What Impact are EVs and Renewables Having on Raw Materials?

The surge in electric vehicles (EVs) and renewable energy technologies is testing the limits of our raw material supply chains substantially.

McKinsey research details how demand for essential materials is projected to surpass supply soon, leading to potential shortages, fluctuating prices and increased investment needs.

Here, Energy Digital delves into the critical materials like lithium, nickel, cobalt and manganese, explaining the intricacies McKinsey identified for maintaining a sustainable supply chain.

The most impacted raw materials

Lithium is crucial for battery production, with more than 80% of global lithium consumption currently by battery manufacturers. McKinsey foresees this could reach 95% by 2030.

Despite groundbreaking techniques like direct lithium extraction accessing previously unreachable reserves, the surge in demand means production advancements must accelerate, especially as lithium-dense battery technologies prevail.

Nickel, essential for lithium nickel manganese cobalt oxide (Li-NMC) batteries in EVs, is witnessing a demand explosion.

Although significant new mining operations are underway in Southeast Asia, increasing supplies to meet demand remains a challenge.

A shift in usage can be seen today, with approximately 65% of Class 1 nickel — used predominantly in high-quality battery manufacturing — also being essential in stainless steel production, indicating potential future shortages.

The Democratic Republic of Congo (DRC) produces 64% of the global cobalt output, largely as a by-product from copper and nickel mining.

Despite the decreasing role of cobalt in battery technology, McKinsey forecasts a 7.5% annual rise in cobalt demand until 2030.

The volatility in cobalt prices and ethical sourcing concerns are driving the industry towards greater transparency and sustainability in cobalt procurement.

Although manganese is plentiful, refining it into battery-grade high-purity manganese sulphate monohydrate (HPMSM) involves complex processes to ensure impurity removal.

With only modest increases in HPMSM production projected and a fraction of demand expected to be met by 2030, this highlights significant supply challenges ahead.

Geopolitical risks in material sourcing

McKinsey's analysis indicates a geographic concentration in the supply chains of these critical materials, posing significant risks.

Indonesia and the DRC are mentioned as major players in nickel and cobalt mining respectively, while major lithium sources include Argentina, Bolivia and Chile.

Notably, refining activities are highly centralised too, with China taking a substantial role in processing cobalt, lithium and graphite.

These concentrated supply lines pose risks for major economies like the European Union and the US, highly reliant on these imports.

The EU, for instance, imports 68% of its cobalt needs from the DRC. Such dependencies are exacerbated by policies like China’s control on graphite exports and Indonesia’s nickel ore export ban.

In response, Western governments are implementing strategies to boost domestic production and reduce foreign dependency, using incentives like tax reliefs and local manufacturing requirements.

ESG impact and regulatory shifts

Environmental, social and governance (ESG) factors are becoming increasingly crucial in supply chain management.

Regulatory measures, such as the EU’s Batteries Regulation, aim for a more sustainable lifecycle for batteries, covering material sourcing, production, recycling and reuse.

Issues of transparency, particularly concerning materials that are almost exclusively processed in regions like China, are ongoing.

The production of materials such as high-purity manganese, facing near-monopoly conditions, brings up similar concerns.

Decarbonising the transportation sector also ties into lowering emissions throughout the battery supply chain.

Studies show that approximately 40% of battery-linked emissions originate from mining and refining processes.

Differences in battery technology matter too; for example, cathodes in Li-NMC batteries generally produce more emissions compared to those in lithium iron phosphate batteries.

Advancements in extraction and refining techniques, alongside more strategic sourcing are pivotal to curbing environmental impacts effectively.

As the world transitions to sustainable energy, balancing demand, supply and environmental concerns is a complex but necessary endeavour.

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