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The auto industry’s shift away from cobalt shows how meaningful market forces and ingenuity can be.
Supply of battery materials was a key part of the recently passed climate bill in the US, as the country looks to bring online more domestic refining and manufacturing in the coming decade.
The news cycle surrounding electric-vehicle batteries is especially frantic right now, with some groups predicting a decade of shortages for materials such as lithium. Similar claims were made about cobalt availability a few years ago. Despite the excitement surrounding battery metal demand, cobalt prices have dropped 40% from their highs earlier this year.
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Much of this has been driven by supply. Glencore increased output at its Mutanda mine in the Democratic Republic of the Congo during the first half of the year, resulting in a 40% increase in cobalt production compared to the same period last year. Glencore will account for approximately 19% of annual cobalt production in 2021. Glencore’s market share could rise to around 26% this year with Mutanda fully operational, so what it does is critical.
Everyone knows that when prices are high, miners are motivated to dig deeper into the earth. But there’s also been a less-appreciated trend on the demand side, where battery manufacturers and automakers are quietly engineering cobalt out of the equation.
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Lithium-ion battery chemistries with cobalt in the cathode dominated the market in 2018, accounting for 86% of all batteries installed in vehicles that year. By 2020, that figure had dropped to 83%. BloombergNEF expects it to fall even further this year, to 60%.
Because of their low cost and high stability, lithium-iron phosphate (LFP) batteries have taken over the balance. This has primarily been a Chinese phenomenon, as domestic champions BYD and CATL have long been technology pioneers. Tesla also uses LFP batteries in its standard-range Model 3 and Model Y vehicles, which are exported globally. LFP was used in nearly half of all Tesla vehicles produced in the first quarter.
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Because of their higher energy density, nickel manganese cobalt (NMC) batteries have been used by the majority of Western automakers. However, Volkswagen announced in March that its entry-level models would include LFP batteries beginning next year, while Ford announced last month that the Mustang Mach-E and F-150 Lightning will have LFP options in 2023 and 2024, respectively. Both of these automakers are likely to see LFP batteries as a way to reduce costs and diversify supply. Hyundai is also said to be working on incorporating LFP batteries.
According to Chinese media reports, CATL is nearing commercialization of another variant of LFP with added manganese in the cathode for additional density. BNEF expects this latest variation — called LMFP, with the M standing for manganese — to account for about 6% of batteries going into EVs in 2023, and we expect more automakers to announce plans to use LFP and LMFP batteries in the next few years.
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Even within the nickel-manganese-cobalt battery family, there’s been a steady progression away from cobalt. The early NMC formulations contained equal parts nickel, manganese and cobalt, called NMC-111 to denote equal shares in the cathode. Those were quickly supplanted by NMC-532 and NMC 622, which in turn has been overtaken by NMC 811, and the latest formulations of NMC batteries have even smaller amounts of cobalt.
For now, the effect of lowering cobalt use is still being outrun by more EVs being sold and larger batteries going into long-range EVs. So while the EV industry still has less-intensive cobalt use per EV, total demand for cobalt going into EV batteries is still rising in absolute terms. But growth is slowing and this has led to some dramatic downward revisions in expected demand. BNEF’s own estimates for cobalt demand from batteries have fallen more than 50% over the last four years.
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None of this should be surprising — it highlights the ways markets work and always have. High prices help bring on new supply, and drive more substitution on the demand side. Whenever there’s a boom in a particular material, there are always groups claiming this time things are fundamentally different, that this time the supply curve really is inelastic, or that this time there are no substitutes. Those claims usually get proven wrong by the combined effect of price signals and ingenuity.
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Huge investments are still needed in all areas of the battery supply chain to keep pace with growing EV demand. BNEF estimates that demand for nickel in batteries will rise by 286% from now to 2030, while lithium will see a six-fold increase. This will require tens of billions of dollars in targeted investment, particularly on mid-stream refining supply, which is the mostly likely near-term bottleneck. But don’t ignore the way the demand side can change too. Human ingenuity is a powerful force, and there will be some more surprises like cobalt in the years ahead.
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