Carmakers in Europe face raw-material bottleneck for EV batteries

FRANKFURT — Volkswagen Group, Daimler and Stellantis are among major automakers that have been racing to secure battery cell supplies in Europe but may face a bigger challenge as they seek to go electric — finding enough battery raw materials.

Failure to obtain adequate supplies of lithium, nickel, manganese or cobalt could slow the shift to electric vehicles, make those vehicles more expensive and threaten automakers' profit margins.

"There is a serious question as to whether supply can keep up with demand across the battery supply chain," says Daniel Harrison, an auto analyst at Ultima Media.

Until recently, Europe was seen as having lost the battery race to dominant Asian manufacturers such as CATL in China, South Korea's LG Chem and Japan's Panasonic, says Ilka von Dalwigk of EIT InnoEnergy, which has set up a company network funded by the European Union in the European Battery Alliance.

"Nobody saw that as a problem," says von Dalwigk. "The thinking was that we can import battery cells."

But forecasts from banks such as UBS that EV sales would soar over the coming decade shook the political establishment and automakers and forced a rethink of battery production. This was followed by EU funding programs worth billions and major battery plant announcements by automakers and suppliers. VW alone plans six battery plants in Europe, while Daimler will build four with partners.

Battery cell factory announcements have come thick and fast, and EIT InnoEnergy now lists almost 50 planned projects in the EU. If all those plans become reality, local production should meet demand around 2030. About 640 gigawatt-hours would be available, enough for average annual production of 13 million cars.

By 2030, Ultima Media estimates global worldwide supply at 2,140 GWh, with demand at 2,212 GWh.

Harrison projects VW's six planned plants would allow the company to cover about two-thirds of its own battery needs.

The problem lies with raw materials that include lithium, nickel, manganese and cobalt. Market experts from Benchmark Mineral Intelligence speak of "the great raw material disconnect" — high investments in cell factories but missing investments in raw material extraction.

Within a year, the price for lithium carbonate has more than doubled, said Caspar Rawles, head of price and data analysis at Benchmark.

In the case of cobalt, where the largest deposits are in Congo and are sometimes extracted under miserable working conditions, an increase in price is also expected.

The auto industry is experiencing painful production disruptions because of the shortage of semiconductors. Some automakers, including VW, are trying to secure the supply of raw materials with exclusive supply contracts. So far, lithium has mainly come from Australia and Chile, cobalt from Congo and graphite from China. The largest processors of cathode and anode material are also located there, and in Japan.

But imports can become more expensive because of tariff increases in trade disputes and interrupted by logistics problems.

One answer is investments in raw material extraction in Europe. Lithium is particularly available. Startup Vulcan Energy is working to obtain lithium in a carbon-neutral way from thermal water in Germany's Upper Rhine plain and has signed up Renault as a customer.

There is a risk the shift to e-mobility will be slowed down, says Harrison. He adds, though, that he believes the European Commission and EU member states will have to take action — such as more subsidies for exploring reserves and recycling — "because so much is at stake economically and ecologically."