Gigafactory Report

For automobile OEMs, the joint ventures constitute a critical step to acquire and integrate the technology in the shifting vehicle powertrains. The luxury automotive manufacturers’ segment stands out in this. They need to develop typical high-performance and niche vehicles that can substitute the premium offerings in conventional engines. In September 2021, the Germany luxury automaker Mercedes-Benz took an equity stake in the European battery cell manufacturer Automotive Cells Company (ACC) for development and production of high-performance cells and modules. The sports car manufacturer Porsche AG is progressing similarly with acquisition of stakes in the US-based Group 14 Technologies, a producer of advanced silicon-based carbon technology for Lithium-ion batteries. The acquisition is aimed at securing battery supply for Porsche’s high-performance vehicle powertrains. Beyond such niche segment focus, the OEM partnerships are led by motivations of technology access – as of February 2023 about 10 leading automakers had a stake in the development and fine-tuning of solid- state battery technology. Though a promising option, it is still subject to technical challenges and is thus in the process of development and refinement.

The commercial arrangements of the OEM partnerships are getting finalized despite various extraneous challenges. The US-China trade restrictions, for instance, place impediments for companies on both sides seeking to capitalize on the opportunities. The joint venture partnerships are thus accordingly tweaked to accommodate requirements.

The Ford-CATL partnership is one notable example deviating from traditional model, with Ford Motors holding 100% ownership stake, licensing the Lithium Phosphate from CATL. Such an equity structure helps Ford qualify for the benefits under the US Inflation Reduction Act. Yet, the deal is not without challenges with policymakers in both countries placing it under scrutiny for implications in trade relations. The

partnerships with Chinese companies are nearly unavoidable, as their leadership lies in not just existing capacities but also the ongoing expansion in critical/active materials (over 90% share of globally planned cathode and anode expansion). The China-based world’s top battery producer CATL has tie-ups with most of the leading US and European automakers and in December 20222 commenced the first batch of its German battery cell manufacturing plant. The South Korean battery producers (LG, SK On) are following a similar route of OEM partnerships.

For many companies, joint venture partnerships also mean bypassing the conventional supply chains. The automakers have adopted this route to secure supply of essential metals including Lithium, Cobalt, Nickel, and Copper among others. Tesla, for instance, had been in discussions with Glencore to buy a stake in the latter’s cobalt mining assets. While Tesla’s planned deal did not materialize, CATL could finalize a 25% stake in Cobalt producer CMOC’s business (as of November 2022). In this context, the Chinese companies have been following this route for quite some time, with some their leading battery producers seeking African and Chilean Lithium mines.

The US and European companies, especially those in the automotive sector, currently lead the way due to the competition and demand pressure. Pure-play mining companies on a standalone basis may not have the supply ready in time. Furthermore, automakers and pure-play mining companies have a dichotomous relation to the critical metals/materials required – mining companies seek a multi- year investment cycle to meet long-term demand, whereas automakers’ horizon is much shorter with a focus on cheaper access through scale. Effectively, with contractual offtake agreements, automakers supply the capital to get such mining projects onstream which were otherwise not too attractive.

The manufacturing pipeline for electric vehicle batteries is not limited to the OEM partnerships. Though relatively lesser in proportion, a part of the upcoming capacities is led by technology providers, or those entities engaged in the development chain of battery cell components based on certain technology configuration. Supply linkage in the battery

components together with technological know-how enabled market entry for these enterprises. The competitive edge of such enterprises would lie within technology, considering that the scale and profitability are two key known entry barriers in the Gigafactory landscape.