The shift to electric vehicles is accelerating

The electric vehicle revolution is undeniable. The International Energy Agency expects the number of electric vehicles on the road to increase from 2 million in 2016 to 70 million by 2025.

This number will increase substantially, as stringent combustion engine restrictions are being implemented by governments. China will require that 12 percent of all vehicles sold in the country must be electric by 2020. The French and British governments plan to end the sale of new petrol and diesel vehicles by 2040. The Indian government has set a target for every vehicle sold in the country to be powered by electricity by 2030.

This shift is propelled by battery costs which have fallen tremendously from around USD 1,000 per kilowatt hour (kWh) in 2010 to around USD 150 per kWh in 2018, making EV cars much more powerful and inexpensive. Falling battery prices mean that the production of electric vehicles is becoming cheaper than that of traditional vehicles, as EVs require only half the production floor and capital expenditures compared to equivalent internal combustion engine (ICE) cars.

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The demand for EV batteries is hitting an inflection point, causing more capital to be invested into gigantic factories, which lowers costs through economies of scale, and applied research that increases power efficiencies. These investments in turn will further reduce unit prices of each car, thereby creating even greater demand in an upward spiral that will see a massive shift towards electric vehicles.

For example, Tesla was initially set to double world lithium ion battery production with its pioneering Gigafactory, but is now planning to build four additional such factories. Chinese battery production initiatives are likely to dwarf these investments as a race towards electrification is becoming unstoppable.

Mainstream car manufacturers are now focusing heavily on EVs, with hundreds of new EV models under development, ensuring a tremendous battery demand growth. Volvo, for example, has announced that it will cease the production of pure combustion engine cars by 2019, and Volkswagen has signed a 25 billion USD deal to procure battery supplies and will convert 16 factories to produce electric vehicles.

Evolving battery chemistries determine future metal demand

Lithium ion batteries have three key components:

The cathode determines performance and cost.

Batteries have to compromise between energy, capacity, costs, life cycle, safety, operating allowances and other factors. The cathode chemistry determines how good a battery is and what metals are needed. The following are the various formulations:

Nickel manganese cobalt (NMC). Nickel provides the performance, cobalt keeps the battery safe and manganese allows for high current discharge without heating up excessively. The more nickel is used, the more powerful and inexpensive the battery becomes but it must be more carefully fine-tuned to maintain safety. This chemistry has high energy density and a long life span.

There are three reference NMC generations:

• NMC111 containing 33% Nickel and 33% Cobalt is the simplest

• NMC622 contains 60% Nickel and 20% Cobalt, greatly improving the power/cost ratio

• NMC811 contains 80% Nickel and 10% Cobalt, the highest theoretical performance vs. cost

Lithium nickel cobalt aluminum (NCA). A power/costs improvement over NMC 111 because it increased the percentage of nickel while reducing expensive cobalt. Tesla uses this extensively but will likely switch to the 3rd generation NMC811 chemistry once mature. NCA has relatively lower energy density but a long-life span.

Lithium cobalt oxide (LCO). Used extensively in the portable electronics industry, e.g. in iPhones, this chemistry has good performance but, due to its very high cobalt usage (around 55%), is expensive. LCO has a high energy density but a short life span.

Lithium iron phosphate (LFP). Intrinsically safer than other chemistries but not nearly as powerful as NMC811. This was the early preferred choice in China, but the trend is now to switch to NMC which meet the minimum energy density levels required to qualify for Chinese government subsidies.

Lithium manganese oxide (LMO). It was used in early EVs, such as the Nissan Leaf, because of its high reliability. LMO's downside is low cell durability and mediocre power compared to competing technologies.

"Lithium ion batteries should be called nickel graphite" Elon Musk, Tesla Founder / CEO

The industry is moving toward NMC811

NMC811 is widely expected to become the preferred cathode chemistry for EV as it will have the best power to cost ratio. NMC811 is expected to drive battery prices well below USD 100 per kWh and enormous NMC production capacity is currently being setup.

Battery production realities are such that class I nickel and cobalt will remain the primary EV cathode metals for the next few decades. Promising improvements are the advent of solid state batteries and potentially graphene coatings. Solid state batteries could replace the liquid lithium electrolyte with a solid electrolyte which could make them safer, more compact and faster charging.

Solid state batteries will change the electrolyte, thereby possibly changing the “lithium-ion” designation and with batteries potentially not requiring lithium at all. However, the NMC811 cathode chemistry and the role of nickel and cobalt will essentially remain the same.