Good read14 Oct 2019 00:18
17Both lithium’s and cobalt’s future will depend on several determinant variables: the extent and speed of EV adoption, the battery technology that becomes the industry preference, and the supply-side response to the changing demand picture. Uncertainty abounds regardless of where a company sits along the EV battery raw material chain today and thoughtful consideration of the industry’s future dynamics is required to make the right strategic moves. Mining companies need to show that they will be able to provide the raw materials required by the end users while balancing the pursuit of attractive profit pools generated by recent price increases and the potential demand destruction caused by end users’ concerns on continued price escalation. To accomplish this, miners need to become what analysts call “long-term greedy.” Instead of looking for short-term profits, miners need to partner with battery suppliers, automakers, and financial players to create a larger market for their materials. This may include: partnering with battery manufacturers to shape existing technologies to ensure a stable and cost competitive supply of necessary materials to customers; working with financial players to access cost competitive, long-term funding to ensure the timely development of new capacity; and facilitating the development of a liquid contract market to help users and producers hedge out price risk. Battery producers and automotive OEMs will need to develop sourcing strategies to ensure a stable supply of lithium and cobalt to insulate them from the risk of shortages and potential price spikes. Clearly, cobalt represents the most pressing challenge and users will need to look at their battery R&D to find diversifying technologies that will avoid the potentially supply-constrained raw material. This is already taking place, with the development of the NMC 811 battery and initiatives to use even less cobalt in future batteries. This uncertainty may require automakers to keep several “irons in the fire,” as new technology trends could rapidly change the leading technologies for batteries. The prospect of such changes may require automakers to have a medium-term strategy and a separate longer-term strategy to account for developments in new technologies, such as solid-state batteries, graphene-based batteries, and even zinc-air batteries. Like mining companies, battery producers and automotive OEMs need to think beyond substitution, e.g., partnering with mining and smelting and refining companies, to provide security of supply as well as transparency and traceability of the material along the value chain from the mine to the battery installed in the car. Financial players will also have a role to play in the evolution of the industry in two important respects: 1) in the financing of EV materials, from direct equity investments to streaming agreements and helping companies in the EV battery value chain hedge their financial risks and 2) in working with global ex
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