With no internal combustion engine and no burning of fossil fuels, electric vehicles (EVs) — running solely on batteries — are coming in their billions to electrify mobility. By 2035, at least half of all global passenger vehicle sales will be for EVs, and the proportion will keep increasing. The roadmap for the global energy sector to reach carbon neutrality developed by the International Energy Agency (IEA) requires the number of EVs to increase from eleven million in 2020 to 350 million in 2030 and almost two billion by 2050. In the global race to build batteries and battery-powered cars and to get access to the vital lithium, cobalt, and nickel that go into them, China is winning hands-down.
A Potent Mix
The most expensive component of an EV is its battery. Almost all (up to 99 percent) of the batteries currently installed in EVs as well as hybrids (which have an internal combustion engine as well as a battery) are lithium-ion batteries. Lithium-ion batteries contain base metals such as aluminium, copper, and iron as well as expensive precious metals, notably lithium, cobalt, nickel, and manganese.
To produce electricity, lithium-ion batteries move lithium ions from the anode to the cathode electrodes (which are kept apart by a microporous separator) via the electrolyte layer. Graphite, the only natural form of carbon apart from diamonds, is used to conduct heat and electricity in the anode, and is the only material that can be used for this purpose. Lithium is the battery’s active material and key component, but most of the precious metals are contained in the cathode, which is hence the most expensive part of the battery. The cathodes contain an ever-increasing share of nickel, which facilitates energy density and longer battery life; cobalt, which prevents the cathodes from easily overheating or igniting; and manganese, which decreases the risk of combustibility.
Given the complexity of the battery and the various components, it is difficult to establish exactly how much of these precious metals go into each battery. One estimate puts the proportion of precious metals at about 8 kg of lithium, 35 kg of nickel, 20 kg of manganese, 14 kg of cobalt, and as much as 70-100 kg of graphite. Other estimates differ.
Extracting all these metals poses a variety of environmental and human rights challenges. For one thing, the mining required is highly energy-intensive. Large lithium mining areas feature big lithium ‘ponds’ of varying hues (depending on the concentration of lithium carbonate). These have been described as ‘surreal landscapes where batteries are born’, and have begun to appear in the ‘lithium triangle’ of Chile, Bolivia and Argentina. High pressure acid leach (HPAL) nickel plants in Indonesia, the leading producer, have a high carbon footprint among other environmental concerns. Two-thirds of the global supply of cobalt are mined in the Democratic Republic of the Congo, where concerns have been raised about human rights abuses and labour issues. All these mining operations cause soil degradation and environmental damage, and use vast amounts of water: In the ‘lithium triangle’, for example, every ton of lithium requires the use of about 2.2 million liters of water as the mineral is found dissolved in salt flats, and requires evaporation to be separated.
Battery and EV Kings
In 2021, almost seven million EVs were sold worldwide, and a full 51 percent were sold in China. Germany (10.2 percent) and the U.S. (9.3 percent) were a long way behind. According to data by China’s Ministry of Public Security, as of the end of September 2022, there were 412 million vehicles in China, including 315 million cars; and 499 million drivers. Of the vehicles, 3.65 percent, or 11.49 million vehicles, were EVs, of which 3.713 million were newly registered in 2022. The EVs included 9.26 million pure electric vehicles, a proportion of 80 percent.
EV sales in China are riding a wave of government support policies and incentives, including cash subsidies and purchase tax exemptions. EVs are also a key component of China’s ‘double carbon’ objectives — first proclaimed by Xi Jinping at the United Nations General Assembly in September 2020 — to reach peak carbon use by 2030 and carbon neutrality by 2060. In September 2022, the Ministry of Finance announced that EVs purchased throughout 2023 will remain exempt from vehicle purchase taxes, the third time the policy was extended since it was first implemented in 2014.
The year 2022 has been a steady drumbeat of achievements in the meteoric rise of BYD (Build Your Dreams) Auto 比亚迪, a company from Guangdong province that was founded as a battery manufacturer in 1995. In the first half of the year, BYD became the world’s leading EV company with sales of 640,748 units, a fourfold increase on the previous year, and 76,748 units more than Tesla, its closest rival. In just one year, it increased its global market share from 5.9 percent to 15.4 percent. In April, BYD announced that it had ceased building combustion engine vehicles and would focus exclusively on EVs. In May, BYD’s monthly EV sales in China breached 100,000 units for the first time. In June, the company’s market capitalisation exceeded a trillion yuan (almost $150 billion), larger than Volkswagen Group and third on the list of auto giants behind Tesla and Toyota. In October, BYD sold a record 217,800 EVs in China, the eighth month in a row of record sales. This represented a year-on-year increase of 168.78 percent and 16,541 more than in September. According to the China Passenger Car Association, a total of 680,000 EVs were sold in China in October, which would give BYD a market share of 32 percent. From January to October, BYD sold 1.185 million passenger vehicles, a year-on-year increase of more than 160 percent, and surpassing Tesla’s 909,000 units.
The profits are rolling in for BYD: In the third quarter of 2022, the company announced net profit of 5.72 billion yuan ($788.09 million), an increase of 350.3 percent year-on-year. Its global market offensive is in full swing as well. In September, it entered the European market with the Han sedan, the SUV Tang and compact SUV Yuan Plus. Through the course of 2022, BYD entered markets in Australia (February), New Zealand and Japan (July), Cambodia and Israel (August), Thailand (September), and India (October). In October, the company signed an agreement with SIXT for the European rental car company to purchase 100,000 BYD EVs over the next six years. BYD also announced it was ordering eight cargo ships, at a total cost of 5 billion yuan ($688.89 million), to ship its vehicles to overseas markets.
Yet an even more meteoric and relentless rise is that achieved by China’s largest battery manufacturer: Contemporary Amperex Technology Limited (CATL) 宁德时代, a company founded in 2011 in Fujian province. In 2021, the average capacity of a single EV battery was around 55 kilowatt-hours (kWh). By the end of June 2022, the cumulative installed capacity of batteries in China was 110.1 gigawatt hours (GWh) – each gigawatt hour equal to one million kilowatt hours. This represented an almost doubling of cumulative installed battery capacity from the year before; CATL accounted for nearly 48 percent of this total. Globally, by the end of the third quarter of 2022, cumulative battery capacity had reached 341.3 gigawatt-hours (GWh), with CATL supplying 35.1 percent of that. (BYD ranked third with a market share of 12.8 percent – it too had seen tremendous growth in this area, with a year-on-year increase of 177 percent.) Profits at CATL are soaring: in the third quarter of 2022, CATL announced total revenue of 97.37 billion yuan ($13.32 billion), a year-on-year increase of 232 percent, and net profit of 9.42 billion yuan ($1.3 billion), an increase of 188 percent.
In June 2022, just when CATL joined the ‘trillion yuan club’ market capitalisation club, the company launched its third-generation Qilin 麒麟 EV battery, named after a mythical Chinese beast sometimes likened to a unicorn. The Qilin has a record volume utilisation rate (the percentage of a battery used for driving) of over 72 percent, and an EV with this battery can drive 1,000 kilometers without having to recharge. When it does need to be recharged, it can get to 80 percent capacity in ten minutes, outperforming Tesla’s batteries, thanks to CATL’s large surface cooling technology.
Yet for CATL’s founder and chairperson, Robin Zeng (曾毓群 Zeng Yuqun), the Qilin is just the first step. He has promised more advanced batteries to come, including ones based on “condensed matter” which, as he said at the Qilin’s launch in June, ‘no one has heard about.’ Zeng, who did a Ph.D. in condensed matter physics at the Chinese Academy of Sciences from 2002 to 2006, did not elaborate further, but it is likely that condensed-matter batteries will make use of graphene technology — graphene is a material consisting of a one-atom-thick layer of carbon that has virtually unlimited industrial potential, including as a conductor of heat and electricity.
All Chains Lead to China
For BYD, CATL, and all the EV and battery companies around the world, getting access to lithium and the various precious metals is the key to success. But the Chinese companies have one key advantage: China controls crucial links in the supply chains.
The four key metals used to produce batteries, plus the metal-like graphite, each require different conditions for production. Lithium is extracted from brine water in high elevation areas in South America or from hard rock, mostly in Australia. In 2021, China produced 14,000 metric tons (MT) of lithium, making it the world’s third-largest producer after Australia (55,000 MT) and Chile (26,000 MT). In 2021, at least 65 percent of China’s lithium needs were provided for by imports.
Nickel is extracted from two types of deposits, namely sulphide (mostly in Russia, Canada, and Australia) and laterite (mostly in Indonesia and the Philippines). In 2021, Indonesia was the world’s largest producer with 1 million MT, while China was the seventh largest, with 120,000 MT.
Cobalt is a by-product of copper or nickel mining. About 70 percent of cobalt comes from the Democratic Republic of Congo (DRC). Chinese companies are estimated to control 60 percent of cobalt mining and 80 percent of cobalt refining in the DRC. In 2021, Chinese companies owned or partially owned fifteen of the nineteen cobalt mines in the DRC.
Manganese and graphite are easier to obtain. Manganese, the most widely distributed of all the metals used in batteries, can be extracted at relatively low cost. As for graphite, the relatively common crystalline form of carbon, it can be mined or produced synthetically, and China controls around 80 percent of global graphite mining.
From 2021, high demand for lithium-ion batteries has led to a spike in the prices of lithium, nickel, and cobalt, exacerbated by supply chain pressures such as COVID, Russia’s invasion of Ukraine, and limited production capacity. From January 2021 to May 2022, lithium prices increased sevenfold and cobalt prices doubled, while nickel prices almost doubled. In order to increase their access to lithium, nickel, and cobalt reserves, Chinese companies have undertaken a range of direct investments, equity deals, and supply sales agreements with mining companies in Africa, South America, Indonesia, Australia, and Canada. In January 2022, BYD, for example, was granted a contract by the Chilean Ministry of Mining to extract 80,000 tons of metallic lithium for $61 million — although the deal was suspended by a court in Santiago two days later after the court accepted an appeal by the local governor and a group of indigenous communities on the grounds that the bidding process violated the principles of environmental protection and economic development. In May, however, BYD had reportedly identified six lithium mines for acquisition in Africa which would yield a million tons of lithium carbonate, enough to guarantee the company’s production for a full decade.
Downstream of mining, China dominates production at every stage of the battery supply chain, from the fabrication of the positive and negative electrodes to the manufacturing of the cells and their assembly into modules and then battery packs. Around 75 percent of the global production of battery cells takes place in China, as does 70 percent of production of specialised cathode and 85 percent of anode materials. China also produces 66 percent of separators and 62 percent of electrolytes.
The Epic Rush for Lithium
In June 2021, CATL opened the world’s largest single battery plant in Yibin, Sichuan province, with a total investment of 64 billion yuan ($8.99 billion). The plant has an annual capacity of 30 GWh. By the end of September 2022, a Chinese newspaper counted twenty-six new projects to expand battery production in China in the year to date. They involved all of the largest battery producers and a cumulative investment of 290 billion yuan ($40.74 billion). Collectively, they would account for a total production capacity of 820 GWh. According to China’s Ministry of Industry and Information Technology, national lithium-ion battery production in the first half of 2022 had already exceeded 280 GWh, a year-on-year increase of 150 percent. CATL’s total electric battery production capacity alone was set to reach 440 GWh by the end of 2022, and the company expects to enter the 1 terawatt-hour (TWh) era by 2025. By 2030, global battery production capacity is expected to exceed 3 TWh, of which China will account for about 45 percent.
This headlong expansion of battery production has driven up the price of lithium relentlessly. As more exploration has taken place, estimated global lithium reserves increased from 3.4 million MT in 2001 to 21 million MT in 2020. In May 2022, a majority stake in a lithium mine in Sichuan province sold for 2 billion yuan ($298.58 million) on the auction platform of online retailer JD.com 京东商城 — which was 596 times the opening price. By September 2022, the price of lithium carbonate was hovering around 500,000 yuan ($72,179) per ton, compared to only 40,000 yuan ($5,706) a year earlier. On October 28, the price was 559,000 yuan ($76,668) per ton.
According to Robin Zeng of CATL, current global reserves of lithium can produce 160 TWh of lithium batteries, so there is not actually a shortage. But there is pressure on supply until investment in exploration and mining can catch up. According to the International Energy Agency (IEA), lithium shortages could occur by 2025 — before an expansion in mining can be fully implemented. Because of the complicated processes involved, lithium mining has a very long lead time: According to an IEA report, lithium mines could take an average of 16.5 years to develop ‘from discovery to operation’.
With the sharp increase in the price of lithium from 2021, the largest profits in China are currently going to the upstream mining companies rather than the battery or EV manufacturers. In the second quarter of 2022, for example, companies extracting lithium from brine achieved a gross profit margin of more than 90 percent, while the gross profit margin of battery manufacturers was below 15 percent, or as low as 10 percent. In the first three quarters of 2022, the net profits of nine Chinese listed lithium mining companies more than doubled. These included market leaders Tianqi Lithium 天齐锂业 with 15.98 billion yuan ($2.19 billion) and Ganfeng Lithium 赣锋锂业 with 14.79 billion yuan ($2.02 billion). Tianqi Lithium holds a controlling stake in Chile’s largest lithium producer, Sociedad Química y Minera de Chile (SQM). Ganfeng Lithium, which supplies lithium to Tesla as well as BMW, Volkswagen, and others, obtains most of its lithium from the Mount Marion mine in Australia (which holds the world’s second-largest reserves of high-grade lithium concentrate), of which it holds a 50 percent share.
With the highest profits concentrated in upstream mining, China’s lithium battery industry in 2022 was marked by a trend of vertical integration, in which electric battery companies invested in raw materials, and raw material companies produced batteries. In April 2022, BYD, for example, made an investment in a lithium mining and battery factory project in Yichun, Sichuan province, of 28.5 billion yuan ($4.06 billion). In July, mining company Ganfeng Lithium started construction of a 5.4 billion yuan ($758.61 million) battery production base in Chongqing. Much of the focus of new lithium mining projects in China is in Sichuan, which contains 6.1 percent of global and 57 percent of China’s lithium ore reserves. By 2025, Sichuan could have a total lithium mining capacity of 5 million tons.
Alternatives: Can Anything Replace Lithium?
Lithium-ion batteries currently constitute as much as 99 percent of all batteries used in transportation. A more sustainable type of lithium battery, the solid state battery, is expected to be used in EVs from 2025. Solid state batteries use solid ceramic material instead of liquid electrolytes, making the batteries lighter, faster to charge, and cheaper. They will reduce the carbon footprint of an EV battery by 24 percent. Although the batteries use up to 35 percent more lithium than current lithium-ion batteries, they use far less graphite and cobalt.
Alternative types of batteries that do not operate with lithium or the other precious metals have been under development for decades, but none of these have reached the stage of mass production. This, however, is about to change: In October 2022, CATL announced that it would start mass producing sodium-ion batteries in 2023. And CATL is not alone: In September 2022, there were 36 companies listed on China’s main stock markets involved in the development of sodium-ion batteries, and some of these companies will start to mass produce cathode and electrode materials for sodium-ion batteries in 2023. Sodium-ion batteries are 20-30 percent cheaper than lithium-ion batteries because they do not require lithium, cobalt, nickel, or manganese. The energy density of sodium-ion batteries is still inferior to lithium-ion batteries, however, so they are so far mostly used in small vehicles operating over short distances, such as two-wheeled scooters.
Toyota, Hyundai, and BMW have released cars with hydrogen fuel cell batteries that convert hydrogen into electricity with the use of a hydrogen tank. In May 2022, Great Wall Motors 长城汽车announced plans to launch a new hydrogen fuel cell brand as well. Hydrogen-powered vehicles produce waste emissions of water instead of carbon dioxide. These batteries are still very expensive, however. The technology depends on a highly complex production chain, and hydrogen refueling stations are much more costly to construct than regular EV recharging stations.
Nevertheless, the hydrogen energy industry has strong government backing, and the fuel cell vehicle industry is being pushed forward in five national fuel cell vehicle demonstration clusters. Although the number of fuel cell vehicles is still small: From August 2021 to August 2022, a total of 2,590 number plates were issued for fuel cell vehicles in the five demonstration clusters.
Another emerging battery technology is redox flow batteries that use vanadium, a malleable metal. Vanadium batteries are much safer than lithium-ion batteries, have a long life cycle, are almost completely recyclable, and China has 39 percent of global vanadium reserves. So far, such batteries have only been used for large-scale power storage for electric grids as current versions have relatively low energy density. Still other options that are currently in the exploratory research stage include batteries using seawater, iron, magnesium, hemp, and silicon. For now, however, lithium is king, and China is the centre of the EV world.