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Battery Supply Chain
The transition to electromobility plays a leading role in reducing carbon emissions and achieving carbon neutrality. The long-term switch from internal combustion engines, or ICE, to plug-in electric vehicles, or PEV, is boosting demand for traction lithium-ion batteries, or LIB. This article focuses on the drivers of LIB capacity growth in the PEV sector. A small portion of this capacity also serves the energy storage market, which is another factor powering the transition to greater renewable generation — an aspect not covered by the article.
LIB capacity investments accelerated in 2021 as more carmakers stepped up their commitments to PEVs, with decarbonization becoming a top global priority. We expect LIB capacity to increase more than threefold to 2.8 TWh in 2025 from 0.8 TWh in 2021, with the potential to surpass 5.9 TWh in 2030. The growth is led by expansion in China's locally integrated LIB supply chain, while Europe and the U.S. are building up their capacities to gain greater self-sufficiency.
There was a torrent of battery capacity investments in 2021, as battery producers attempted to expand capacity to align with automakers' deepening commitments to PEVs. We have upgraded our 2025 global LIB capacity estimate by 92.1% compared with our February 2021 projection, to 2.8 TWh from 1.4 TWh.
The LIB capacity investments remain concentrated in the top PEV markets — China, Europe and the U.S. — from increasing localization as well as the integration of battery production with PEV manufacturing and sales. The detailed rationale is outlined in our 2021 article.
China leads global LIB capacity; EU, US catching up, establishing local supply
We expect passenger PEV sales to rise at a 30.8% CAGR over 2021-25 to 18.8 million units, equivalent to 915 GWh of batteries installed in the vehicles sold. The top three PEV markets are at different stages of uptake. The EU leads in penetration rate, which averaged 18.2% in 2021, as a result of strict carbon emissions penalties and higher subsidies in key markets as part of their post-COVID-19 recovery packages. China is moving from subsidy- to market-led drivers; the passenger PEV penetration rate averaged 15.5% in 2021 and is forecast to exceed its 20% target set for 2025 this year. In the U.S., policymakers are debating how to broaden national subsidies to boost nationwide uptake, with the penetration rate only averaging 3.7% in 2021.
China will retain its lead position and dominate growth. The country's capacity is set to rise 2.3-fold to 1.6 TWh by 2025 and then to 3.4 TWh by 2030, driving 54.1% of global capacity growth over 2021-30. The country's share of global capacity will nevertheless decline to 58.3% in 2030 from 84.6% in 2021, due to more ferocious share growth in Europe over this period.
In 2021, Contemporary Amperex Technology Co. Ltd., or CATL, accounted for 13.0% of global LIB capacity and 52.1% of the top 10 companies in Chinese traction LIB installations, the latter according to the China Automotive Battery Innovation Alliance.
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A complete transition to electric transportation will require on the order of 10 TWh of battery production in the next decade, according to Vineet Mehta, director of battery technology and system architecture at Tesla. Taken a step further, to think about getting the entire planet off of fossil fuel consumption, including primary energy consumption, will put total demand close to 350 TWh, Mehta said while moderating a panel at Cambridge EnerTech's International Battery Seminar and Exhibit.
U.S. gasoline prices surging above $4.00/gal on average are making EVs—already coming off a record market share of 6% in the fourth quarter of 2021—even more financially attractive to drive, say vehicle trade groups.
Charging an EV costs one-fifth to one-half of refueling a comparable gasoline internal combustion engine (ICE), on a per-mile basis, in the U.S., said the Zero Emission Transportation Association (ZETA) in a report released in early March.
Comparing models of popular SUVs, pickups, and sedans, ZETA said that the EVs are significantly less costly to drive in each category. The prices below are based on a retail gasoline price of $4.32/gal (as of 10 March) and a $0.14/KWh for power (December 2021).
"This month's Consumer Price Index shows once again that gas prices are surging, which has been exacerbated by Putin's invasion of Ukraine. American families are losing money at the pump to a commodity that is increasingly unpredictable and unaffordable in an already-expensive pandemic year," said Joe Britton, executive director of ZETA. "Our analysis shows that American consumers don't have to choose between driving their car or saving money. Electric vehicles are affordable now."
However, ICE engines still offer substantial advantages on driving range.
How will consumers react?
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As the world has begun to focus on new technology to aid in the global energy transition, electric vehicles (EV) are becoming more a part of everyday life. S&P Dow Jones Indices (S&P DJI) has collaborated with S&P Global Commodity Insights (SPGCI) to launch the S&P GSCI Electric Vehicle Metals, which seeks to track the metal commodities used in the production of electric vehicles.
The index was created in response to client demand for investable thematic strategies that offer exposure to the global energy transition. The energy transition represents both a significant challenge and opportunity to financial market participants, and nowhere is that dichotomy more obvious than in commodities markets.
The S&P GSCI Electric Vehicle Metals is a commodities futures-based index that is designed to reflect the performance of the tradeable metals used in the production of an EV. The expertise of SPGCI is leveraged for data to help determine the index constituents and production weights to ensure the index broadly reflects the relative metal usage in a representative EV. An important characteristic of the index is the flexibility to reweight, add or remove constituents at regular intervals to ensure that it can adapt to changes in EV technology and the launch and adoption of new metals futures contracts.
Constituents in the index are weighted based on their current metal usage in an average EV multiplied by the average per unit price for the metal, thereby representing the relative cost (or value) of the metal components in an EV. Minimum contract trading and liquidity rules for constituent inclusion, similar in design to the eligibility criteria used for the broad S&P GSCI, are also applied. Additionally, battery metal constituents, as defined by SPGCI but including cobalt and lithium, are capped based on contract trading volume and liquidity requirements to ensure that the index is both replicable and investable.
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