Twenty miles east of Reno, a stretch of desert covering
3,200 acres is an unlikely spot for anything of any major
significance to occur, never mind a venture set to transform an
But, sprawled across the remote, arid plains of
Nevada’s Great Basin, a construction project of
5.8m square feet is set to become the largest building on the
planet by footprint and produce nearly as much lithium-ion
(Li-ion) battery cells as the rest of the entire
world’s current output combined, according to its
On 4 January, Tesla Inc. began production of battery cells
at its so-called "Gigafactory". It aims to have an output of 35
gigawatt hours (GWh) of cells for electric vehicles (EVs) and
energy storage systems (ESS) by 2018.
Such an output would dwarf any other Li-ion plant and
radically change the volume at which batteries are
Tesla’s CEO and frontman Elon Musk –
whose side project is investigating the colonisation of other
planets – has become something of a superstar, making
bold pronouncements about revolutionising the battery industry
and championing clean energy.
But while Tesla may be the loudest player in the game, it is
by no means the only one. Japan’s Panasonic and
China’s BYD currently lead the market, though
their combined output of EV and ESS batteries is just 18 GWh.
Meanwhile, established Korean battery makers, Samsung SDI
and LG Chem are both building new facilities in Europe. In
China, the country driving Li-ion market growth, BYD has major
ramp-up plans and CATL has discussed expanding its output to as
much as 100GWh by the end of the decade.
The Li-ion battery market is set to rocket in coming years.
And the knock-ons of this will be far reaching. Battery
prices will fall. EV uptake will rise. Demand for raw
materials will increase.
But with the whims of politicians ever-changing, regulatory
and incentive policy is never a certainty, leaving open
questions as to what barriers government actions could impose
on the boom.
|The Chinese government
is pursuing a target of having 5m electric vehicles on
country’s roads by
The state of play
Turning initially to the status quo, current annual global
manufacturing capacity for Li-ion batteries is around 100
GWh, according to estimates by Lux Research Inc.
It has been rising quickly. In 2015, Deutsche Bank estimated
it had grown 80% in two years to around 70 GWh, with EVs
accounting for some 35% of this.
This is a trajectory set to continue. Tracking announced
projects alone, this will rise to 240 GWh by 2020 and
possibly more, according to Lux (See Figure 1).
"This is a baseline estimate, as there will be capacity
increases before then that have not yet been announced, and may
be closer to 300 GWh by the end of the decade," says Chris
Robinson, energy storage research associate at Lux.
Breaking this down, Bloomberg New Energy Finance (BNEF) put
global cell capacity for transport and ESS in 2016 at 82.1 GWh,
with China’s BYD and Japan’s
Panasonic leading the pack (See Figure 2).
China will lead the growth over the coming years, driven by
battery requirements for EVs, where its stated goal is to
have 5m vehicles on the road by 2020.
|Figure 1: Li-ion Production Increase
|Source: Lux Research
That said, as Jon Hykawy of Stormcrow Capital notes, "this
is tempered by the growing realisation in China that their
slightly rickety and highly-polluting electricity grid may not
be served well by slapping millions of rechargeable vehicles
into the mix".
Moving forward, Deutsche Bank estimates global battery
consumption will grow to exceed 535 GWh by 2025, with EVs
accounting for 55%, e-bikes 14% and ESS 9%.
Moving upstream, and perhaps most relevant from the point of
view of a mining-focused publication, is what this means for
raw materials involved in Li-ion battery production. Lithium
and cobalt form key components of the cathode, while graphite
is used to make the anode.
|Figure 2: Lithium-ion
global manufacturing capacity
"Obviously the demand for lithium, cobalt, and graphite will
increase," says Chris Berry, founder of House Mountain
Partners LLC. "When you look at the sheer number of OEMs
[original equipment manufacturers] electrifying their fleets
between now and 2025, one new lithium mine per year will be
required and by 2025 and just the battery business alone
could consume today’s entire global production
of cobalt chemicals," he adds.
Lithium’s story over the past 18 months has
been indelibly linked to that of growth in battery demand, and
specifically EV battery demand.
As Chinese EV demand took off in the latter part of 2015, so
too did lithium demand, in a way that one local lithium
producer admitted to IM "took us by
surprise". Prices escalated on the domestic spot market,
rising from $7.7/kg in June 2015 to a peak of $26.8/kg in
June 2016, in the case of lithium carbonate (CIF China, spot,
99-99.5% Li2CO3), as tracked by
IM’s market assessments.
It has since settled back down to $18-21/kg but, outside
China, large annual contract prices (del. US, 99-99.5%
Li2CO3) for 2017 have been forced up to $10-16/kg, around
double 2016 levels.
But as global EV uptake increases, lithium demand will be
pushed up again.
Global bank Citigroup predicts a compound annual growth rate
(CAGR) in demand of 11% to the end of the decade, bringing
total demand to around 324,000 tpa lithium carbonate equivalent
(LCE) by 2020 from a 2016 base of around 212,000 tpa.
EVs are likely to account for about 40% of global lithium
demand by the end of the decade, up from roughly 20% now,
according to Citi’s estimates.
There has been a flurry of interest around new lithium
projects, with the spike in prices attracting investors by the
drove. Hundreds of prospective projects will seek to come
online in the coming years, but market consensus is that most
of these will fail.
To bring a lithium project to fruition is no easy task, as
has been illustrated by delays incurred by all of the companies
that brought new material to the market in the past two years
– Orocobre Ltd in Argentina, Galaxy Resources Ltd and
Reed Industrial Minerals Pty Ltd in Western
While some of the junior projects are inclined to shout from
the rooftops about exponential predictions on rate of demand
growth, the established producers tend to be less
Tom Schneberger, vice president and global business director
of the lithium division of FMC Corp., a major producer, said he
expects a CAGR in lithium demand of "over 10%", but remains
"confident that adequate, cost-effective supply can be brought
on to support the growth of this market".
A number of other major lithium producers declined to
comment on their outlooks when contacted by
|Lithium is one of the
mineral groups set to benefit from rising battery demand.
Chinese spot prices tripled in the year to June 2016 as a
result of the country’s push toward vehicle
electrification. (Anthony Tong Lee, via
On the other hand, graphite, another key battery mineral, has
not made lithium-style price gains.
The graphite market has been glutted for some time, with
supply into its main market segment – refractories,
foundries and crucibles – falling on the back of a
weaker steel industry and efficiencies leading to a lower
specific per tonne consumption.
While demand from batteries is growing, this market only
represents around 10% of demand, according to IM’s
Graphite Market Outlook to 2021, and is easily offset by
contractions in the far larger refractories market, accounting
for around 40%.
IM’s Natural Graphite Report 2015 estimated
that growing demand for graphite from batteries market should
increase this market’s share to 25% in 2020.
Graphite consumption in EVs is between 1.2-1.6kg/kWh,
meaning up to 56kg could be used in a single EV battery. On
this basis, flake graphite consumption for the manufacture of
spherical graphite for battery anodes is forecast to grow at a
CAGR of close to 30% until 2020, consuming nearly 360,000
tonnes flake graphite in 2020, from a base of 75,000 tonnes in
But with traditional markets such as refractories stagnating
at a growth rate of around 0.3%, overall demand for flake
graphite will probably grow at a CAGR of around 6% to 1.124m
tonnes in 2020 from 800,000 tpa in 2014.
Trump’s aversion to subsidising one
of energy over another may threaten EV demand
growth in the US. (Gage Skidmore, via
In cobalt, a market covered by Industrial
Minerals’ sister publication, Metal Bulletin,
supply currently remains tight. With prices at a six year high
and 70% above the levels of one year ago, the metal has yet to
undergo a battery-driven spike.
Indeed there is some concern in the market that should prices
rise too quickly, battery makers may seek to substitute away
At the time of writing in early February, cobalt prices
stood between $18-19/lb (low grade, free market, in warehouse),
up 26% since the beginning of the year.
Despite the movement in the prices of raw materials, they
have yet to cause much of an impact on overall battery
"There could come a point where high raw materials prices
affect the economics of the battery. This has not yet
occurred though," notes Berry, adding that "despite
lithium’s meteoric rise, it only accounts for 2%
of the battery cost".
Regulation as a pitfall
Despite bullish outlooks for the EV market, there is the
potential for much to change in the coming years. One unknown
remains the variable stance regulators and legislators will
take on the industry. While they have thus far been largely
supportive, there are some indications that this may
Consider the key markets: China, the US and Europe, which
combine to form around 85% of the EV market.
In the US, the newly-elected president, Donald
Trump’s policy position presents a potential
threat. Trump has made no secret of his feelings on climate
change – "very expensive (…) bullsh*t"
– and is against government "picking winners and
This position does not bode well for the federal tax credit
of up to $7,500 available to Americans purchasing EVs
(covering the first 200,000 sales by a given automaker),
which would slash a potential 21% off the cost of a Tesla
Indeed, Citi has pointed out that "Trump’s
stated policy stance presents a risk to the future growth of EV
within the country with possibility of subsidy
However, Tesla’s Musk holds a seat on the
president’s Strategic and Policy Forum, an
advisory council. Musk has retained his position as an
adviser, despite facing pressure to follow the lead of Uber
CEO Travis Kalanick, who resigned following
Trump’s signing of an executive order to block
immigration to the US from a number of Muslim-majority
Musk’s decision despite criticism to stay on in
the role – he has argued that "simply attacking
[Trump] will achieve nothing" – is likely a good thing
for the EV industry, giving a major proponent of the technology
close access to the White House.
Lux’s Robinson believes it is unlikely that the
new US administration would hinder large-scale EV adoption in
the country to any major extent, arguing that automakers have
been operating under the current subsidy programme for years
now and there is "little to be gained from eliminating"
Where the government could negatively affect things is by
failing to promote EV use or removing funding from national
laboratories working on EV development, says Robinson,
although, he adds, both are unlikely to change consumer
House Mountain’s Berry believe that "as Trump
continues to confuse and threaten other countries through
threatening a trade war and sending mean tweets, the real
growth in renewable technologies and EVs will most likely come
from other countries – specifically China where
500,000 EVs were sold last year".
"I don’t see the overall momentum behind clean
energy technologies regressing anytime soon, though it
won’t be a linear progression, to be sure as the
economics and technology continue to surprise," he
In China, the generous EV subsidy policy that contributed to
the 2015-16 boom in lithium prices has been scaled back.
A new policy rolled out by Beijing in December 2016 tightens
up on state aid to EV makers. Subsidies will now be awarded a
year after the sale of individual vehicles and are down by
around 20% on passenger vehicles and 40-70% on buses,
depending on size.
But despite the reduction in financial aid, the new policy
is in many ways a welcome sight for EV makers. Previously a
government clampdown on so-called "subsidy cheating" in
mid-2016 had seen an investigation launched and a delay in the
awarding of subsidies. The announcement of the new programme at
least provides some clarity to market players.
Lux’s Robinson notes that sales of EVs are
"very closely tied" to subsidies, flagging China and Norway as
"prime examples of strong incentives resulting in strong EV
But he argues that a massive shift in support for plug-in
vehicles is unlikely. "China has been transparent about it
phasing out subsidies starting in 2017, completely eliminating
them by 2021, while in the US automakers aren’t
yet close to the 200,000 vehicle limit before subsidies
expire," he says.
"Removing EV subsidies would hurt sales in the short-term,
although there is enough momentum from both consumer adoption
and OEM commitment that it wouldn’t affect
long-term sales or technological development," Robinson adds.
Regardless of the subsidy framework, the price of making
batteries for EVs is dropping. This process will be
accelerated by the emergence of large scale facilities such
as Tesla’s Gigafactory.
BNEF maintains that average Li-ion battery pack costs in EV
and ESS markets fell 22% in 2016 versus the previous year to
around $273/kWh. Comparing this to a cost of around $1,000/kWh
in 2010, the contrast is stark.
Basic economies of scale imply this steep decline will
But Lux questions when saturation point may be reached. "Our
analysis has indicated that there are limited cost reductions
available beyond 10 GWh of annual production," says Robinson,
noting that there is some disagreement in the industry on this
topic, with LG Chem and Samsung SDI setting up smaller,
regionally-located factories in contrast with
Tesla’s single larger location.
Stormcrow’s Hykawy agrees: "Batteries are
almost exclusively made by automated production lines, and
scale doesn’t have the same impact on automation.
The cost reductions are going to come from improved processes
and R&D into better manufacturing methods. The cost of
batteries can’t and won’t drop like
the costs of electronics, because we can’t
miniaturise batteries and get the same performance out of
them," he says.
While arguments can be made as to the scale and speed of the
cost decline, it is certain to continue to fall. Indeed, by
2025 costs should reach $109/kWh and by 2030 $73/kWh,
according to BNEF’s estimates.
As costs fall, the economic case for EVs becomes ever more
competitive and subsidies become ever less necessary. But
they have yet to reach par with the internal combustion
"The standalone economic argument for pure battery EVs is
not there yet. The subsidies are necessary," says
And as subsidies begin to evaporate over the next few years,
notably in China, the pressure upon EV manufacturers to
reduce costs will increase.
Deutsche Bank estimated that in 2015-16, the final sales
price of a commercial EV in China was "almost equivalent" to
that of a traditional commercial car.
With the system leaving minimal time for manufacturers to
increase efficiency and decrease outlays as China slashes
subsidies over the next half decade, the
country’s central government has warned
producers to cut costs as soon as possible.
But the reduction of subsidies in many ways could be a
positive factor for the EV industry, pushing manufacturers into
a competitive state as quickly as possible.
Tesla’s Model 3 is expected to be the first
mass market EV, reaching beyond more affluent drivers to make
the electrification a possibility for the market at
And when the hurdle of affordability is passed, the future of
EVs becomes very optimistic indeed.
For Musk though, there is little doubt EVs will move centre
stage, regardless of variables: "optimism, pessimism,
f**k that; we’re going to make it happen".