Plans of electric-vehicle penetration globally for the energy transition to decarbonise the globe may face an unexpected barrier as shortages of key battery raw materials – lithium, nickel, cobalt, and copper - will be a big challenge, warns McKinsey.

Since July 2022, spot prices for battery-grade lithium grew by over 400% year-over-year, while nickel prices more than doubled in the same period, owing to recent market disruptions following the Russian invasion of Ukraine and years of underinvestment in the mining sector, say McKinsey's experts in a briefing note on 'sustainable and inclusive growth'.

While current EV sales in the US account for less than 5% of sales, McKinsey projects this to rise to between 29 and 59% by 2030, depending on aggression in CO2-emission reduction targets. Six U.S. states announced plans to go all-electric by 2035 and original equipment makers (OEMs) are planning at least 40% of unit sales targeted to be electric by the same period.

In batteries, lithium is used across cathode chemistries (and potentially next-generation anodes). Nickel and cobalt are used in certain cathode chemistries and copper is used for windings and rotors in motors. Currently, these materials account for about 50% of a battery’s total cost.

"Accelerating EV penetration is focused heavily on reducing other battery-making costs. "However, success will also need these materials to be available in much higher volumes than they are at present and at a lower cost, which is currently unlikely," say McKinsey's experts.

EV projections show demand for these materials ranging from two to 12 times the current levels by 2030, depending on the mineral, with the largest growth rate for lithium. Under the 'Fading Momentum' scenario (slower uptake of EVs and less plastic recycling/avoidance due to tech/supply delays and lack of regulation enforcement), the gap between the supply of materials and the demand required to reach 29% of new car sales is around 3.7 to 5.2 million metric tonnes (Mt) by 2030, estimates McKinsey.

While lithium, copper, and cobalt have higher likelihood measures that may help to close the supply-demand gap, nickel faces an approximate 0.6 to 1.1 Mt gap that the industry will be challenged to close. To meet this demand, the industry may have to sacrifice EV performance with lower nickel-content cathode chemistries with a lower energy density, or quickly move toward opening less-economical mines that will earn a profit if nickel prices remain high, say McKinsey experts.

An International Energy Agency (IEA) study last week says China accounts for 58% of lithium processing, followed by Chile (29%) and Argentina (10%). In the case of cobalt, China's share is 65%, followed by Finland (10%) and Belgium (5%). Similarly, China leads in the processing of nickel and copper, the most critical raw material in renewable energy solutions.

That country accounts for 35% of nickel processing, followed by Indonesia (15%) and Japan (8%). In the case of copper processing, China accounts for 40%, followed by Chile 10% and Japan (6%). However, China is not the top producer of many of these critical raw materials. In the case of lithium in which China is the largest processor with 58% global share, among top producing countries in the extraction of this selected key raw material, Australia accounts for 52% share, followed by Chile (22%) and China (13%). About 69% of cobalt is extracted from the DRC (Democratic Republic of the Congo), followed by 4% each in Russia and Australia. In the case of Nickel, Indonesia is the leading extractor, with a 33% share, followed by the Philippines (12%) and Russia (11%). About 28% of copper is extracted from Chile, followed by 12% in Peru and 8% in China.

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