Companies are positioning themselves to supply an EV market set to explode. In our base case, we expect global EV sales to grow at a CAGR of 17.6% between 2022 and 2030 to reach 39.9m, making up 41% of global sales. In our high case, we expect sales to reach 58.8m by the end of the decade.

The world's top automakers plan to spend nearly US$1.2tn through 2030 to develop and produce millions of EVs, along with batteries and raw materials.

Global lithium-ion battery demand is expected to grow to 839GWh in 2022, soaring 52% from a year earlier. Through 2030, we expect battery demand to grow at a CAGR of 19.3% to reach 3,440GWh.

Looking at this year’s major theme, the US ramped up efforts to break China’s dominance of the battery supply chain by following its in footsteps—by subsiding industry. Meanwhile, tight supplies of raw materials and escalating costs prompted a reversal of the last 12 years of battery pack cost declines and prompted a frenzy of offtake deals.  

Subsidy Race

A massive US package of green subsidies has left Europe hot under the collar on fears of an investment exodus across the Atlantic. The Inflation Reduction Act (IRA), signed into law in August, commits US$369bn to subsidies and tax credits over a decade to tackle climate change, create domestic jobs and compete with China. 

While the IRA affects sectors from advanced machinery to heavy industry, EU companies are particularly worried about the impact on the automotive sector. Only EVs substantially made with batteries (including its minerals) from North America and assembled there will qualify for a US$7,500 tax discount for consumers. The share of domestic batteries required for the credit grows from 50% in 2023 to 100% by 2029.

“By undercutting US manufacturers with their unfair subsidies and trade practices, China seized a significant portion of the market,” Mr Biden said last month. “Today, we’re stepping up to take it back [with] bold goals and actions to make sure we’re back in the game in a big way.”

President Biden wants half of all vehicle sales in the US to be electric by 2030. We expect EVs to represent 7% of US sales in 2022, rising to 21% by 2025 and 50% in 2030.

In December, European Commission president Ursula von der Leyen said that the EU could implement subsidies of its own to avoid losing manufacturing to the US. The Swedish EV battery maker Northvolt, for example, said it would use an IRA subsidy to relocate some production to the US. But competing climate subsidies from the EU look to be unlikely, and the chances of modifying the US law to create a kind of “green” free-trade agreement look to be remote.

Europe is home to more than 25% of global EV production, and 20% of the supply chain. The US has just 10% of EV production and 7% of battery production capacity. Both are dwarfed by China, which controls 75% of battery production and has more than half of global processing and refining capacity for lithium, cobalt, and graphite. In the first 11 months of 2022, China produced 489.2GW of EV batteries, soaring 160% on-year.

The US auto industry has largely backed the new bill. This includes Ford, which has announced US$14bn in funding for US EVs and batteries. The automaker plans to build 129GWh of US battery capacity across three plants by >2025.

The IRA includes US$7bn in funding to strengthen the domestic battery supply chain. In October, the first round of US$2.8bn was awarded to 20 companies to extract and process battery materials and components. They included Albemarle, Piedmont, Entek and Syrah Technologies. The government projects this will draw total investment of US$9bn when combined with private sector funds.

Albemarle operates the only active lithium mine in the US—in Silver Peak, Nevada. Some Tesla batteries contain lithium from Nevada, but the site’s total annual output of 5kt LCE is only enough for about 80k vehicles. Americans bought 816k all-electric and plug-in hybrid EVs in the first 11 months of 2022, and sales are rising fast. Albemarle plans to double the site’s production capacity to 10kt by 2025 LCE at a cost of US$50m.

Albemarle also produces lithium in Chile and Australia. The company is working to reopen a lithium mine in Kings Mountain, North Carolina, and plans to build a refinery in the Southeast. We expect US lithium production to grow from 5kt LCE in 2021 to 45kt LCE in 2025. 

Building Binge

United States

America’s emerging “battery belt” (from Georgia to Michigan) is experiencing a huge wave of investments, driven by new government policies and tax credits designed to build out a domestic EV supply chain. We expect US battery capacity to reach 403GWh by 2025, up from 70GWh in 2021.

In December, Ultium Cells—a JV between General Motors and LG—announced plans to expand its under-construction factory in Tennessee from 35GWh to 50GWh. That raises the cost by US$275m to US$2.6bn. It is expected to start up late next year. In September, Ultium started production at its first battery factory—the 40GWh, US$2.3bn plant in Ohio. A third 50GWh, US$2.6bn plant is also under construction in Michigan. It is expected to come online in late 2024.

When all three plants are at full capacity later this decade, Ultium will have around 140GWh of battery capacity. GM is aiming to make 1m EVs a year in North America by 2025—a roughly 40-fold increase from now. 

In November, Panasonic began construction of its US$4bn battery gigafactory in Kansas. The 40GWh plant will be Panasonic’s second in the US—its 39GWh Nevada plant produces cells for Tesla. Panasonic aims to increase its North American manufacturing capacity to a massive 150-200GW by 2030.

In October, Hyundai began construction of its US$5.5bn EV and battery plant in Georgia. The Korean automaker received US$1.8bn in state tax breaks and incentives. The EV plant is expected to open in 2025, with an annual capacity of 300k EVs. The US$1.9bn battery plant, a JV with SK, is expected to have capacity of 20GWh and start up in 2026. Hyundai plans to sell 3.2m BEVs globally by 2030. SK already has a 9.8GWh battery plant in Georgia, which produces cells for Hyundai, VW, and Ford.

Key competitor Ford has similar plans, with a goal to build 129GWh of US battery capacity across three plants by >2025 with Korean partner SK. Construction of their US$5.8bn, 80GWh complex in Kentucky began in July, with production slated to start in 2025.

In August, Japan’s Envision AESC broke ground on its US$2bn, 30GWh battery plant in Kentucky. Production is expected to begin in 2025. Fast forward to December, the company announced plans to build another 30GWh battery factory in South Carolina at a cost of US$810m to supply BMW. Envision AESC has an existing 3GWh battery plant in Tennessee, which opened in 2012.

In October, German automaker BMW said it will invest US$1bn in its sprawling factory in South Carolina to start building EVs and an additional US$700m to build a battery plant nearby.

Europe

CATL’s first battery plant outside China kicked off production in December. The EUR1.8bn (US$1.9bn) factory in the German state of Thuringia will have an initial capacity of 8GWh, before ramping up to 14GWh. It will create up to 2k jobs.

In August, the Chinese battery giant announced plans to build a 100GWh battery plant in the Hungary city of Debrecen—which would be Europe’s largest gigafactory. At full scale, the plant would be able to power more than 1m EVs and will run on renewable energy.

The EUR7.3bn (US$7.6bn) plant will be near Europe’s leading automakers, such as Mercedes-Benz, BMW, Stellantis, and Volkswagen. Mercedes has already signed up to be the factory’s first and largest buyer. The German automaker is aiming to have eight global battery plants with a combined capacity to produce 200GWh a year by the end of 2030.

Volkswagen plans to have six battery factories in full operation across Europe by 2030 for a total combined capacity of 240GWh—enough for 2.2m EVs a year. The first plant in Salzgitter, Germany broke ground in July. It has a planned capacity of up to 40GWh, designed to supply roughly 500k EVs. In September, the German auto giant also signed a EUR3bn (US$3.1bn) joint venture with for cathode material production.

Batteries Get Costly

The global average price for lithium-ion battery packs climbed 7% to US$150/kWh, reversing the decades-long trend of annual declines due to rising costs for lithium, nickel, and other battery metals.

Short supplies will keep battery packs around US$151/kWh in 2023. Not until 2024, when more lithium production is expected to come online, are prices forecast to drop again. We expect global finished lithium supply to reach 1,409kt LCE in 2024 (surplus of 102kt LCE), up from 767kt LCE in 2022 (deficit of 44kt LCE).

Average battery prices fell by 6% to US$132/kWh in 2021, a slower decline than the 13% drop in the previous year. The cost of battery packs has fallen 97% since 1991.