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Predicting the electric car crash

BMW-i3-1800
No battery, no e-car. Source: BMW

For want of a raw-materials fix, the electric-car revolution could fizzle before it gets started. While e-carmakers pride themselves on their futuristic flair, their plans hinge on a decidedly drab-looking piece of gear: the battery.

Volkswagen, BMW and Daimler, the parent of Mercedes-Benz, have all unveiled ambitious plans to offer dozens of electric-car lines by 2025. By then, VW hopes it can sell two to three million e-cars, while BMW wants to have 25 models rolling off its assembly lines. Daimler plans to sell at least 100,000 electric Mercedes and Smart vehicles by 2020. Tesla, Silicon Valley’s cars-to-rockets pioneer, aims to produce half a million e-cars as of next year.

Asian battery makers such as Samsung, Panasonic, LG Chem and BYD are building new factories to handle any e-car boom. There is a big bottleneck, however: the supply of precious metals to produce the batteries. Mining companies that deliver the all-important lithium and cobalt are not expected to keep pace with growing demand. These two commodities are vital for the lithium-ion batteries employed in mobile phones and cars.

Chinese firms have agreed long-term contracts to guarantee the delivery of raw materials to battery factories, meaning Western companies often come up empty-handed.

“Exploration, mining and processing require huge resources and time,” Dirk Harbecke said of lithium. The chairman of Rock Tech Lithium, a Vancouver-based exploration company, fears that the metal’s production cannot be expanded fast enough to meet demand from battery makers and car companies. Lithium has already quadrupled in price since 2012.

Supplying cobalt could be an even bigger problem, because mining companies did not consider it an attractive market before the e-car frenzy took off, led by the likes of Toyota’s Prius brand, Tesla and Chinese carmakers such as BYD, which is partly owned by Warren Buffett. New mining projects will cost billions of dollars and for the moment, there are no guarantees that any location will turn out enough cobalt.

Half of the world’s known cobalt reserves are located in the Democratic Republic of Congo, a politically unstable country in central Africa. Children and illegal employees are sometimes forced into labor to extract the metal from the rocks. Armed groups control important mining areas. “With cobalt, too, one cannot hope for rapid or exponential production growth,” said Caspar Rawls, an analyst with mining firm Benchmark Minerals.

Annual cobalt production currently stands at 124,000 tons, and part of that ends up in batteries of purely electric vehicles, of which more than 750,000 were sold last year globally. By 2030, e-car annual production could total 40 million. “Even with the most advanced technologies we’d need 400,000 tons of pure cobalt to supply 30 million cars with a 90-kilowatt-hour battery,” said Hartmann Leube, a senior manager at BASF. One of the world’s largest producers of battery components, the German chemicals giant is predicting a cobalt shortage in a few years’ time. The price of cobalt has more than doubled this year to $70,000 per ton.

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Cobalt is the new gold – almost. Source: PR

Only when carmakers decide to build cars with a shorter range, or when battery makers succeed in replacing cobalt, will the industry be able to deliver on its e-car targets, experts said. Mr. Leube of BASF thinks it will take another five to seven years before cobalt can be replaced by a worthy alternative. Hartmut Wiggers, a professor in chemistry at Duisburg University, said it could take eight to 10 years.

German carmakers are at a disadvantage compared to their Chinese counterparts. For years, China’s commodities traders expanded their foothold in Africa to secure the supply of metals, food and energy. They agreed long-term contracts to guarantee the delivery of cobalt to existing and new battery factories, meaning Western companies often came away empty-handed. In September, VW failed to arrange five-year cobalt supply contracts between its battery suppliers and mining companies.

Last year, the carmaker launched a new electric strategy, in part to move beyond its emissions-cheating scandal. To reach its 2025 target of selling up to three million e-cars a year, it would need battery production capacity of more than 150 gigawatt hours. This equates to at least four gigafactories like the one Tesla and Panasonic are building in Nevada.

At a battery conference last month, one of the participants laid it on the line. “In the next couple of years, if we don’t succeed in replacing cobalt without incurring performance losses, I don’t see production of 20 million e-cars, let alone 30 million,” said one sector employee, who declined to be named. “This applies especially to non-Chinese carmakers.”

Despite their eagerness and ambition, Tesla and other Western carmakers could be in for a very long, slow ride into the electrified landscape of the future.

A version of this article first appeared in business magazine WirtschaftsWoche, a sister publication of Handelsblatt. Gilbert Kreijger adapted the text for Handelsblatt Global. To contact the author: stefan.hajek@wiwo.de

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