New Battery Factories Causing Lithium Bottlenecks

Dear Friends & Shareholders,

So far, almost all battery cells come from Asia, especially from South Korea and China. Tesla is the only Western group to be involved on a grand scale. Just how dangerous this dependence on the quasi-monopoly in Asia is can currently be seen in the trade dispute between the USA and China. Beijing is threatening to stop the export of rare earths as a retaliatory measure for the American punitive tariffs. China is the world’s largest producer of these metals, which are needed, for example, for the production of smartphones, but also for all electric cars. The People’s Republic could thus paralyze a good part of the American tech industry.

The escalating trade dispute between the USA and China should also support the assessment that Europe could do well to have its own battery cell production. Here, the production of electric cars will increase rapidly in the coming years. From 2020 onwards, the EU will be applying stricter emission standards. The fleets of car manufacturers will then only be allowed to emit an average of 95 grams of carbon dioxide per kilometer. If they exceed the limit values, there is a risk of substantial fines. Presently, manufacturers are far beyond the upper limit of 95 grams. Their average CO2 emissions have even risen recently, as customers are buying more and more large gas-guzzling SUVs and fewer and fewer diesel vehicles. Compliance with the limit values can only be achieved by a strongly increasing proportion of electric and hybrid vehicles.

In addition, prices for battery cells continue to fall. Bloomberg analysts estimate that as early as 2022 large electric cars – SUVs, for example – will be able to keep up with comparable cars with combustion engines in terms of price – even without subsidy premiums. They are already ahead of the pack in terms of costs for day-to-day operation.

Against this backdrop, Volkswagen has ambitious plans for electric mobility. VW alone plans to build and sell around 22 million electrically powered cars by 2030. When the original target was 15 million electric cars, the company estimated its demand for battery cells at 150 gigawatt hours (GWh) per year. Now its annual demand is more likely to be 220 GWh.

Demand for Battery Cells Explodes

According to the plans of the European automotive industry, of the 110 million vehicles produced in 2025, about 10% will be driven purely electrically and 15% with hybrid drive systems. The estimated demand for battery cells roughly corresponds to the output of 30 battery factories the size of the Tesla “Gigafactory” in Nevada, the world’s largest battery plant to date.

VW is the first European car manufacturer to have decided to set up its own cell production facility. Together with Northvolt, a plant is to be built in Salzgitter that will initially be able to cover around 10% of VW’s requirements. The share is to rise to 20%. At the same time, Northvolt plans to build a similarly large production facility in Sweden. On my most recent trip to China, I was able to see for myself what these figures mean in practice – huge, state-of-the-art factories have to be set up in the shortest possible time and brought into production in a stable manner.

But CATL has the biggest plans. The Chinese cell manufacturer announced that it would build a 100 GWh Gigafactory in Germany by 2025. Originally, the Chinese planned 14 GWh from 2021. Due to the enormous demand, the planned capacity was quickly doubled. LG Chem has also revised its expansion plans upwards – from 4 to 12 GWh. Even though Europe is slowly but surely catching up, it is clear that Asia, and China in particular, will continue to occupy pole position in battery cell production. Experts estimate that there will be a global production capacity of 800 GWh per year in 2023.

Bottlenecks Likely

The analysts of SeekingAlpha have extrapolated that the Gigafactories then need 576,000 tonnes of lithium per year for their production. In addition, another 200,000 tonnes are needed for the production of batteries for smartphones and other battery-powered devices. However, the lithium production expected for 2023 is only 700,000 tonnes. This results in a shortfall of around 80,000 tonnes or a good 10%. Other experts estimate that lithium production will no longer be able to meet demand much earlier – assuming that the battery Gigafactories are raised at the necessary speed to meet the demand of car manufacturers.