This white paper explores the seismic shifts in the automotive industry as electric vehicles (EVs) gain momentum, with an emphasis on the escalating demand for critical battery materials. We dive into current trends, regional developments and the evolving supply chain to provide an overview of the opportunities and challenges that lie ahead.
Introduction to the EV Landscape
Global EV sales are expected to grow to $8.8 trillion by 2030 and to $57 trillion by 2050, according to Bloomberg New Energy Finance. Accordingly, traditional combustion vehicle sales are forecasted to decline by 39% between 2017 and 2026. We will likely look back to 2017 as the peak of combustion vehicle sales.
In volume terms, this means that EVs could account for 26.6 million units of sales by 2026, or 35% of total car sales. Estimates predict half of EVs sold by then will be in China, resulting in more than 100 million EVs operating on the roads worldwide. While Chinese car makers are breaking into the European markets, the American market remains challenging for them as electric vehicle tariffs have increased from 25% to 100% in 2024.
As the world transitions toward EVs, the demand for rechargeable batteries and their essential components will rise. Specifically, when we think about EV batteries, we should focus on lithium, cobalt, nickel, graphite, manganese, copper, and aluminum. These are the main commodities required to build EV batteries, and demand for these materials will likely see continued and unprecedented growth. Projections from S&P Global Market Intelligence suggest consumption of lithium, cobalt and nickel could rise by 24%, 12% and 8% respectively from 2022 to 2026.
Global Reserves and Production Demand
Currently, demand for critical EV battery materials exceeds the reserves available. The U.S. Geological Survey conducted a study in 2022 which found nickel has the lowest global reserve-to-annual production (R/P) ratio at 35.2x. Other metals such as lithium and graphite have R/P ratios of 220x and 320x, respectively, emphasizing the present abundance of these resources compared to demand.
However, as EVs begin to take on a larger share of total vehicle sales globally, coupled with an increase in the total quantity of vehicles sold around the world due to the rise of new emerging markets (both the pie and the share of EVs will increase), these ratios may begin to constrict. Nations seeking to dominate the EV supply chain may seek to compete for these materials by adopting trade policies that limit their availability for export. It is also feasible that recycling these materials from used batteries can become an important part of how nations address security of supply issues.
These materials are already viewed as critical to China, the EU and the US. According to the Departamento de Energía de los Estados Unidos, all three regions have formally adopted lists of critical minerals ranked according to their industrial requirements and strategic economic importance. This sets the stage for greater geopolitical competition in the EV sector between these regions as the major minerals required to manufacture batteries appear, or overlap, on all three of these critical mineral lists.
Regional Dynamics and Emerging Players
Europe is working towards reducing its import dependence on lithium. Currently, Europe has approximately 5 million tons of lithium reserves located mostly in Germany and the Czech Republic, which accounts for 25 years of demand for passenger electric vehicle batteries. Europe also relies heavily on processed lithium imported from a narrow band of third-country suppliers, including Australia, Chile, China and Argentina.
To ease its import dependence, Europe is working to build refining and recycling facilities that, once online, will be able to process about 650,000 tonnes annually by 2028. These projects align with Europe’s Critical Raw Materials Act and present a growth industry.
Nickel Supply Chain Challenges in the UK and Indonesia's Rise
The UK faces challenges with nickel supply, relying on heavily on imports to support the government’s desire to expand electric battery production facilities. In July 2023, some UK based car companies confirmed they will build a £4 billion EV battery factory in the UK. The factory is set to be the largest in the country and will contribute almost half of the projected battery manufacturing capacity required for the UK automotive sector, according to the auto trade publication Fleet News.
In the meantime, Indonesia has emerged as a dominant nickel supplier, producing 40.2% of the world's supply. Indonesia is leveraging its success to create a complete EV supply chain, attracting substantial investments, notably from Chinese investors.
Global Investment Landscape
Meeting international climate accords – such as COP21 in Paris or COP28 in Dubai that call for a limit on an increase in global warming to less than 1.5 degrees Celsius by 2050 – requires a significant shift in investment patterns. Beyond the metal availability, investments in electrification alone will need to reach $16.6 trillion by 2050, while total investments in global energy transition may need to be $150 trillion, according to the International Renewable Energy Agency.
The global energy landscape is shifting rapidly and new business opportunities for the insurance industry are becoming available. As a US insurer with a track record of environmental leadership, The Hartford firmly believes that advancing the energy transition, both with product solutions to support renewable energy and decarbonization technologies, is a societal and business imperative.
To learn more about The Hartford’s Global Insights Center, visit TheHartford.com/gic.
La información proporcionada en estos materiales brinda información general y de asesoría. It shall not be considered legal advice. The Hartford does not warrant that the implementation of any view or recommendation contained herein will: (i) result in the elimination of any unsafe conditions at your business locations or with respect to your business operations; or (ii) be an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business premises, locations or operations are safe or healthful, or are in compliance with any law, rule or regulation. Readers seeking to resolve specific safety, legal or business issues or concerns related to the information provided in these materials should consult their safety consultant, attorney or business advisors. All information and representations contained herein are as of June 2024.
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