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Reflections on Fastmarkets' Battery Materials 2019 #batteries19

by Srinath Rengarajan, Senior Automotive Research Analyst, Oliver Wyman

It was a pleasure to be invited again by Fastmarkets MB Events to engage with business leaders and senior executives from the mining and battery materials sector. I shared our perspectives at Oliver Wyman on the EV space and provided the audience with some contextual background on the status of automotive OEMs today and their (upstream) strategies towards 2030. 

In addition to the highly interesting and insightful presentations and panels, I also had a chance to talk with many delegates as a specialist from the auto sector. While they highly appreciated the outside-in perspectives that I could share as an outsider to the mining and materials industry, they also benefitted from a better understanding of automakers as one of their major downstream customers. 

In turn, the exchanges also provided me with some good insights into the materials space. Reflecting on the 3 days of the conference and the plethora of discussions around it, these were my three main reflections: 

Future nickel and cobalt supply

In terms of materials, there is a consensus that nickel could be a risk in the future, especially with a noticeable shift towards EV batteries with Ni-heavy chemistries. 

On the other hand, since last year, the fears around cobalt seem to be a bit more muted now, partly due to the recent drop in cobalt prices and the shift towards battery chemistries with lesser cobalt. There is an observable correlation between artisanal cobalt production and demand/supply; however, such material can be identified through the concentration and (in)consistencies in the ore, indicative of a small-scale operation. 

The approach of OEMs towards cobalt has also seen some shifts– while some OEMs have explicitly announced that they will not source any Co from DRC, others seem more intent on working together with the bigger mining firms and taking measures such as investing in sustainability and CSR initiatives in the DRC, comprehensive supplier and risk evaluations, and even mine-level audits.  

EV battery range and cost

That said, there is a gradual realization and acceptance, that there is a limit to the much discussed “range” (or “recharge”) anxiety of customers. A hard look at the use cases seems to imply that though customers would (obviously) prefer lesser recharging frequencies, there would be a trade-off with battery sizes (and costs). 

A lot of focus (and hype) in the short term is on the Teslas and the premium/niche EV segments – partly because it is relatively easier to achieve an RoI for OEMs in these segments than the mass market. By all estimates, the consensus is that the mass market segment will only see an inflection when battery costs drop. The major levers for that are manufacturing scale and less expensive materials; however, meaningful scales is dependent on EV penetration in the mass market segments. 

Taken together, in the next decade, there would be a healthy mix of chemistries, including a sizable role for LFP depending on application and use case. In other words, not every EV would have to compulsorily reach a 1000+ km range and/or have an NCM 811 battery chemistry.  

EV penetration rates

Finally, there is still a significant amount of uncertainty on what the EV penetration rates will be, even though there are increasingly concrete signals that we are heading to an EV-dominant future. This is reflected in the demand for batteries, ranging from about 600 GWh in the most conservative estimate to over 1200 GWh – i.e., a doubling of the demand purely based on the EV upside potential. While miners do have a historical tendency towards over-investments and write-offs, such EV adoption rates could well lead to supply shortages and surging prices – providing impetus to OEMs and battery makers to proactively shift to alternative chemistries. 

Taken together, it’s critical for all value chain stakeholders to work together intensively and have more transparency in the supply chain, in order to determine the right chemistries (and material demands) by use case and customer requirements. This goes beyond simply negotiating the raw material prices and purchasing them on trading platforms, to proactively securing the supplies, possibly through avenues such as off-take agreements or equity investments. 

Beyond doubt, the auto sector is currently facing disruptions from multiple dimensions, and these are being reflected in the industries upstream. In this highly dynamic environment, it is key to maintain a broad perspective and closely collaborate with all major stakeholders along the entire value chain. Given this reality, I eagerly look forward to further opportunities to continue the discussions with the executives in future Fastmarkets Events conferences! 

This content is provided by Fastmarkets MB Events for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.