How African cobalt made China a world leader in electric vehicle batteries.Now automakers, one after another, are making loud statements that in 5-7 years there will be a mountain of electric vehicles in their lineup, and the authorities of some countries are happily talking about the upcoming ban on cars with internal combustion engines. But this requires a radical increase in the number of electric trains, and this can lead to unexpected consequences.
And the point is not even that a large fleet of electric vehicles will have to be charged somewhere, which will require the construction of fast charging stations (and the equipment there is very expensive), and not that this will require a significant amount of electricity. Let’s start from the very beginning, namely with batteries.
The heart of an electric car
It is the battery that should be considered the most important part of an electric car – it provides it with the necessary energy for movement, heating or cooling the passenger compartment and a range. And now automakers, together with the largest battery companies, are struggling to reduce their weight and size while increasing capacity.
As a rule, modern electric vehicles use a lithium-ion battery, where a combination of nickel, manganese and cobalt (NMC type) is used as the cathode (negative electrode). And it was cobalt that suddenly became the cause of a headache for automakers. Why?
The reason lies in the numerous announcements about the expansion of the range of electric vehicles, and the governments that actively support this have added fuel to the fire. Investors decided that the commodity would be in short supply and rushed to invest in cobalt, provoking a real boom! As a result, over 2 years, the price of this metal has more than quadrupled — if at the beginning of 2016 a ton of cobalt cost 22 thousand dollars, then at the peak, in the late spring of 2018, a ton was traded on the London Metal Exchange for as much as 95 thousand dollars!
Traders themselves fueled the situation: Glencore (the largest supplier of cobalt) said: “If we now replace all cars with Tesla Model X electric vehicles, then the metal will need twice as much as the explored world reserves.” Moreover, Tesla uses NCA batteries, where the proportion of cobalt is lower.
Can you imagine what a nightmare it is for those who have already calculated business plans for electric vehicles entering the market? So, BMW stated that the battery of the electric version of the X3 crossover will contain 21 kg of cobalt. But the cost of this metal in the battery has risen in rough terms from $462 to $1995. Considering that electric vehicles are still not profitable, and the price of cars with internal combustion engines is not allowed to raise strong competition, then this is really a problem for car companies.
However, as of today, cobalt is traded on the London Stock Exchange at $52,000 per ton, which is almost half as much as a year ago (but still 2.5 times more than in 2016). According to analysts, the decline was due to the opacity of the market, the inability to give a relatively accurate forecast for future demand for electric vehicles, and also … due to increased production. And everyone unequivocally recognizes China as the main player – and for a reason.
The rise in cobalt prices is dictated not only by the high expectations of investors, but also by the complexity of its production. About 70% of the world’s proven reserves of this metal are located in the Democratic Republic of the Congo – in an African country, cobalt is literally pulled out of the ground by hands, and without observing any security measures, and human rights activists trumpet that child labor is used in the DRC. In second place in terms of reserves is the Philippines with a share of … 5%.
And what about China? It turns out that over the past 20 years it has become the largest partner of African countries and annually invests huge sums in the Black Continent. Of course, in the first place – in the extraction of minerals. And now, after an agreement with Glencore on the supply of cobalt, China controls 85% of global production! And it is unlikely that partners will be hindered by accusations of corruption (it flourishes in the DKR), as well as an export duty increased from 2 to 5%.
One raw material, of course, is not enough – it needs to be cleaned of impurities. China also holds the lead here, and by a wide margin – seven of the eight largest enterprises are located in China. The same goes for the production of cathodes for batteries – here China has already overtaken Japan and Korea, the former traditional leaders.
Finally, the production of the batteries themselves completes the logical picture – in China, these factories are growing by leaps and bounds, the total output is already greater than at the Tesla “gigafactory” in Nevada (USA). About 860,000 electric vehicles are forecast to be sold in China this year, most of which are local brands. And in 2019, it is planned that the demand will exceed a million! It is not surprising that in China they “hurried” in advance, knowing about government programs and upcoming restrictions on cars with internal combustion engines.
What should other automakers do?
Obviously, China cannot be ignored in terms of buying cobalt or batteries, although Volkswagen tried to make a deal with Glencore earlier this year to negotiate supplies and somehow fix the price. However, the Germans refused. But Volkswagen had a fallback — it was immediately followed by an announcement of an agreement with three major battery manufacturers: China’s Contemporary Amperex and Korea’s Samsung SDI and LG Chem. The amount is a very impressive 25 billion US dollars!
Moreover, in May 2018, the new head of Volkswagen Herbert Diess, appointed to this position only a month earlier, announced a doubling of this amount – $ 48 billion. The partners were not named this time, but, probably, we are talking about the same three companies. Moreover, Volkswagen promises 25 electric vehicles and 20 plug-in hybrids in 2020, and they will be produced at 16 plants. This, of course, applies to all brands of the concern.
No such deals have yet been heard from other major automakers – apparently, someone is at the stage of preparing contracts, or they are not going to invest huge funds, preferring to observe the situation. By the way, some analysts are cautious about the shortage of cobalt – for example, the share of cobalt can be reduced in favor of 5 times more affordable nickel, which, moreover, is more evenly distributed around the world.
In addition, recycled batteries will soon appear, from which metal can be reused. But the situation will depend on the real demand for electric vehicles – as soon as some countries completely ban cars with internal combustion engines, all the losses incurred will immediately fall on the shoulders of buyers. And it can slow down sales. However, is that the point?
One of the directors of Glencore is credited with the phrase: “Electric vehicles are not about caring for the environment and clean air. Electric vehicles are a redistribution of the market, an opportunity to dominate the automotive market. The Chinese understand that they will never overtake Europe or Japan in terms of developments in the field of internal combustion engines or transmissions, so they are trying to jump over this and stand at the head of the electric era. That’s what’s really happening.” And this really may not be far from the truth – it is China that is now the number 1 market, and such raw materials and production “preparation” may well lead to the dominance of the Middle Kingdom in this industry.