Lithium-ion battery supply chain technology development and investment opportunities
Carnegie Mellon University – Battery Seminar June 2020 Vivas Kumar Benchmark Mineral Intelligence 1 Due to policy statements and strong public opinion trends, major automakers have committed over USD$300B towards actively developing battery electric vehicles
Examples of major passenger car and light duty vehicle OEM EV Global policy statements by governments supporting EV adoption strategy announcements
Total annual vehicle Norway and Netherlands: Proposal Canada: Target of 30% to end ICE sales by 2035, Germany production penetration of electric by 2030. Considerations for EU Italy: Target of 30% vehicle sales by 2030 Israel: wide ban by 2030 penetration of electric Laun- Planning at Chinese OEMs VW group plans Quebec targeting 100% Proposal ching least 20 EVs expected to comply to invest more vehicle sales by 2030 Toyota has set a sales to end ICE 12 EV by 2023 with 20% EV than $24bn in zero emissions by 2050 target of ~1m EVs and sales models penetration rate by zero-emission FCVs by 2030, by 2022 2025 vehicles by 2030. by 2030 investing >$13 billion Will develop 80 10- to develop and make EV models by 12mn batteries 2025.
UK and France: Proposal Japan and to end Set target of two South Korea: Aiming to develop 8 EV ICE sales Planning to invest $11bn thirds of vehicle sales Target of 30% models by 2025, with 30 EV by 2030 by 2040 in EVs by 2022, and will penetration have 40 hybrid and full panned by 2030 of electric EV models vehicle sales 5-9mn Mexico: Target of India: by 2030 30% penetration Proposal of electric vehicle to end sales by 2030 ICE sales by 2030 Brazil: Target of 30% penetration China: of electric vehicle Target of 5% sales by 2030 penetration of electric 2022 2025 2030 vehicle sales by 2020, 20% by 2025 EV strategy timeline
2 Note: ICE - Internal Combustion Engine As a result, lithium-ion manufacturers are ramping up >2TWh capacity from 121 battery “megafactories”, the majority of which are expected in China Expected GWh battery cell manufacturing production through 2029 Total lithium ion battery megafactory capacity by region, 2029 (GWh) – major producers
GWh 2029 GWh 2024 GWh 2019 2,224 2019 1,530 2024 2029
100 1,526 90 80 70 60 50 40 367 30 206 20 10
0 Global China Europe North America Others
\ China will continue to dominate cell manufacturing with demand for European and US made cells out-stripping supply. This is especially the case for Tier 1 producers who may only have limited volumes available outside the large OEMs
Note: Not all stated capacity is available in a given year as commissioning dates fall throughout the year and facilities take time 3 to ramp up This significant global battery cell capacity ramp-up will compound the continuing decline of $/kWh battery cost of production
Best-in-class $/kWh for battery cell manufacturing (2014- 2014 is the year when meticulous cell price 2019) tracking across the industry was instituted
280 16% price decline per year on Cell-level cost reductions mostly average concentrated on: ▪ Cost management along materials supply chain (largest opportunity) ▪ Manufacturing efficiency improvements and large-scale production o Yield loss improvements during manufacturing process ~120-130 Pack-level cost reductions result from: ▪ Improved energy density of individual cells from chemistry evolution ▪ Improved cell density within packs from less volumetric intensity of interstitial 2014 2015 2017 2018 2019 2016 materials
4 Cathode materials are the largest $/kWh cost, and is the focus of cost reduction through materials management and manufacturing efficiency improvements
▪ Cathode is >50% of the total Major contributors to $/kWh cell cost (%) cost of producing battery cells ▪ Cost control is pushing 100% innovation and push to new chemistries 80% ▪ Depending on raw materials prices, 3 key metals contribute 60% ~50-65% of cathode manufacturing cost ▪ Lithium 40% ▪ Nickel ▪ 20% Cobalt ▪ Short of vertical integration, supply chain optionality and 0 Cathode Mechanical Anode Electrolyte Other Total security is key to realizing cost-downs in these materials
5 6 key trends shaping the lithium-ion battery cell industry
1 2 3 Western automotive Nickel-rich Cathode chemistry push towards cathode differentiation by higher quality chemistries application
4 5 6 Chinese control of Opportunities Pending global materials for supply chain supply/demand supply chain co-location imbalances
6 Market Trend #1 – While higher tier battery producers are preferred by Western automotive, lower tier battery suppliers will try to “level up”
▪ Higher likelihood of being used in Western automotive ▪ Longer supplier qualification timelines Tier 1 ▪ Higher material quality requirements ▪ More stringent spec tolerances ▪ Larger qualification sample requirements Tier 2
But, does not necessarily mean: • Trends in China are the same • More innovative Tier 3 • Better position to raise capital • First choice for Western automotive in perpetuity
Product quality differentiation is the main reason that battery cells will not become “commoditized” like solar panels
7 Market Trend #2 - Nickel-rich cathode chemistries expected to capture larger market share as customers push for higher energy density, but LFP is a “dark horse”
NCA holds while NCM varieties take the majority of the market
NCM 111 NCM 523 NCM 622 NCM 811 NCA LCO LFP LMO 100%
75%
50%
25%
0% 2016 2017 2018 2023 2028
Lithium is the only element common to all of these chemistries
8 Market Trend #3 - Long-term, as industry shifts towards autonomous driving and EVs penetrate new geographies, cathode chemistries will differentiate by application
Present Future – custom chemistries by application
NCM NCA NCM811 NCM523 NCM622 LFP Standard battery fixed route, short- chemistry across all long-range vehicles medium-range distance driving; vehicles with fast acceleration; vehicles; everyday geography- premium product product specific (China)
9 Market Trend #4 – China dominates capacity in the upstream cathode and materials supply chain, and expected to continue to do so at least for the next decade Current lithium Current cobalt Current Current chemicals supply chemicals supply cathode supply nickel supply
38% 35% 49% 51% 48% 52% 62% 65%
China Non China China Non China China Non China China Non China
10 Market Trend #5 – Western markets’ EV demand and governments’ push towards new job creation in advanced industries creates capacity co-location opportunities
From – Globally Distributed Supply Chain To – Vertically Integrated For Cost Optimization
Ni Ni
Ni Ni Cell Co Cell NCA Co NCA prec
Li Li
Li NCA Li NCA prec Co Co
NiCo NiCo Ni Ni
Li Li Ni Li Li Ni Li Co Li Co
General product flow towards Asia General product flow towards end markets
11 Market Trend #6 – The dislocation in timeline to build each portion of the supply chain could lead to multiple battery material shortages
Example—Lithium chemicals demand/supply tonnes Approximate timeline to progress supply step (‘000) 0 1 2 3 4 5 6 7 8 25 6,000
5 Mining 5,000
4,000 Unplanned Chemical 3 5 new supply 3,000 Processing 2,000 Cathode 2 3 Production Minimum Expected 1,000
2 Cell 1 0
Manufacturing
2017
2015 2031
2021
2019
2016
2018
2037
2027 2034
2024 2033 2035
2023 2025 2032
2022
2039
2029 2036
2026 2038
2028
2040
2030 2020 5 8 Demand Probable additional tonnes Application Secondary Supply Highly Probable additional tonnes Possible additional tonnes Operational supply
12 6 key trends shaping the lithium-ion battery cell industry
1 2 3 Western automotive Nickel-rich Cathode chemistry push towards cathode differentiation by higher quality chemistries application
4 5 6 Chinese control of Opportunities Pending global materials for supply chain supply/demand supply chain co-location imbalances
13 Deep Dive on Lithium Chemicals Industry
14 Lithium is plentifully available today from a geology standpoint…
Lithium resource availability – major countries
Canada Yearly Mine production: 0 <1M 60M Reserves: 2,300,000 (1.5%)
China Yearly Mine production: 13,300 (6.9%) United States Reserves: 19,000,000 (12.7%) Yearly Mine production: 3,400 (1.8%) Reserves: 6,800,000 (4.6%) Australia Brazil Bolivia Yearly Mine production: 81,000 (42.1%) Reserves: 9,100,000 (6.1%) Yearly Mine production: 966 (0.5%) Yearly Mine production: 0 Reserves: 290,000 (0.19%) Reserves: 54,300,000 (36.4%) Argentina Chile Yearly Mine production: 22,937 (11.9%) Yearly Mine production: 70,600 (36.7%) Reserves: 12,100,000 (8.1%) Reserves: 45,300,000 (30.4%)
15 … but supply remains highly concentrated within a small number of regions…
Lithium Raw Material Supply in 2019 Lithium Chemical Supply in 2019
2% 1% 4% 4% 9% 10%
10% Australia China Chile Chile 50% Argentina Argentina 55% China USA USA 27% Other Other 25%
Total: 359,000 tonnes LCE Total: 338,000 tonnes LCE
16 … with a small number of Tier 1 suppliers supplying the Western battery industry
Supply breakdown – 2018 (‘000s)
325 285 260 38 54 195 48 130 18 40 194 65 46 43
0 Tier 1 – Tier 1 – Tier 1 – Tianqi Tier 1 – Livent Tier 1 – SQM Total Tier 1 Tier 2 Tier 3 Total Albemarle Ganfeng Lithium
Primary production assets1
2 Chemicals conversion assets
17 1. Current production 2. Currently ramping up production asset in Western Australia Brine and spodumene are the two most prolific sources of material today, although specific forms of clay have potential to enter the supply chain in the future
Brine ponds – SQM, Chile Spodumene mine – Greenbushes, Australia
18 Carbonate and hydroxide, the two most common forms of lithium chemicals used for battery manufacturing today, mildly differ in price
Carbonate Weighted Average Lithium Prices: Jan 2018- Dec 2019
• >60% of the produced and Lithium Carbonate (Min 99.0%) Lithium Hydroxide (Min 55.0%) consumed lithium chemicals 21,000 today • Expected to make-up a 18,000 meaningful part of the market in the long-term 15,000 Hydroxide
• Fastest growing segment due 12,000 to shift due to shift towards higher nickel chemistries 9,000
6,000 Jan Apr Jul Oct Jan Apr Jul Oct
2018 2019
19 Benchmark Mineral Intelligence Lithium Price Assessment Given the growth in the industry, supply chain players have exercised creativity in structuring new business models to feed material into this evolving supply chain
EXAMPLE – Supply chain of spodumene material from Sigma Lithium in Brazil to a Western automaker
Sigma Lithium Mitisui Lithium Western Cell Maker Lithium Spodumene Trading Company Chemicals Maker EV Manufacturer
▪ Sigma is ramping up 660k TPT spodumene production in Brazil ▪ Secured $30m pre-payment from Mitsui, who are responsible to ship spodumene from Brazil for production in China to lithium chemicals ultimately bound for Western automotive batteries ▪ Mitsui plays central role in piecing together the supply chain here
20 However, projected severe shortages of lithium chemicals still plague the industry, which begs the question – why aren’t more people investing?
Li Demand/Supply tonnes (K) ▪ The demand outlook for lithium is undoubted, the speed and rate of 6,000 demand growth is the major question
▪ Entering a period of transition with Demand 5,000 new supplies beginning ahead of the Secondary Supply Possible additional tonnes roll out of megafactory capacity 4,000 Probable additional tonnes Unplanned Highly Probable additional tonnes new supply ▪ Major supply expansions still required Operational supply 3,000 to reach demand requirements of 2021 onwards
2,000 ▪ The slow introduction of new projects into the market is a warning sign for a 1,000 market which is only in the early stages of its growth cycle
0
2017
2031 2015
2021
2016 2019
2018
2034 2037
2024 2027 2033 2035
2023 2025 2032
2022
2036 2039
2026 2029
2038
2028
2040
2030 2020
21 Reason #1 - Value chain is concerned about price volatility; after decades of stability, lithium prices have gone through a boom/bust cycle in just 6 years
Lithium prices: Mar 2014-Feb 2020
1 2 3 Supply 4 Next generation 5 6 New normal Calm before the storm Panic buying Stabilization unresponsive New market entrants Prices begin return Lithium chemical prices had Availability concerns New supplies Majors unable to increase supply, to pre-boom levels, been relatively stable for >4 sparked by China NEV stabilize prices but at respond to market switching China but establish new years in build up to 2015 spike market acceleration higher cost levels deficit sentiment normal range USD/Tonne $25,000
$20,000
$15,000
$10,000
$5,000
0
Jul 14 Jul 17
Jul 15
Jul 16 Jul 19
Jul 18
Jan 17
Jan 15
Apr 17
Apr 14
Oct 14Oct Apr 15 17Oct
Oct 15Oct Jan 16 Jan 19
Jan 18
Apr 19 Apr 16
Oct 16Oct 19Oct
Apr 18
Oct 18Oct Jan 20 Lithium Carbonate (Min 99.0%) - CIF Asia Lithium Hydroxide (Min 55.0%) - CIF Asia Lithium Carbonate (Min 99.0%) - FOB S America Lithium Hydroxide (Min 55.0%) - FOB N America
22 Benchmark Mineral Intelligence Lithium Price Assessment Reason #2 - Regardless of price swings the lowest cost producer is best position for value creation, and these projects are becoming harder to find and develop
Lithium industry brine and hard rock total cost curve - 2019
USD/MT-LCE (real terms, 2019) 10,000 Notes on cost curves: 9,000 ▪ Total cost includes capital repayment and royalty costs ▪ Hard rock includes pegmatite, petalite, lepidolite, jadarite and clay resources 8,000 ▪ For operations producing spodumene, freight costs to processing point are included, as is a conversion margin to lithium carbonate 7,000
6,000 5,000
4,000
3,000
2,000
1,000
0 0 25,000 50,000 75,000 100,000 125,000 150,000 175,000 200,000 225,000 250,000 275,000 300,000 325,000 350,000 375,000 Greenbushes (Base) Al Hayat Pilgangoora (PLS) Silver Peak Mt Marion Bald Hill Mt Cattlin Yichun others Araçuaí Pilgangoora (AJM) Abitibi Yichun 411 Cachoeira Salar de Atacama (SQM) Yichun 414 Portugal Salar de Olaroz West Tijnaier (Henxingrong) Tibet Zabuye Hombre Muerto West Tijnaier (Citic) Yiliping Salar de Atacama (ALB) China Various Spodumene East Tijnaier (Qinghai Lithium) Mibra Qarhan (Lanke-BYD) Brine Hard Rock
23 Benchmark Mineral Intelligence Lithium Forecast Reason #3 – Even if a project is developed, it has to be “qualified” for battery- grade supply before a large supply contract can commence
Qualification – the auditing process to ensure that material is fit for purpose before commercial supply commences
Example raw material qualification process and timeline – best case scenario Concerns for OEMs ▪ OEMs must qualify Month large quantities of 1 2 3 4 5 6 7 8 new suppliers to Does the material… Quantity create effectively large pool of 1 … comply with spec? 10 – 50 KG available material to source
2 … perform in cathode? 100 – 500 KG ▪ Risk of qualification failure is high with new suppliers 3 … perform in 1000 – 5000 KG battery cell?
4 … come from a reliable manufacturing line?
24 Reason #4 – Against a backdrop of rising ESG concerns in mining investing, the environmental footprint of this supply chain has faced tough scrutiny
Technical grade lithium hydroxide carbon intensity Comparative carbon footprint of VW’s EV vs. ICE 1 (tCO2/LiOH-H2O) 0 20 40 60 80 100 120 140 Co2 Intensity (tCO2/tLiOH-H2O) 15
Diesel 29 11 100 141 10
5 BEV (EU mix) 57 62 120
0 Chilean Brine1 Argentine Brine Australian Spodumene/Chinese Vehicle production (cradle to gate) Use phase (tank to wheel) Conversion
Fuel provision (well to tank) 5.0 tCO2/tLiOH-H2O 7.4 tCO2/tLiOH-H2O 14.8 tCO2/tLiOH-H2O Source: The CO2 Impact of the 2020s Battery Quality Lithium Hydroxide Supply Chain” by Alex Grant, Source: VW ID.INSIGHTS Sustainable E-Mobility Presentation – February 15, 2019 David Deak, and Robert Pell (January 2020); Minviro
25 1. Technical grade, not battery quality Reason #5 – Stalled innovation in the flow sheet for lithium chemicals production reinforces questions about environmental sustainability and value creation
Electric Lime Lime ▪ High electricity Acid H2SO4 Heating Water Slurry Slurry costs from high Hard rock ore Ca(OH)2 Ca(OH)2 temperature (Spodumene) pH:5-6 pH:8-9 baking of ore and Rotary Kiln Acid Crushing/ Dissolution Precipitation/ Precipitation/ electrodialysis of (Calcination) Roasting Sorting 90C Filtration Filtration leach liquor 1100C` 250C ▪ High 0.7wt% Li 3wt% Li Release of Lithium Lithium operations/labor volatile phases dissolved in to dissolved in to Non-Li Precipitated Precipitated cost from ore increase in aqueous Li+ aqueous Li+ containing impurities impurities mining and porosity, increase AI(OH)3, Fe203 material transport rock in acid solubility CaCO3, Mg(OH)2, Silicates ▪ High lime slurry costs to neutralize acid addition and H SO 2 4 to promote Electricity Electricity Steam Steam impurity precipitation Mechanical Ion Exchange 3 Compartment Crystallization/ Vapor Final Drying ▪ Low byproduct purification Electrodialysis Filtration Recompression revenue
Li2SO4(aq) LiOH(aq) LiOH(aq) LiOH-H20(S) LiOH-H20(S) Multivalent `9 wt% 40 wt% 95 wt% 99.9 wt% cations Ca2+, Mg2+, AI3+
26 5 reasons that lithium supply growth is projected to fall behind demand
1 2 3 Price Production Project volatility operating cost qualification
4 5 ESG Lack of technology concerns innovation
27 Growing the battery recycling industry
28 Industry’s concerns about severe materials shortage, geopolitical risk, and governance has led them to seek alternatives to traditional mining/chemicals
Forecast lithium chemicals demand/supply tonnes (‘000) Cobalt Raw Material Supply in 2018
Democratic Republic of Congo Canada Demand Supply Probable Australia Other Secondary supply Supply - Highly Probable 4,000 Supply Possible Supply - Operational
26% 3,000 Unplanned New supply 2,000
3% 2% 1,000 69%
0
2017
2031
2015
2021
2019
2016
2018
2034
2027 2033 2035
2024
2023 2025 2032
2022
2029
2026
2028 2030 2020 Total: 128,000 tonnes
29 Source: Benchmark Mineral Intelligence data Batteries sent to raw material recycling centers expected to grow nearly 4x by 2025, and in response multiple companies are pursuing capacity build-ups
Tons of lithium ion batteries sent to recycling by geography (‘000)
China Europe USA/Canada South Korea Japan
398
329
264
212 172 145 119 98
2018 2019 2020 2021 2022 2023 2024 2025 Interesting startups
30 Source: Hans Eric Melin – Circular Energy Storage BMW/Northvolt/Umicore deal an example of European pan-industry collaboration on closed loop sustainable battery materials supply chain; more deals expected
Umicore Northvolt BMW Cathode manufacturer / Recycling Cell manufacturer EV manufacturer
▪ Project aims to create a “closed life cycle loop” for battery cells ▪ Cells will be manufactured using a recyclable design and used in electric vehicles, then possibly as stationary storage devices before finally being recycled and reused
Northvolt
Umicore
BMW
31 Source: Reuters - BMW, Northvolt and Umicore team up on battery sustainability (Oct 2018) Attractive project economics featuring a payback <1 year at demo plant scale, but sensitive to continuous process cost improvement and chemicals market prices
NCA demonstration plant project economics
▪ Variability potentially introduced with changing perceptions of feed material value ▪ Potential premium due to low-carbon and closed-loop material could guarantee higher prices
32 Source: Argonne National Lab EverBatt recycling model for American Maganese 1,200 tpa plant The recycling industry is in nascent stages, and faces multiple threats to reach full scale and profitability as global lithium-ion battery capacity ramps up
Non-differentiated regulation 1 Second use batteries 2 Low collection rates from consumers 3 between lead-acid and lithium-ion batteries
Competing priorities with battery life Input feedstock heterogeneity Chemical process inefficiency 4 5 6 longevity push
33 OEMs and battery manufacturers are looking at opportunities to recycle used lithium-ion batteries and scrap to create a closed loop battery supply chain
Raw materials
Main advantages of battery recycling
▪ Lower CO2 footprint supply chain ▪ Decreased geopolitical and logistics risk End of life Battery batteries cell production ▪ Fulfills regulatory mandates ▪ More likely to be attractive to customers ▪ Reduces $/kWh battery costs
Battery pack production 34 The battery industry is fundamental to the race for clean air worldwide, and requires innovative new solutions in this time of unprecedented change
35 Reach out with any questions, and download presentation
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