Demand/Opportunity in the Global Battery Business
Demand/Opportunity in the Global Battery Business
Electric vehicles are becoming a readily adopted and conventional form of transportation. Demonstrated by the rising share of new electric vehicle sales, reaching over a third by 2035. The push to electrify transport in developed and emerging economies provides massive untapped investment opportunities, supported by government-funded purchase subsidies that derisk and simplify market entry. IEA’s projection of 3.2TWh for announced planned electric vehicle production by 2030 may underestimate the latent demand present in emerging markets. This is because in some leading markets electric vehicle sales have outperformed market expectations, prompting policymakers to economize incentivising subsidies.
According to McKinsey approximately 90% of the global battery production demand originates from mobility applications. The remaining 10% is attributed to stationary storage and consumer electronics. However, Battery-based energy storage is progressively increasing in its demand. This is partly because it allows power generation to meet demand at all times, which provides short-term reliability to the grid. In addition, the cost of batteries has seen a price drop of 89% in the last decade (Mrsustainability,2021) and favourable regulatory changes in the European, US and Asian power markets have created a viable business model for battery- based storage investment.
IEA’s Projection of Electric Vehicle Battery Demand
IEA’s Projection of Electric Vehicle Battery Demand
BNEF projections indicate a five-fold rise in the annual battery storage installations by 2030, compared to the installed base in 2021. The global power capacity (GW) expansion is reinforced by the increasing number of grid-scale storage units. These typically entail higher unit sizes than off-grid or behind-the-meter units. Rising deployment for grid management roles is likely to involve higher capacity sizes in the respective markets.
The US storage market is the world’s largest, however estimates indicate that China’s market could surpass the US by 2025. This is partly due to China’s 30GW energy storage by 2025 target. The US market meanwhile is characterized by an expanding project pipeline of utility-scale predominantly hybrid projects (storage- linked renewable energy). California, Texas and Southwest regions are the focal points of the US battery storage pipeline.
Countries with rising renewable energy penetration in the grid supply are likely to drive demand for grid-scale energy storage systems. As such, a market opportunity exists in long- duration energy storage (LDES), i.e., battery systems which that can offer storage above 4 hours’ duration, as LDES may become a critical resource for grid operators to improve the reliability of the grid.
Projected Global Annual Battery Storage Installation
Projected Global Annual Battery Storage Installation
Battery Supply Chain Factors Influencing Investment
Battery Supply Chain Factors Influencing Investment
The revenue of batteries across the entire supply chain, per McKinsey’s projections points to $400 billion by 2030 – five times the estimated level as of 2022, due to accelerating demand. The widespread use of Lithium-Ion batteries creates several opportunities across the supply chain. A significant share of the projected revenue pool across the supply chain is derived from cell manufacturing and active materials. In addition, aspects of the supply chain, such as recycling, emerge from recent emphasis on sustainability and have the potential for exponential growth.
Recent major advancements in battery technology have focused on enhancing battery material chemistry, cell energy density and cell-to-pack design. Many of the ongoing innovations seek to economize the scarce critical raw minerals’ utilised in battery production. Notable examples are the use of silicon as a close substitute for the graphite used in battery anodes and the development of lithium metal anode variations. These modifications assist in increasing the battery’s energy density.
Revenue Projection Scenario for 2030 across the Lithium-Ion Battery Supply Chain
Revenue Projection Scenario for 2030 across the Lithium-Ion Battery Supply Chain
The dynamic technology space is not devoid of its own challenges. Firstly, the right technology must be selected based on the investments techno-economic feasibility . Once completed, swift action is required to acquire the necessary raw materials, machinery, other inputs, as well as the human resource base needed to operationalize the investment.
Furthermore, a majority of the emerging battery technologies will have to be introduced without the benefit of large- scale deployment testing. This adds a layer of uncertainty, due to the large number of suppliers and related quality and reliability standard commitments.
Emerging Alternatives in Commercial Deployment of Batteries
Emerging Alternatives in Commercial Deployment of Batteries
The choice of technology and its related parts boil down to raw material requirements. For Gigafactories, the Cathode and Anode active materials (about 70% of battery cell weight) are the most important consideration. The battery manufacturing pipeline imposes demand pressure on the existing competitive minerals market. The relevant minerals required for battery production include Graphite, Lithium, Nickel, Manganese and Cobalt. Other minerals in the list include Oxygen, Iron and Phosphorous. Notably, demand growth in Phosphorous, while not as crucial as other minerals, may face supply challenges due to its popular use in fertilizer production.
Innovations Impacting Battery Cell Components
Innovations Impacting Battery Cell Components
Projected Active Material Demand Globally
Projected Active Material Demand Globally
Investment outlook
Investment outlook
The capex required to finance the increased battery production demand is subject to a multitude of factors such as location, policy support/incentives, technology choice and the like. This is not limited to battery production alone . Other upstream/midstream segments such as mining, refining, and processing will require a similar scale up to accommodate demand. Tesla’s investment outlook, for instance, amounts to $500 billion worth of spending, as it spans across the value chain.
OEMs’ Capex Commitments Toward Battery Capacity by 2030
OEMs’ Capex Commitments Toward Battery Capacity by 2030
Announced per unit capital costs indicate that US battery projects could be costlier than their Chinese counterparts. The Chinese influence on the global battery value chain could be moderated with sustained subsidies and protectionist policies in the US and Europe. A recent Goldman Sachs’ analysis report estimated that $160 billion worth of investment by 2030 is required by the US and Europe to pare their electric
vehicle battery dependence on China. A similar report by PwC arrived at similar conclusion, with the global investment prediction of roughly $300 billion, including investment from China. Multiple structures will together contribute to such an investment spending – including state funding, joint ventures/ strategic partnerships, public SPACs and private equity, among others.