EV Supply Chains: China’s Lead and North America’s Race to Close the Gap
This week, our guest is Andrew Miller, the Chief Operating Officer of Benchmark Mineral Intelligence, which was established in 2014. The firm provides market prices, supply chain data, forecasting, and strategic advisory for energy transition technologies, including focused coverage on battery supply chains.
Here are some of the questions Jackie and Peter asked Andrew: How did the market for battery minerals flip so quickly from being undersupplied to oversupplied? How much lithium-ion battery demand comes from grid-scale storage versus EVs? Are you optimistic that the policies and subsidies introduced by the US and Canada will eventually create an EV supply chain comparable to China? Were you surprised by how fast battery chemistries changed when mineral prices were high? Are lithium-ion batteries below the $100/kWh level yet? With improved mineral availability, are automakers continuing to pursue vertical integration? Is it possible that deep-sea battery minerals could add more supply than expected?
Other content referenced on the podcast:
- Benchmark Mineral Intelligence website: https://www.benchmarkminerals.com/
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Episode 255 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back. So Jackie, we’ve been conference-hopping for the last couple of weeks. We were at the Global Business Forum last week. This week, the big Energy Disruptors conference. We’ve learned a lot. We’re going to be digesting it. We’re going to be talking about it, but I think there’s the one area that we learned quite a bit about, got a little bit more color from experts in terms of the whole data center and the power demand surge that’s expected.
Jackie Forrest:
Yeah. I think that, like all things, sometimes at the beginning it seems bigger than it is. And what I’m finding from our conversations…and we are going to have some guests on that, is that people talk about a gigawatt data center, but there’s supply chain issues. You can’t get the servers, you can’t get the infrastructure. So they are going to take many years to come on. And it’s very interesting. They never really put a timeframe associated for when they’re going to reach the gigawatt of energy demand.
So I think we’re going to all get a bit smarter, but I think that there’s a lot to learn in terms of … Yeah. Maybe the demand won’t come as fast because there’ll be constraints in building things. It’s what we’re finding in clean energy, by the way. If you go back to 2021, all these hockey stick growth projections, well, they’ve all been moderated quite a bit because it’s taking longer. The supply chain is slow. Sometimes we can’t get the capital. There’s other constraints.
Peter Tertzakian:
Right. But I still maintain that the top-line narrative that we hear, this dramatic surge in the requirement of electrical power capacity. I think we talked with Rob West a few weeks ago. It was like 150 gigawatts coming before the end of the decade, and then it not adding up with the amount of supply that can be developed in that timeframe. And that to me, as I said on the podcast, there’s either a bust in the narrative that has to change or there’s actually going to be serious brown out, black out in regions because we just can’t handle it. But it seems to me that there is more of the bust in that narrative and you have to go a little bit deeper. And that’s what we’re going to talk about in podcasts coming.
Jackie Forrest:
Sounds good. But it reminds me of the battery minerals. If we go back, 2017, when we had our big conference, electric cars were going to grow and we were going to run out of all these minerals.
Peter Tertzakian:
Cobalt and nickel. And indeed, the prices of cobalt and nickel were going up.
Jackie Forrest:
Yeah. In that 2021, ’22 period, very high. But now they’re down again.
Peter Tertzakian:
Now they’re down again. And in fact, at that conference, that 2017 conference, and then subsequently on our podcast, we had Simon Moores, the CEO of Benchmark Mineral Intelligence, talk about those issues. And today we are very fortunate to have the chief operating officer of Benchmark Mineral Intelligence, Andy Miller. Thank you for coming in, Andy, straight from Florida.
Andy Miller:
Yeah. Thanks for having me, guys. Good to be here.
Peter Tertzakian:
Good, good. And by the way, we’ll put a link to the Benchmark Minerals website as part of this.
Jackie Forrest:
We will. So you joined us in 2017, and so we’re happy to have you back. You’re here in Calgary with us in person, which is exciting. What brings you to Calgary?
Andy Miller:
Yeah. So we’re here holding one of our events that we do in various cities around the world, which really zone in on what specifically in this battery supply chain build-out is happening in different jurisdictions. So particularly here in Calgary, we’ve started to see interestingly an emergence of a number of really interesting new critical mineral projects, and actually technologies developing around some of those projects. So it is the first time we’ve held one of our own events here. We’re really excited to tap into this community and everything that’s building here in Calgary.
Peter Tertzakian:
Well, in 2017, as Jackie mentioned earlier, we were expecting this phenomenal growth rate for batteries. And indeed, the battery growth has happened. I mean, just tremendous surge in terms of not only for, say, electric vehicles or for other types of chemistries and grid-scale batteries and so on, but the surge for the raw materials, the critical minerals, the cobalts, the nickels, the lithiums, et cetera. There was a surge, but tell us a little bit about the supply chain and what has happened over the ensuing, say, last five, seven years.
Andy Miller:
Yeah. Well, really what we’ve seen is … I think we were never of the mindset that we were going to see a surge that was going to be maintained in these markets. A lot of these critical raw materials going into the battery industry will be fundamental to the build-out of the EV market energy storage of the future are pretty immature markets, frankly. Small scale, niche, speciality chemicals that are required. And for that reason, it wasn’t so much a surge that we were looking out for, but the volatility which we really see persisting.
So when we had that event in 2017, I think we were riding high on a wave of lithium price spikes. They fell off, they came back in early 2021, 2022 to record highs. And I think fundamentally, if you look across a number of these markets, what you actually see is that if we compare where prices are and where some of those markets are relative to where they were pre-2015, 2016, we’re still at really high levels, historically. So it’s not that prices have fallen off and gone to the floor, but we’re in a growth cycle, and these markets have to adjust.
And at the moment, we’re just faced with a period of difficult supply demand dynamics in each of these markets that we can dig into in a bit more detail, but fundamentally, you see slightly slower than expected growth rates in EV uptake, still looking at 20% plus growth rates. So it’s not like we’re in negative territory, but slower than expected for many. And at the same time, you start to see incremental new supplies come up, as you do in the build-out of any commodity market. You start to see new supply chains emerge, whether that be in new parts of the world, new technologies, and all of that sort of converged on the industry right now.
Peter Tertzakian:
Yeah. So I mean, we’re going to talk about the supply chains more and the battery chemistries and things, but I want to comment on the psychology of any of these commodity markets where when the price starts going up aggressively, we fall into the recency bias, where we think we’re running out and then all of a sudden it falls off dramatically and we think, “Oh my gosh, the market’s falling apart.” And of course, the truth is somewhere in between.
Jackie Forrest:
Well, that gets me thinking about automaker strategy, right? Tesla surprised us with their vertical integration, producing their own batteries, but even getting control of part of their critical minerals because everyone thought this market would be so tight. Other automakers followed along. But now, with North American automakers especially really pulling back on their plans for EVs, do you see a change where they’re not so concerned about locking up the resource anymore if they think it’s ample?
Andy Miller:
I think structurally, for a lot of the legacy automakers, it is a huge step change in culture for them to participate in this type of way along the supply chain. And they started to creep. Over the past three, four years, we’ve seen creeps into investing in mining operations, participating further along the supply chain.
I don’t think they’ve had the full confidence. A company like Tesla, whose whole business is around electric vehicles, they know that fundamentally the economics of electric vehicles, especially at the scale the industry is today, really relies on your bill of materials. Your bill of materials now is up to around two-thirds of the cost of producing a battery cell. So when two-thirds of your cost is coming from those raw materials, if you’re susceptible to those spikes in prices that we saw over the past few years, the economics, the underlying economics of your business are pretty at risk. So yes, a Tesla and some of the purely electric automakers out there I think have a much deeper understanding of that.
I’d argue that some of the other automakers that maybe are now shifting some of their narrative towards hybrids or interim solutions to cleaning the mix of their fleets, they’re maybe not stepping up and committing the type of capital that actually would match the type of capital deployment they’ve made downstream. That’s the funny thing, that a lot of them have put the cart before the horse, whereby they’ve made these massive, significant capital outlays to developing models and bringing models to the market. What they haven’t done is match that upstream to make sure that they can bring those models to market at the technology and the performance required, but also the cost required for mass-market adoption.
Peter Tertzakian:
Are the markets mature enough for the various raw materials for these batteries, the critical minerals, to be able to lock in prices long-term?
Andy Miller:
That will happen over time. I think there are some longer-term arrangements. And particularly where prices are now, I’d argue that if you’re a buyer, you should be working more actively along the supply chain to lock in those raw materials. But the issue that the industry has is that we’re not extracting any of these critical minerals cheaper. On a large scale, we’re looking at higher-cost assets and those higher-cost assets to develop them, to bring them to production, and crucially to get them to producing a battery-grade chemical, which isn’t just an extraction game, it’s a refining game, a chemical conversion type issue that they have to overcome. To get all the way through that, you’re going to need prices to support that in the longer term. So no new supplier is going to bring material to market at a long-term price at 2016 levels. It just wouldn’t make sense. So yeah, we need higher prices.
Jackie Forrest:
One other change … Before we get into the different commodities and minerals. There’s been a change in that. There’s a growing demand now not just for batteries for electric cars, but also for grid-scale storage, also using very similar lithium-ion-based batteries. How big is the market today? Is grid-scale storage significant in terms of the demand for these batteries, or is it still pretty small?
Andy Miller:
It is still relatively small compared to electric vehicles, but it is growing and obviously starting from a lower base, but growing quite significantly. I think the counterbalance that quite a lot of people forget that in parts of the cycle like we have today, where prices for raw materials have come off and with those raw materials playing such an important part in the underlying cost of the battery means that actually you can source your batteries that bit more economically. Now we are looking at our global weighted average price that we publish for lithium-ion batteries is somewhere around $70 a kilowatt-hour.
So with prices at that level…the interesting thing about lithium-ion batteries is on paper, a lithium-ion battery has no real need to be used in a stationary application. It’s a lithium battery, so you can pick it up and move it around. But what people are finding is the efficiencies and the performance characteristics of lithium-ion batteries means that if you can source them at the right cost, you will put them into stationary applications.
So huge emergence, like you’re saying, grid-scale applications, also residential applications as well. And I think that’s a part of the market that often gets overlooked in this broader battery story. Of course, EVs are the driving force and will continue to be the driving force, but there’s a huge number of different applications that are emerging now which are also going to support that growth story in the longer term.
Jackie Forrest:
That $70 per kilowatt-hour, I hadn’t heard that. That’s for the minerals associated with it, not the manufactured battery?
Andy Miller:
That’s for the cost of the battery cell. So obviously, then the pack has an additional cost on top of that to get all those cells into a pack. But you’re looking at somewhere around $70 per kilowatt-hour today. And that’s largely driven by the huge fall off in your raw material prices.
Jackie Forrest:
People used to always say that EV battery costs need to get to $100 per kilowatt-hour level for them to compete. Is that a comparable number, so they’re below that today?
Andy Miller:
Today for a lot of the larger-scale producers will be below that. And that’s the thing I think, when you look at the larger-scale producers…and going back to the strategy, if you compare different geographies, is that the companies driving that are the companies in Asia, predominantly in China. They’ve added significant scale. They’ve got those economies of scale now in place whereby they can pump out batteries very effectively, very cheaply. And that’s why you see them, competitors in other parts of the world, Western startups looking to challenge in the battery industry are really, really struggling to compete.
Peter Tertzakian:
Yeah. Well, let’s talk about that because it’s really interesting. So a large part of the drop in the cost is the raw materials, as you indicated, but a significant part of the drop-off in cost too is that scale-up of manufacturing capacity. And I marvel at watching some of these videos that are on YouTube and places like that, where they show the automation for building these batteries. It is just staggering, the scale, the size, all these robots moving around conveyor belts, and things like that. This is extreme engineering automation scale supply chain management that the Chinese have mastered. And that’s what, further to your prior comment here, is that Western companies are struggling to match that because it’s not easy to do.
Andy Miller:
Absolutely. This isn’t an easy equation to solve. You have to have the technology. You have to be able to scale. You have to be able to scale at quality as well. And I think a lot of people overlook what that means in the battery industry and some of the knock-on implications of that. You can’t be accepting batteries that are going to be substandard if you’re putting them into a Western or electric car.
Peter Tertzakian:
Well, I think this is something that’s overlooked. I mean, the extreme tolerances that these robots and things have to manufacture, because if any two wires that are so tightly packed cross inside the battery, you get a short circuit and the whole thing starts to burn, right? And so the tolerances are so extreme that it’s not just about scaling up and automation, it’s quality and reliability. And I don’t know how many nines of six … Six Sigma, maybe it’s even more than that, to ensure the quality.
Andy Miller:
It’s huge precision. And that goes all the way along the manufacturing process, right back to the raw materials. And again, another reason … And this is something I know we talked at length at back in 2017, is the misunderstanding around some of these battery raw materials is what I’ve classed as more mainstream commodities whereby it’s more of an extraction-type equation. These raw materials have to be so seriously refined and tailored for their own market.
Peter Tertzakian:
The purities.
Andy Miller:
The purities. And more importantly than that, the impurities are what can really mess up your production process. So when you’re starting new assets, you’re building new incremental tonnages coming from lots of parts of the world. This isn’t going to be a smooth supply build-out. It’s going to be incredibly difficult to tailor that for these high-end markets.
Peter Tertzakian:
Yeah. I remember we talked in 2017 about nickel. And yeah, it’s nickel. Nickel is an element, but there’s different levels of purity. And I think it was the level one nickel. I’m not sure if it was called level one or whatever. But the highest quality is required for the batteries, and that it was potentially going to be in short supply, even though overall there wasn’t necessarily a nickel shortfall.
Andy Miller:
Yeah. And also, it was debunked in that equation from 2017, is that you can’t use some of these other classes of nickel to produce battery-quality nickel. But what that does is have implications on the cost curve, of course. And what that meant is if you develop new processes, you have been able to see new nickel supplies come into the battery industry.
That’s come at a separate cost. And also, if you look at how that’s been developed since 2017, what you’ve seen is certain parts of the world have been a lot more forthcoming in stepping up to control those assets. So when you think about security of supply and the big issue of the last two, three years, of course, about where are we actually getting these minerals and metals from, how are we sourcing them, what you’ve seen is … Predominantly China, when we talk about this, is what they’ve done is even in the markets where they don’t have their own domestic resources, they have invested incredibly strategically around the world and participate, in the case of nickel, in Indonesia heavily. In the case of lithium, they’re reaching out into Africa and other parts of the world.
So this is a game and something that we, the Western world, needs to take a much longer-term perspective towards, which again, I know doesn’t lend itself maybe to raising that capital from public markets with a bit of a shorter-term viewpoint, but this is why it’s so strategically important that the end users and the people participating along that supply chain really do step up. They really do start to build up their participation, because if they don’t do that and if they don’t commit the capital, these projects aren’t going to develop, or if they do develop, they’re going to develop in arguably maybe unstable or unsecure parts of the world.
Jackie Forrest:
Well, we’re getting on the geopolitics of batteries, which has grown quite a lot over the last several years. Is it true that 90% … Because even when the Chinese are locking up upstream supply in Indonesia or other countries that you mentioned, they’re refining it back in China often. You hear numbers like 80, 90% of the supply chain is in China. Is that accurate for batteries?
Andy Miller:
Not overall, but I’d say it’s closer to probably 60%. The majority of a lot of these raw materials are controlled either, like I say, within the borders of China or Chinese companies are owning the assets elsewhere in the world. So it’s a massive issue that the West needs to overcome if we do want to have this more regionalized domestic supply chain build-out. There’s a huge amount … Money that needs to be pumped into these industries. And it’s not that the opportunity’s gone. It’s just that, like I say, in the last two years, as an example, where you’ve seen prices come off, you’ve seen the valuations come off usually. If you look across the landscape of who’s actually stepped up and continued to put money into this, it’s no surprise it’s the battery producers who really understand the importance of these raw materials. And to a large extent, it is the Chinese battery producers who really understand the importance of having this type of access.
Peter Tertzakian:
So you’re talking about development of mines at the resource level, but it’s also the refining capacity to get that purity.
Andy Miller:
Exactly. Mines and refining, right through to the midstream, the anode, your cathode production. All of these links and steps in the supply chain are interconnected. And if you try and develop one without the foresight of where it’s going next, you are going to run into issues, as we saw coming out of the last price cycle where we developed big new mining operations but we weren’t able to refine to the chemicals needed for the industry. So actually, the utilization or the productivity of those raw materials through to the battery industry was incredibly low. So again, taking that viewpoint and looking at what the Chinese battery producers have done just in the last 12, 18 months alone, you can really see strategic allocation of capital to where they see as being the biggest potential either bottlenecks or technologically the most strategically important areas of the production chain.
Jackie Forrest:
All right. Well, I want to talk about Canada and the US response to this separately. The US has introduced the Inflation Reduction Act to encourage domestic production through providing what I think is fairly generous subsidies. What is it, like $40 a kilowatt-hour of subsidy or something like that?
Andy Miller:
Yeah. There’s huge subsidies of it, from the critical minerals extraction right through to battery production itself.
Jackie Forrest:
And then they’re also putting the tariffs on so that the Chinese products can’t come in. They get 100% or more tariff applied to them. How optimistic are you that with everything that the Americans have in place, they’re going to build out their own supply chain and 20 years from now look like China does today, maybe?
Andy Miller:
I think a lot comes down to November. And then going back to the point about the nature of this industry and when you’re building something like this out, China hasn’t done what it’s done in the past two, three years. China has done what it’s done over the past 10 to 15 years, right? It’s had this longer-term committed trajectory to move towards clean energy vehicles. That’s allowed them … That understanding of the complexity of this industry has come over time.
And I think the challenge that the US faces, particularly when you think more upstream, is the fact that you are ultimately setting up a completely new industry for a lot of links in the supply chain. The battery industry is completely new. I think it’s very wise and strategic in the way that you see the South Korean battery producers coming to the US. They’re the ones leading a lot of these projects, which I think is prudent when you compare to somewhere like Europe, where they’ve tried to do it themselves with newcomers and they’ve faced a huge number of obstacles and challenges to getting any type of battery production in Europe for that reason, because they’ve tried to do it themselves.
So I think in the sense of batteries and obviously automaking, the US I think will play a major role. I think the bigger question’s about where the US will be in 10, 20 years’ time. How quickly can you fundamentally move the raw material components of these industries? You can set up manufacturing bases in two, three years. You can move those parts of the supply chain relatively quickly. The real challenge comes is if you want to have a full mining footprint within your borders, that mines, extracts, refines battery-grade raw materials, and that’s a much longer term.
Jackie Forrest:
And some of that refining has got a lot of environmental impacts that people here maybe don’t want to see. One more question on this topic is the Canadian government has also worked to encourage the production of more battery minerals. For instance, $4 billion of support for exploration development and production. We have this 30% investment tax credit. How optimistic are you that Canada is going to develop a supply chain?
Andy Miller:
I’d be very confident that Canada will play a role, but again, probably the opposite role. And I think that’s somewhere where we already have seen some collaboration. But I’d hope … As someone who now lives in the US, I’d certainly hope that for the future prospects of the US supply chain, that collaboration with partners, neighboring countries, that’s going to be really important in, like I say, changing the shape of this industry.
The Inflation Reduction Act was probably the biggest bit of legislation, or certainly was the biggest piece of legislation for this industry. But what it did is completely reshape the flow of trade or the future projected flow of trade. And I think if that can continue … And even no matter which administration goes into next year in the US, if some of those targets for securing more supply within your borders or with neighboring allied countries can continue, then Canada has a huge opportunity as a world-class mining jurisdiction to say we can play a significant role in the upstream of this equation, and perhaps some more of the downstream steps are happening in the US. Ultimately, this is going to have to grow all across the world, and it’s not going to be a single thing or single flow of trade, but I do think Canada, as a mining jurisdiction, as somewhere that has really world-class assets and a lot of these key raw materials.
Peter Tertzakian:
We have world-class assets, but I mean, as we talk about this with you and reflect on the Chinese success over 15 years and their ability to be the low-cost producer, it strikes me that they’ve become the low-cost producer because they’ve done the full value chain from mining, refining, building the cells, the packs, the batteries, and the end-use products like electric vehicles and, of course, all sorts of other electronic products. Do you know what I mean? You kind of have to have a lens or a perspective on the whole picture and a big industrial strategy like China had to really be able to get everything humming and working to get your costs down and get the scale of the whole system.
Andy Miller:
Well, I think you need a certain level of integration, certainly. I think from the mining perspective, what often gets confused about China controlling a lot of the supply chain is that they are necessarily the lowest-cost producer in a lot of these markets. They’re not the lowest-cost producer of the raw material, but they’ve developed raw material, even higher-cost assets because it means they’re not dependent on other parts of the world.
So if you look at what’s happening in the lithium industry over the past couple of years, the excess supplies in the lithium market have come from high-cost lepidolite in China. That high-cost lepidolite was able to produce for a lot longer than anyone anticipated because it was ultimately guided by the end users of that. So for them to make a loss on the raw material didn’t mean they were making a loss overall. They were absorbing some of that loss along the supply chain.
So integration in terms of eating into that margin I think is going to be important about bringing down the finished battery or electric vehicle cost, ultimately, I would agree. But I don’t think it prices places like Canada out of playing a role in the raw material because fundamentally you need high-quality mining assets and you need production to be operating in the way that a lot of Western automakers or Western consumers can actually tolerate. And then that means a solid environmental footprint, and that means reliable, consistent supplies in the longer term.
Peter Tertzakian:
Yeah. Well, this discussion brings about a whole other can of worms discussion about tariffs that we’ve put in the United States on electric vehicles and here in Canada as well, putting up these big barriers because basically we can’t compete on cost and we can’t compete on this whole integrated value chain. And if we have a bunch of disparate groups, even that are … One’s doing the mining, one’s doing the refining, one’s doing the battery pack, et cetera, and they don’t coordinate well, there’s no way we’re going to compete.
Andy Miller:
Absolutely. Yeah, I completely agree. And I really do think we’ll look back in five, 10 years’ time at this point in the market as a real massive missed opportunity in possibly actually complete restructuring in the auto market because what automakers now are doing by stepping back from those commitments towards electrification, they’re going to have to push towards electric longer term anyway. They’re going to have to move that way if you’re going to tackle emissions in that part of the market. What they’re doing by pulling back at the moment and not taking the opportunity to maybe participate and maybe foster some of that integration now while prices are low, is only letting China run further away with this. So Chinese automakers, when you can bring an SUV to North American markets for $25,000 or $20,000, whatever the number is, you’re going to have to tariff the hell out of that to make it not an attractive proposition in the US market.
Automakers, they’re going to be having a reckoning over the years to come. And unfortunately, it is disappointing because we had that momentum, we saw the seeds of that momentum building with automakers really taking raw material seriously. And I think economic uncertainties and I think geopolitical uncertainties in the past couple of years have caused them to sort of step back from that line. And it will cost them longer term, I think.
Jackie Forrest:
All right. Let’s talk about the batteries and some of the specific minerals. I mean, the one thing that really surprised me, when we saw these prices run up in the ’22, ’23 period, it was very quick for these battery minerals to be substituted. So suddenly, cobalt and nickel became expensive and they found other kind of minerals to be used, and that I think helped bring the markets into balance. Did it surprise you how fast they were able to adjust these chemistries and change the mix?
Andy Miller:
To some extent, yeah. I think the industry historically has had a tendency to lean all towards one chemistry or towards another. And I think what you saw is continued evolution in the technology, and that was namely LFP being able to eat into some of that market share that people saw was mainly … To a huge extent, if we talked maybe in 2018, 2019, all people wanted to talk about was how nickel-based cathodes were going to dominate the whole battery industry. And fundamentally, what happened is they’re still there. They are still going to be the solution for higher-end electric vehicles definitely because you need the range that comes with those, but what you did see was an evolution in the LFP story. We saw that come back with some gusto over the course of the past two, three years.
So when you talk about substitution, I think this is going to be a huge suite of different raw materials that are going to be required. When you think about the number of applications, even just in the passenger vehicle market that are now out there, each with their own requirements, each around … Whether it’s safety, range, cost. And this means that you’re going to have to lean on all these different types of chemistries, ultimately. So it’s not so much about the substitution of raw materials that surprised me. I think it was the speed at which the Chinese market predominantly was able to bring LFP back into the equation.
But I think what’s interesting coming, I’d argue maybe out the other side of that period of hype, is that now you have these nickel-based batteries where people are talking about if we really want adoption in Western markets, in the US and North American markets in particular, you need to be able to demonstrate range. That’s where a lot of automakers have tripped up, is that they’ve said, “We’re still going to deliver you a 300, 400-mile vehicle,” but all of a sudden we want to do it with LFP and they’re changing the parameters, which chemistry doesn’t allow you to pivot as quick as raw materials.
Jackie Forrest:
Let’s just, for our listeners, clarify. So lithium iron phosphate is what you’re talking about when you say LFP. And the good thing is they’re cheaper, but the downside is they’re less energy dense, so they won’t go as far. Is that right?
Andy Miller:
Exactly that. Yes.
Peter Tertzakian:
And the LFP in part has been a substitute for now, more jargon, NMC, which was the nickel manganese cobalt. And part of the issue was the cobalt, which the prices went through the roof, and also is highly concentrated in some geographically difficult, I’ll call it, challenging areas, like the Democratic Republic of the Congo. In 2017, we talked about the child labor that was occurring in the DRC, the environmental issues, the geopolitics of that whole region, the human rights issues, et cetera, which ultimately translates into ESG in this part of the world. What’s changed, if anything? I mean, back in 2017, we actually, I think at that conference, showed a clip of some documentaries that were showing this kind of thing.
Andy Miller:
So what we hear on the ground in the DRC is still similar to the extent that you have a number of established players that are taking efforts to show and demonstrate traceability a lot more seriously. The issue is the artisanal mining, which is and always has been a minority of the production in that country.
Peter Tertzakian:
That’s the child labor artisanal-
Andy Miller:
Exactly. So that’s where the issues with child labor and environmental concerns about how production just isn’t regulated to the same extent. And I think, actually, that’s an issue in the broader industry, where a lot of this flexible supply that maybe has come into the market over the past couple of years, incremental tonnages, whether it be in the nickel industry, whether it be in lithium, whether it be in cobalt, are coming from areas of the world that arguably consumers two, three years ago wouldn’t have wanted to be associated with. So we have this question around cost and really how seriously companies are taking the ESG footprint.
Peter Tertzakian:
Yeah. So I mean, Jackie, you talked about the substitution, the LFP versus the NMCs, which includes the cobalt. It’s not that we’ve stopped using cobalt. We haven’t had any sort of full substitution. So the cobalt is still being sourced from DRC. And it just seems like we don’t hear much about this issue of the child labor nor the traceability and stuff. It doesn’t strike me, from the conversations I’ve had with some people from the region, that these issues have diminished any. Yet, as a Western society, we have become passive about it. Are we closing a blind eye to these supply chain issues?
Andy Miller:
Well, I think to the credit of some of the major consumers in the market, and they’ve made very public statements and work with organizations now that really do hone in on the traceability, particularly around cobalt into their supply chain. The issue is that if you look at the top five Western, five, six, seven top Western automakers, they don’t control all of the markets. So the bigger question is who’s supplying the rest of the automotive or portable electronics market where this cobalt is going? And that’s where these parts of the industry that aren’t traceable, that don’t have the visibility of major mining companies, do still allow cobalt volumes to trickle in. And maybe there isn’t the view of what’s happening all the way upstream to the mine.
Jackie Forrest:
Have we reduced the amount of cobalt in each battery though, through this substitution? That’s a dynamic that’s happened, right?
Andy Miller:
The trend. Proportionally, the big trend within the nickel-based cathodes, even taking off the table LFP which doesn’t have any cobalt … But nickel-based batteries are always pushing towards a lower concentration of cobalt. Not taking cobalt out completely, but moving towards lower ratios of cobalt in the chemistry.
Jackie Forrest:
But still using it. We hear a lot about solid-state batteries. And of course, they are supposed to be more safe and much more economic. Maybe they could double the range or if you wanted the same range, half the cost. Toyota’s expecting them to be available by 2027. And then that’s the initial introduction, and maybe larger scale a few years after that. What type of materials do these take, and is it going to create another shortage of critical minerals?
Andy Miller:
So really, all you see with a solid-state battery is it’s a next generation of a lithium-ion battery. So I think fundamentally, if you look at the key components in that battery, they’re largely the same. What will differ is maybe the intensity of some of those raw materials. And particularly on the anode side, when you look at what’s needed in the anode and cathode to really get the benefits of moving towards a solid-state battery, you still need those high energy dense materials or chemistries. So again, going back to the point around an LFP battery, which maybe has less density, less range, it wouldn’t really make sense to be putting an LFP cathode in a solid-state battery because you are pushing towards that more range. So you’ll see more nickel. And you’ll also see an increased use of, over time, lithium on the anode side of the battery as well. Typically, lithium goes into the cathode, largely, within a lithium-ion battery.
Peter Tertzakian:
So to bring some clarity to what’s going on here, we’re talking technical about the internals of a battery, the plus and the minus, the anode and the cathode. And between the two is what’s called an electrolyte, which right now is liquid. And the solid-state battery seeks to replace the liquid with a solid, which has all sorts of benefits, including being able to operate in the winter better. And so this is highly desirable, next-generation battery, as you say. But as I understand it, one of the major challenges is just, again, in that manufacturing and the tolerances and the cost of getting the manufacturing process right. Isn’t that where the challenge is at the moment? It’s not like we don’t understand how to make a solid-state battery. It’s how to manufacture them to the right tolerances in high volume.
Andy Miller:
Yeah. People often forget in the whole battery story quite how long the commercialization process for any battery technology is. And I’d argue that probably isn’t going to get faster over time. People like to think we’re going to be able to roll out batteries that bit quicker in new technologies. If you think back to the ’80s, early ’90s, the first steps in commercializing a lithium-ion battery in your Walkman and then into your phones, we’re talking about 20, 30 years to get us to where we are today where you’re having batteries and vehicles.
Going back to the point we made earlier about the safety and the liability as you get further down that supply chain, a lot of automakers would love to be producing solid-state batteries because they’d be able to go out there and say, “We’ll give you 500 miles’ range. And it’s all going to be fantastic. And they’re much better batteries.” At a lab scale maybe, but we haven’t really gone through that commercialization process at mass scale yet. So they will play a role, but it’s going to be incremental.
Peter Tertzakian:
So is it true that … I may ask a rhetorical question here though, is that the cost per kilowatt of a solid-state battery has to fall below the cost of an equivalent non-solid-state battery, the technology that’s prevalent today, before it’s going to get adopted?
Andy Miller:
No, I don’t think that’s necessarily the case because you come down to the number of applications. So I think where you will start to see solid-state batteries play a role towards the end of this decade is in high-end electric vehicles.
Peter Tertzakian:
High, high value.
Andy Miller:
Exactly. Very high value, high performance electric vehicles. They’re not going to be in your everyday Teslas or whatever’s on the road today or what most people will be driving. But if you want a really high-end Porsche, for example.
Peter Tertzakian:
I do.
Andy Miller:
You do. Yeah, exactly. Then you will be driving around with solid-state batteries.
Jackie Forrest:
Then price isn’t so important. Just like electric cars, they came out for the more expensive models initially and came down. Well, we’re hoping solid-state come because I think they’ll make a lot more utility too, as well. I want to ask you about one wild card. I was watching a documentary about all the critical minerals deep in the sea, and that we could extract these and then we’d have no shortage of critical minerals. How real is that? Do you see that happening in the next 10, 20 years? I know there’s a lot of controversy about maybe the environmental impacts of extracting these critical minerals from the deep sea too.
Andy Miller:
Yeah. I think it is something that gets overlooked and could play a really important role. I think it is going to take time, unfortunately. I think there’s, like you say, a lot of political heat around this topic. There’s a lot of sensitivities. But fundamentally, if you look at … If some of the companies that are developing new technologies to extract and selectively extract those where they take those nodules from the seabed, they can play a role, and they arguably might have a smaller footprint than land-based mining in many cases. So I think it’s something that we can’t rule out completely. I think there’s a huge amount of geopolitical hurdles to overcome before it happens, and a huge number of technological hurdles. I don’t think it’s going to be something we see tomorrow or next year, but I do think that when you look at the wealth of resources that some of these companies are identifying, it would be negligent for the world to just turn a blind eye and say, “We’re definitely not doing that.”
Jackie Forrest:
And what is the geopolitical? Is it because no one owns them or who owns them?
Andy Miller:
A lot is around the mining. And a lot of governments have now taken a firm stance that they are against and going to oppose deep-sea-
Peter Tertzakian:
It’s in international waters because typically these things are in deeper seas off the coastal shelves. And so the minute you go deeper, it says-
Jackie Forrest:
It’s nobody. So the company doesn’t have to pay royalties or anything?
Peter Tertzakian:
Well, technically, I guess.
Andy Miller:
I think all of that is to be determined. But what we are seeing, and I think certainly the positive trend in that industry over the past 12 months or so, is a greater understanding of exactly the technology and exactly the impact. A huge amount of work has been done on the environmental impact of some of these proposed projects and technologies. And I think ultimately that’s a really good thing because, again, what you’ve seen is parts of the world like Russia and China have pushed ahead of this full steam in terms of developing this type of technology and being able to [inaudible 00:37:53]
Peter Tertzakian:
Yeah. There’s a whole industry that’s emerging with robotic mining, these subsea robots that go really deep.
Jackie Forrest:
They’ll just go out there and take them. And there could be environmental implications and people are concerned by that.
Andy Miller:
And ultimately, it is very hard to identify the exact environmental footprint because we just don’t know a huge amount about a lot of these underwater areas. So yeah, I think it’s something we have to-
Peter Tertzakian:
Sounds like we need a guest on the podcast to talk about this.
Jackie Forrest:
Yeah, it’s interesting.
Andy Miller:
Yes.
Peter Tertzakian:
Well, we’re getting close to the end of the time. And it’s a fascinating discussion, Andy. What about copper? Because so much of electrification depends upon copper, even while the data center subject that we started out the podcast with, more copper for power grids, power lines, electric vehicles. What’s the copper narrative these days?
Andy Miller:
Copper … I think you can’t move away from the narrative that copper will be used and fundamental across a huge number of energy transition technologies. So copper has to grow. In the short term, we have some real issues in terms of developing new projects and where we pick up new supply. I think some of that momentum around copper gets taken away by narratives around lower intensities in electric vehicles and this type of thing. But ultimately, fundamentally, when you look at the tonnages … And we have a new dedicated copper team at Benchmark which have been digging really into the fundamentals of exactly where across the energy transition copper is used, and really you do see substantial growth.
So I think copper is a great example of what I would call an energy transition commodity rather than a critical mineral and metal. It’s an energy transition commodity that already has a large established supply base, but faces a number of different types of challenges than what you might see in your lithiums and in your cobalt. So a very different market to, like I say, some of the more niche minerals and metals that are going into the battery industry. But if you talk about its use across the energy transition, it’s going to be massively important and going to have to see some real significant investment.
Jackie Forrest:
And what about the potential for substitution? I was reading aluminum could substitute copper. Could we see a surprise like we did in batteries where new minerals or new alternatives come along?
Peter Tertzakian:
New conductors?
Andy Miller:
I think you’re constantly going to see certain pockets of this. Again, I always lean back on exactly how long it’s taken a lot of these technologies to develop. So while you might be able to change some of the components or the mix of those components in the ratios, I think if you look over the entire market, and if you look at the growth trajectory that a lot of these industries are facing over the next five, 10 years, to me, even quite conservative estimates in terms of uptake in renewables and uptake in electric vehicles and these types of things, you still need to see some substantial capital commitments to meet those type of demand trajectories. So I think there will always be pockets of substitution that happen across this landscape. I think that’s natural in the development of technology. But equally, we’re facing much larger demand base as we grow. So I think there’s going to be different use cases and that’s going to all tweak the balance of those raw materials. But fundamentally, you need more aluminum, you need more copper, and you certainly need more lithiums, cobalts, nickels in the world.
Peter Tertzakian:
Great. Well, thanks so much, Andy Miller, chief operating officer of Benchmark Minerals. Again, we’ll put the website up and people can go check out the great research that your firm puts out. Thanks for joining us.
Andy Miller:
Thanks for having me, guys.
Jackie Forrest:
Thank you. And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
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