The Battery Revolution is Coming, but Production Challenges Remain

Consumers may be ready to adopt electric cars, but the tenfold increase in the production of key raw materials required to meet demand could put the brakes on the transition, unless there’s massive investment, government support and industry-wide coordination to ramp up mineral supplies, according to a panel of experts at the BMO Capital Markets 31st Annual Global Metals and Mining Conference in Florida this month.

The Battery Materials panel, hosted by BMO Capital Markets analyst Robin Fiedler, featured leading industry experts, including Erez Ichilov, managing director of Traxys Projects L.P., Nick Wells, global senior purchasing manager for electrification energy storage at Jaguar Land Rover, Andy Miller, chief operating officer of Benchmark Minerals Intelligence, and Todd Malan, chief external affairs officer and head of climate strategy at Talon Metals.

“Electric vehicles (EVs) are actually happening – the adoption chasm was crossed,” said Erez Ichilov, whose company is part of Traxys Group, a major physical trader, financier and logistics provider to the mining industry. “But the supply side response takes 15 years to commission a world-class upstream operation, from discovery to full production,” he said, noting also that building and ramping up production of the critical minerals to meet the world’s demand for batteries will also require significant capital.

“We’re talking about huge investments, and it has to be tiered and you have to start a few of those (projects) every year continuously,” Ichilov said.

Already, the availability of materials is putting automakers in a pinch. On certain car models, more than 10 percent of the actual vehicle material cost comes from nickel, lithium and cobalt, “and that’s doubled in the past year,” said Nick Wells of Jaguar Land Rover.

That means it could be difficult for battery and car manufacturers to stick to their road maps for production growth, according to Andy Miller, whose Benchmark Minerals Intelligence is a specialist information provider for the lithium-ion battery supply chain to the electric vehicle industry.

“We’re at the point of demand destruction already,” he said, noting that cathode suppliers and automakers are seeking different processes and technologies to work around bottlenecks and high prices for key mineral inputs.

“We’re at the beginning of an enormous ramp-up,” added Wells, noting that a lot of companies have already set EV targets, like Jaguar Land Rover, which plans to make 60 percent of its vehicles electric by 2030 and 100 percent of them electric by 2036. “But it all hinges on access to those raw materials.”

Working with Industry and Government

To help keep the supply of raw materials coming, Jaguar and other original equipment manufacturers (OEM) are increasingly willing to help finance new mines and facilities through offtake agreements, which is when a metals buyer formalizes its intention to buy a portion of a producer’s future output.

“That full supply-chain sense of partnership from the OEM to the mine gate is where the future is,” said Todd Malan, noting that his company, Talon Metals, which is developing the only high grade nickel sulphide project in the US in Aitkin County, Minnesota, the Tamarack Nickel Project, made its first offtake agreement in January with Tesla Motors for 75,000 tonnes of nickel concentrate.

While some mineral producers could bring on more supply, most have no interest in flooding the market with product if it means getting lower prices than they would otherwise receive, Ichilov pointed out. That’s where governments have a role in seeding the development of strategic resources, encouraging reinvestment in capital expenditures, streamlining the permitting process and providing infrastructure to moderate the cost of bringing a mine into production.

It’s even possible for governments to start a project, list it on an exchange and then privatize it by selling it to someone else, he said, adding that this is an extreme idea.

Government leadership can also help obtain the social license needed to operate outside the formal permitting systems. “Having leaders like President Biden, and Republicans and Democrats in Congress stand up and educate the public about how essential this industry is to the clean energy transition will help with some of the traditional nimbyism you run into when somebody says, ‘Hey, we’re going to put a mine in your neighborhood,’” said Malan.

Building public support will require companies to stick to high environmental, social and governance (ESG) standards throughout the supply chain. They’ll also need to consider new primary mineral supply from mines with recycling and secondary extraction from the slag heaps of past mining operations, said Ichilov.

To get around some of these and other industry-wide challenges, Traxys Group created its own internal battery team in 2017 as “a shared Rolodex connecting the upstream, midstream and downstream” players in the battery industry. “There’s real value to the experience of having traders with 20-, 30- and 40-years’ experience sitting together, on Zoom or in room to plan out how you can connect a few upstream sources with a few midstream sources,” said Ichilov.

That kind of knowledge sharing is important if the industry is going to meet EV demand, added Wells, adding that, even with these challenges, the battery revolution is coming.

“Billions have been invested and are being invested, so the move is unstoppable,” said Wells. “The question is, are we going to be able to provide what customers need?”