EV producers look for independence from China

Carmakers are looking for secure battery supply chains independent from the current dominance of Chinese cell makers, seeking to challenge Chinese hegemony in the global battery markets.

The industry's over-reliance on China has been highlighted in recent weeks weeks as the coronavirus outbreak in Wuhan resulted in disruptions to the supply of components. Several carmakers around the world have warned that the ongoing crisis could affect production because of a shortage of batteries.

Fiat Chrysler warned that its European plant was weeks away from halting production after struggling to source key parts from Chinese suppliers. Other global carmakers — including PSA Group, General Motors, Daimler and Ford — have plants that produce parts in and around Hubei, the epicentre of the outbreak.

Volkswagen has delayed the reopening of its Chinese plants until 17 February. Toyota and BMW will also wait until 16 February and 17 February, respectively, to restart production in China.

In Asia-Pacific, some production facilities have already closed. Hyundai was forced to close a plant in South Korea and Nissan halted production at a facility in Japan. Honda and Toyota are reviewing their inventories.

New Asia-Pacific ventures to challenge China's battery dominance

Batteries are one of the areas in which China dominates automotive production.

Not only is China home to the largest battery maker in the world, CATL, but much of the raw materials are produced in the country. Cobalt sulphate, nickel sulphate, high-purity manganese and other battery raw materials are almost exclusively produced in China. On 11 February, Argus assessed Chinese prices for minimum-20pc cobalt sulphate at 50,000-55,000 yuan/mt ex-works. Prices for minimum-22pc nickel sulphate were Yn24,000-31,000/mt ex-works China on that date (see chart).

Outside China, supply is dominated by South Korea and Japan.

LG Chem, Panasonic, Samsung SDI and SK Innovation are dominant players. Carmakers in Asia-Pacific, Europe and the US have secured battery supply from these producers for the next few years.

Toyota and Panasonic recently announced a joint venture to produce batteries in Japan. Prime Planet Energy and Solutions will employ 5,100 workers in Japan but has yet to specify the capacity of the enterprise.

Panasonic and Tesla work together to produce batteries at Gigafactory 1 in the western US state of Nevada. This has ensured a stable supply of batteries and enabled Tesla to make a profit for the first time this year.

LG Chem supplies batteries for the Jaguar I-Pace SUV, which is produced in Graz, Austria, and the Audi E-Tron. But this supply has run into problems, with battery shortages occasionally forcing both producers to halt production.

General Motors and LG Chem in December formed a $2.3bn joint venture aimed at mass-producing batteries in the midwestern US state of Ohio. Planned capacity is about 30GWh, and the unit will employ about 1,100 people. Work is expected to begin in the middle of this year.

Europe nears gigafactory production

In Europe, several joint ventures are expected to begin production from 2022-25.

Europe's largest carmaker, Volkswagen, has already opened a pilot plant for battery cells. It plans a full-scale plant with a capacity of 16 GWh in a joint venture with Northvolt. It is expected to open in 2023-24.

Northvolt also plans to open a 16GWh production plant in Ett, Sweden, by 2023, with construction starting in early 2021. The plant will ramp up to 32GWh by 2024. By June last year, it had already taken about $13bn worth of orders and long-term supply agreements, the company said.

Europe's second largest carmaker, Groupe PSA, has its own large-scale production plans with French energy giant Total. A pilot plant will open in 2021, after which a decision will be taken on whether to proceed. If the project continues, construction of an 8GWh plant will begin in northern France, with production starting in 2023. The plant would ramp up to 24GWh in about 2025 and to 48GWh by 2030.

Demand for electric vehicles in Europe is expected to rise to 1.4-1.6mn, most industry experts say. European sales of fully electric vehicles reached 459,387 last year, up by 52pc from the previous year, data from the European Automotive Manufacturers Association show.

It will be difficult for EU carmakers to be fully independent from the Chinese supply chain based on demand forecasts, but Gigafactory plans will help European carmakers meet their sales forecasts, with more plants expected to be announced this year.

By Thomas Kavanagh

Cobalt sulphate vs nickel sulphate prices Yn/t