We have all discussed, perhaps even argued about, the prospective demand for lithium batteries. Automotive demand is ramping up, and conventional demand is certainly not declining. However, we’ve also seen projections that become somewhat ridiculous, with some forecasters touting ‘utopian’ futures where everyone will soon drive a battery electric vehicle (BEV). Our own projections at Stormcrow suggest healthy, but not outlandish, growth in demand.
What is absolutely clear is that batteries use significant amounts of minor metals, metals that, until recently, were produced for use in sleepier industries that were not undergoing rapid growth. The sup- ply of these minor metals could well become bottlenecks for growth in the downstream industries, such as auto- motive, that utilize lithium batteries.
Our own projections for critical material demands are shown below. The point of this article is to show that our demand projections are conservative compared to those from many others. Thus, if we see an issue with respect to supply of a particular metal, then it is very likely that this will prove to be a problem for other forecasters as well.
What we have previously said is that we fully acknowledge significant demand growth for lithium, cobalt, and graphite. At the same time, we also do not foresee significant ongoing problems with the supply of lithium and graphite. Lithium and graphite are both common substances. We were just witness to a shortfall in the supply of lithium through 2016 and 2017 that appears to have been solved in 2018. We will likely go through a number of similar cycles, hopefully less extreme, in the future. But, fundamentally, there is more than enough lithium and graphite around to satisfy demand.
In addition, many high-end lithium batteries continue to use synthetic graphite as an anode material, rather than the lower-cost, but potentially more problematic, purified, shaped natural flake graphite. We expect the proportion of natural graphite used to increase, but we don’t expect that proportion to reach 100% at any point in the foreseeable future. In other words, graphite also isn’t rare.
Exhibit 1 – Projections for the Demand of Battery Metals
Source: Stormcrow (2018)
None of the above suggests that companies will be unable to make money if they produce high-quality lithium chemicals or graphite for batteries. We would, however, suggest that investors and project developers would be better served by emphasizing how inexpensive their ultimate products could be in the context of a competitive market, rather than blowing trumpets and heralding the coming of the all-battery electric transportation fleet.
The supply of one battery metal does concern us, though, and that is cobalt. With the restart of the Katanga Mine in DRC, cobalt metal prices have fallen this year. That doesn’t mean that cobalt is in the same supply position as lithium, though. Cobalt is a fundamentally scarce metal, and making the pure cobalt sulfate required by battery chemical producers puts even greater strain on the few select sources of supply. Cobalt also has an outsized impact on battery cost, given that much more cobalt is used in lithium batteries of high energy density, compared to lithium. Producers of cathode active material recently told us that customers’ orders were changed from NMC (lithium-nickel-manganese- cobalt-oxide) to the lower-performing LFP (lithium-iron-phosphate), probably to avoid the high cost of cobalt. This likely exacerbated the increased supply in 2018 from DRC, but even so, prices have only fallen to US$34 per pound for 99.8% cobalt metal in Europe, from levels of US$43 per pound in May and June of this year. Through most of 2016, the same grades of cobalt were sold for about US$11 per pound. Most producers would consider a three-fold price increase over a few years a good thing.
Exhibit 2 – Cycle Life of Various Cathode Active Materials
Source: Umicore (2017)
Stormcrow tries to incorporate technological changes into our forecasting as well as we’re able to. There are two possible changes to lithium batteries that may potentially impact future demand for battery metals. One is al- ready being widely discussed, which is the possibility that low-cobalt versions of NMC, such as 811 (proportions of nickel, manganese, and cobalt, respectively), will replace more standard for- mulations such as 111 or 523. However, the other, the advent of solid-state batteries, seems less well understood, even by the battery industry itself. We concur with an overwhelming portion of the battery industry and a growing segment of financial analysts that 811 and other similar low-cobalt for- mulations for cathode active materials will take a much longer time to achieve significant market penetration than previously believed. This is likely true because taking cobalt out of batteries causes potential operational longevity and safety issues, as illustrated in this graph publicly used by Umicore in 2017: Some of the problems leading to the significant underperformance by NMC 811 have been alleviated, but many have not. In general, using less cobalt and more nickel can improve energy density, but this comes at the expense of decreasing both cycle life and the safety margin while in use. These are trade- offs that many battery manufacturers are simply unwilling to make. In addition, battery cathode chemistries such as LCO (lithium cobalt oxide, roughly 60% cobalt by mass) have not vanished – even NMC 811 uses some cobalt – so sufficient battery demand growth still yields excessive demand for cobalt.
What we have done is run our battery models assuming that all of the NMC used in 2025 is 811. Other chemistries such as LFP, LCO, NAC and the like are unaffected. We do not believe that this scenario is maintainable, but we use it to illustrate a simple point. This version of our demand model suggests that battery demand for cobalt could be 126,626 tonnes per year in 2025, and 188,564 tonnes per year in 2030. This drives overall demand for cobalt well above possible production levels for both years. Only if all other cobalt-consuming cathode active material chemicals also switch to NMC 811 would battery demand for cobalt drop below present levels of production, and clearly other demands for cobalt would push overall demand above any realistic production levels.
It appears to us, based on our analysis, that the industry is not going to be saved by some sort of rush to a low- cobalt or no-cobalt cathode chemistry in standard lithium batteries. The timeline to make this switch is just too long, and the chemistries in question have not yet demonstrated complete commercial vi- ability. However, coming back to solid- state batteries, the batteries themselves may give us the technological change we need, as well as several other advantages.
Normal lithium batteries contain a cathode, covered in particles of an active material like NMC or LFP, and an anode, covered in graphite particles. In between is a liquid electrolyte that keeps the cathode and anode from touching and creating a dangerous electrical short- circuit. However, the electrolyte does allow the particles on the two electrodes to exchange lithium ions as the battery charges and discharges, which generates electrical current. To make sure that the cathode and anode don’t touch, battery makers put a piece of very porous plastic, called a separator, between the two electrodes, which is saturated with electrolyte. The problem is, the liquid electrolyte and plastic separator are flammable. If the battery gets too hot, the separator sometimes collapses and melts, which can allow a short-circuit and make a bad situation even worse.
To solve the safety issue, battery developers have been researching the potential to replace the porous plastic separator and liquid electrolyte with a solid electrolyte, hence the name ‘solid-state battery’ (SSB). The solid electrolyte is typically a ceramic or a hard plastic. Being solid, it is able to sit between the cathode and anode and make the space between them much thinner. The net effect is that a SSB can have at least 2X, perhaps even 3X, as much energy density as a standard lithium battery. No one knows what the ultimate effect on the cost of deploying such a battery might be at this point, but several Chinese battery makers are already building lines capable of manufacturing SSBs.
Another relevant change with SSBs is that the anode in these types of batteries will likely no longer be a conductive foil covered in particles of graphite, but a very thin layer of lithium metal. The logical conclusion would be that we will then require a lot more lithium for these batteries, but the lithium foil used is so thin (and the liquid electrolyte removed from between the cathode and anode also contains lithium) that the overall demand for lithium doesn’t meaningfully change. For each unit of energy stored, a SSB uses the same amount of the same lithium chemicals as a conventional lithium battery.
What interests us, however, is the effect of the SSB on energy density. Obviously, it seems possible, even likely, that the maker of a high-end mobile phone may well take advantage of the higher energy density of the SSB to put a higher capacity battery in their device, one that can last for more than a day. Perhaps some producers will use the design freedom that stems from a smaller battery to make a thinner or lighter device. But it is not clear to us if the manufacturer of a battery-powered electric vehicle (a BEV) will simply put in the same volume of more energy dense batteries to increase the range of the vehicle. With 500 km range on the high- way, many BEVs already have sufficient range to keep a car on the road all day. Making it possible to drive all day and night is probably not going to provide sufficient value to buyers to offset the likely higher cost of the larger battery.
However, we should be aware that a different trade-off could be made. It could become possible to use a higher energy density SSB, made using LFP to replace a conventional battery using NMC 622, which could also provide 500 km of range. The stack of LFP SSBs would be slightly smaller than the stack of conventional NMC 622 batteries, as well. If this becomes possible, it is not clear which direction the industry will go in. Likely, cost will help decide the issue. But ancillary factors will probably play a role, and LFP is safer and more capable of enduring faster charge and discharge cycles than NMC or NAC. In addition, and most importantly from the point of view of our analysis, LFP uses lithium, iron and phosphorus – all elements that we believe will be in plentiful supply. We would no longer experience a bottleneck in material supply due to cobalt, or even nickel or manganese. This doesn’t mean that cobalt producers are out of luck. We’ve noted that consumer electronic devices will likely continue to use NMC and NAC moving forward, SSBs or no SSBs. There are plenty of applications where more energy stored in a given volume would be welcome. There will probably even be specialty vehicles, such as sports cars, where a higher capacity but smaller and lighter battery will be a boon; not many people realize that a Tesla Model S P100D weighs 2,241 kg, while the comparable BMW M550i x-drive only weighs in at 1,983 kg. The automotive sector would benefit greatly from cheaper and lighter batteries, helping to keep the present electrification push moving forward.
When this conversion to SSB will occur is still anyone’s guess. It definitely won’t occur in 2018 or 2019, but it’s almost a certainty that SSBs will be making an impact by 2025. Toyota, as an example, is targeting SSBs in a new model for the 2022 model year (as of company statements made last year). If SSBs do represent the future of battery technology, perhaps this one technical improvement can help us solve a number of problems.
