Drivers face environmental pressures to switch from petrol and diesel to electric cars, but high prices and the limited choice of battery-powered cars mean most consumers remain with the old technology. The motor industry needs to reduce the costs of battery production.
However, prices of key materials used in batteries have risen sharply. Lithium carbonate’s cost has more than doubled to $15,000 a ton over the past three years with cobalt reaching a record $55,000 a ton, largely because of demand from battery makers.
Lithium supply will increase as a plethora of new projects commence operation, but it could take five years for some to reach full capacity. We have also doubled our estimate of lithium production going into electric vehicles to almost 60% by 2025. But while prices could fall closer to production costs, we still see a relatively tight supply-demand balance.
For cobalt, the Democratic Republic of Congo accounts for three-quarters of global output and most of the world’s reserves. Higher prices will encourage investment in mining but demand estimates remain strong.
Vehicle manufacturers thus need to reduce costs while lowering their reliance on these metals. The major battery-makers are attempting a chemistry shift to nickel-rich cathodes with less cobalt content. The current mix is 60% nickel, 20% cobalt and 20% manganese but an 80-10-10 mix would halve the cobalt content. Adding aluminium can cut cobalt to about 5%.
As nickel-rich cathodes have higher energy density, replacing cobalt with nickel should allow battery-makers to improve the energy density while also cutting costs.
However, higher nickel content lowers the stability of a battery. Manufacturers thus need to seek ways to maintain stability without sacrificing energy density. Innovative technologies might solve this problem, say by giving the cathodes a nickel-rich core that satisfies higher energy density while an outer layer with higher manganese concentration provides safety and cycle life.
That said, the very low stability is making it harder to commercialise an 80-10-10 mix than previously expected and uptake will be slower, not reaching 20% of the market until 2025.
European companies must nevertheless comply with CO₂ limits. Further improving the carbon-dioxide emissions of conventional internal-combustion engines is becoming increasingly expensive. At some point, the cost will become so high that it is cheaper to substitute loss-making zero-emission battery-powered vehicles into the sales mix and spread their higher costs over the total sales.
Costs will rise whatever manufacturers do. We expect incremental CO₂ compliance to cost about 1,000 euros per car in 2021 and 3,000 euros in 2030 and we are not sure these costs can be passed on to consumers.
Car companies are struggling to sell fully-electric vehicles: Germans buy three times as many plug-in hybrids as battery vehicles, for example.
But we think mid-hybrid electric vehicles, battery-electric vehicles, and plug-in-hybrids with a combustion engine will have the highest growth rates until 2030: by then they will together account for almost half of global new cars compared to 3% today. In contrast, diesel should drop from 17% to around 6%.
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Alexandre Falcao
Equities: Stock ratings and basis for financial analysis
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