Our Founder, Michael Wurmser, has written elsewhere about the growing importance of vertical supply when it comes to minimising the impact of global shocks and improving efficiencies. There’s a neat circularity in the fact that the car industry is now moving back towards the ‘all under one roof’ approach that typified Henry Ford’s early operations.
Huge growth in demand for electric vehicles is driving manufacturers to review their traditional supply chains in a bid to save time and money – and the environment. Provenance and ESG are becoming intrinsically linked to efficiency and profitability. While Covid and conflict have each caused significant disruption to the global supply chain, bringing challenges that all sides are keen to overcome. As a result, electric car makers are increasingly going direct to the mining companies and forging direct supply deals.
Saving costs, time – and the environment
We’ve previously discussed the opportunities that exist for battery manufacturers to plug into mineral reserves of vanadium and phosphate (both EU Critical Raw Materials) in Norway. Vanadium is increasingly being trialled as an addition to lithium-based battery technology, so it can store more energy. While many EV batteries today use lithium iron phosphate (LFP) cathodes.
Making batteries, and the electric vehicles themselves, close to mining sites removes cost, time, and environmental impact from the manufacturing timeline. By thinking and doing things differently when it comes to sourcing key EV components, car makers are already unlocking significant competitive advantages.
Cutting links in supply chains
Chinese manufacturers were early adopters of the direct approach – the FT reports that BYD, the world’s largest EV producer, has long tried to secure access to lithium mines in Africa and Chile. Similarly, the world’s largest battery maker CATL struck a deal in October to buy a c.25% stake in cobalt producer CMOC, valued at around $3.7bn. Mercedes-Benz and Tesla have also signed offtake agreements with miners in a bid to smooth out and speed up the supply of essential mineral battery components.
In the words of Tanya Skilton, Director of EV Critical Materials at GM Motors: “We are absolutely convinced that this is a race, a zero-sum game and resources are a finite limit”.
While Mining Weekly has reported that since the start of 2021, BMW, General Motors, Stellantis, Renault, Volkswagen, Toyota and Ford have all invested in direct supply contracts with lithium mining companies as they expand production of electric vehicles and work towards decarbonisation targets.
Mutual opportunities
Co-investment strategies between car makers and miners can benefit both parties: securing supply and sales and unlocking cash to fund innovation and sustainability initiatives. Of course, there will be barriers to overcome when aligning objectives – for example, investment and development cycles in the mining industry can take 10-15 years, far longer than those in the automotive sector. But as battery mineral mining and refining processes mature and demand grows, direct partnerships between miners and end-users will no doubt become far more prevalent.
Reflecting innovative ways of working found in the brave new electric world, mining companies are also developing their own relationships with battery producers. Last summer Glencore bought a stake in Britishvolt, a UK start-up with ambitions to build the country’s first large-scale battery factory. The deal gives the venture some serious clout as it looks to secure partnerships with electric vehicle manufacturers.
Futureproofing
The global chip shortage experienced this summer (a result of the war in Ukraine, sanctions against Russia and Covid-induced shipping constraints) had a major impact on electric vehicle production. Lithium demand is predicted to increase five-fold by 2030. Securing reliable and convenient supply is therefore a real focus for car makers such as Renault, who have already signed an offtake deal to mine the mineral from geothermal brines below the Upper Rhine valley.
Car makers are naturally very keen to protect against further disruptions to supply, and partnering directly with the mines that produce battery raw materials offers an obvious solution. It’ll be interesting to watch where and with whom the next significant partnership will be formed.
