ic point of view, there are sev­er­al stages in the bat­tery value chain that need to be addressed.

The upstream mar­ket cov­ers the extrac­tion of resources. The “mid­stream” mar­ket cov­ers the trans­form­a­tion stage, i.e. the refin­ing of these resources. The down­stream mar­ket ranges from anode/cathode pro­duc­tion to cell pro­duc­tion and the final assembly of bat­ter­ies in gigafactories.

Min­ing is rel­at­ively evenly divided between sev­er­al com­pan­ies. How­ever, extrac­tion oli­go­pol­ies still exist for some mater­i­als. The Chilean com­pany SQM and the Amer­ic­an Alber­marle had the largest mar­ket share in 2022 (20% and 16% respectively).

It is at the refin­ing stage that the first warn­ing signs appear: more than 40% of the lith­i­um found in bat­ter­ies is refined in China, by Chinese com­pan­ies. The rate rises to 65% for nick­el and 93% for man­ganese¹. The same applies to the man­u­fac­ture of anode and cath­ode com­pon­ents, more than 50% of which are pro­duced in China. For bat­ter­ies, and more gen­er­ally for elec­tric cars, Europe is depend­ent on Chinese production.

Europe has not inves­ted enough in the “upper end” of the bat­tery value chain. As a res­ult, the sup­ply of elec­tric cars will not be able to keep pace with European demand. For example, demand for lith­i­um will increase 40-fold by 2040. But sup­ply is not keep­ing pace, giv­en the time needed to open mines and refiner­ies. The trends are sim­il­ar for oth­er bat­tery com­pon­ents, such as cobalt and nickel.

China refines over 40% of the lith­i­um that will end up in our bat­ter­ies, although it only extracts 13.36%.The chal­lenge is not so much in extract­ing raw mater­i­als, but in stra­tegic pos­i­tion­ing the EU at the inter­me­di­ate stages of the bat­tery value chain. Europe should first try to sign bilat­er­al agree­ments with coun­tries that have abund­ant, cheap­er lith­i­um. It would also be in Europe’s interests to devel­op the industry loc­ally. Finally, Europe should invest in refin­ing and the man­u­fac­ture of components.

Finally, the devel­op­ment of a recyc­ling industry for bat­ter­ies and their com­pon­ents is a lever that has not been men­tioned enough but is non­ethe­less very import­ant. This sec­tor is not yet suf­fi­ciently developed any­where. Mas­ter­ing the recyc­ling of cars and their com­pon­ents could be Europe’s com­pet­it­ive advant­age. For great­er effi­ciency, and to lim­it the costs of these invest­ments, these efforts should not be spread too thinly. With a strong Europe-wide policy, rather than a case-by-case policy, scale eco­nom­ies would be sub­stan­tial. Learn­ing effects are the reas­on why we are already see­ing a reduc­tion in bat­tery pro­duc­tion costs. Addi­tion­ally, such an effort would have spill-over effects on oth­er sec­tors and oth­er technologies.

At present, fossil fuels are expens­ive, and they will remain so. Europe must there­fore pre­pare for this future. Yet most of our green­house gas emis­sions come from the use of fossil fuels. The object­ives of energy secur­ity and energy trans­ition are there­fore closely aligned. Hence the need to invest in raw mater­i­als that are crit­ic­al to the trans­ition. At the same time, Europe must set itself the goal of becom­ing a pion­eer in the cir­cu­lar eco­nomy, bat­tery recyc­ling and energy effi­ciency. That is the chal­lenge for the next decade.

Interview by Pablo Andres