Last year was the year of electric vehicles—global sales are likely to have hit a record, in turn pushing up battery demand. Now too much of a good thing is causing problems: Many key battery materials, including but not limited to processed lithium itself, are in short supply and prices are rising sharply.
Lithium is the most spectacular example: Prices of lithium carbonate have quintupled in China from a year earlier. Other battery materials from nickel to cobalt have also been rising and could remain elevated as new supply will take time to come online. The rapid rise in demand for EVs has also created shortages in some lesser known components that go into batteries. For example, supplies of binder material polyvinylidene fluoride or PVDF—used to enable connections between electrodes—will likely be insufficient to meet demand until 2025.
Shortages are adding to already substantial concentration risks regarding China’s dominance in the EV supply chain. Most of the value chain for mining materials like lithium and cobalt is in China. China in general has more than 60% market share in the chemical processing and refining of critical battery minerals and that might be above 80% for some materials like cobalt and graphite. While other countries will also invest in more localized supply chains, China’s head start—in part due to years of generous EV subsidies which helped nurture a robust battery supply chain upstream—means it will remain dominant for the next few years at least.
Securing material supplies is also getting more important for car makers. They will increasingly need to either vertically integrate or establish joint ventures with battery suppliers. Tesla, for example, signed an agreement with an Australian mining firm this month to secure graphite supply.
EV sales have been speeding ahead, but the supply chain has a lot of catching up to do. That will cause a lot of headaches for EV makers in the months and years ahead—and potentially geopolitical jitters.
Classroom discussion questions:
- How can OM managers address this supply chain problem?
- What are the geopolitical issues involved?