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