Last month, media reported that Tesla had discussed taking a minority stake in mining and commodity trading giant Glencore. The talks were interpreted as a sign of EV makers trying to secure the long-term supply of materials, without which they would be unable to hit their production—and emission reduction—targets.
Yet there were other such deals for Tesla. Back in 2020, Tesla inked a deal with Glencore that would see the Swiss miner supply cobalt mined in the Democratic Republic of Congo to Tesla’s gigafactory in China and the one that the company planned to build in Germany before the pandemic hit.
At the time, the FT noted in a report on the news how the deal suggested that Tesla was tightening control over the sourcing of its battery raw materials at a time when other carmakers were betting on external suppliers. Now, with a supply shortage looming large and expensive on the horizon, these other carmakers are rethinking their approach.
Mining executives have been warning of an imminent copper shortage for months now. The energy transition will require massive amounts of copper—not a small part of those amounts for EV engines—and the world is not producing these massive amounts of copper.
Production, both industry executives and analysts say, not just of copper but of all critical EV battery metals and minerals, needs to rise, and it needs to rise fast. This, especially the fast part, is in the realm of the impossible: a mine takes about a decade or even more to be put into operation, and that’s only if the market for its future output is secured. So carmakers are trying to secure a market for this future output to motivate its launch.
“If you do the maths of what we would need at the end of the decade, and you see where we are now, it’s a factor of X in terms of scaling,” Mercedes-Benz’s chief executive Ola Kaellenius told the FT. “The issue is not that there’s not enough lithium on this planet — there is. But it needs to be mined and it needs to be refined and go through all the steps.
Apparently, carmakers are only now realizing that a tighter hold on the supply chain would be beneficial for the security of their critical material supply, when their production targets in line with government legislation against emissions are under threat thanks to shortages.
Wood Mackenzie recently illustrated the challenge with copper. In an October report, the research firm said the world would require an additional 9.7 million tons of copper if it is to meet the 1.5-degree target of the Paris Agreement on Climate Change.
“To successfully meet zero-carbon targets, the mining industry needs to deliver new projects at a frequency and consistent level of financing never previously accomplished,” said the firm’s research director of copper markets, Nick Pickens, in comments on the report.
It’s not just copper, either. Reuters recently reported that a number of startups are working on battery alternatives to the dominant lithium-ion technology in a bid to reduce the cost of EVs’ most expensive component and reduce European and U.S. carmakers’ dependence on China, which, unlike Mercedes-Benz and the rest of them, did its homework and realized early on how important having control over supply chains is in the EV space.
Guided by the always hopeful principle of better late than never, however, European and U.S. carmakers are fixing their mistake and seeking out miners to offer money for new mines. After all, with all the pro-EV legislation being approved on both sides of the Atlantic, long-term demand for EVs is all but guaranteed in massive numbers.
The problem is that new mines really do take a very long time from decision to mine to actual commercial-scale mining. And this suggests that shortages in lithium, cobalt, nickel, and graphite, all key for EVs, are as guaranteed as demand for such vehicles. And this means that the EV revolution might once again get postponed or slowed down regardless of governments’ and carmakers’ equally ambitious plans for the electrification of transport.
There is also the problem of costs, which are already climbing higher as the supply of certain materials tightens. They will climb even higher as the deficits settle in. The war on cost is the most important one for carmakers; even with generous government subsidies, they remain more expensive than ICE cars for the most part.
Of course, governments could push these subsidies even higher than they already are, but someone would have to pay for them, and that’s likely to be the people who pay for everything else the government does: voters. Those would be the same voters those governments and carmakers want to sell millions of EVs to—at least, if they get manufactured when they are needed.
By Irina Slav for Oilprice.com
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