EV BATTERY MARKET

The Adoption of Electric Vehicles

According to Morgan Stanley, there are 6 key drivers that will accelerate the adoption of electric vehicles.
 

  1. Battery cost $/kWh is coming down, reducing cost of ownership for consumers
     

  2. Consumer range anxiety easing as mileage range increases (from improvements to the battery management system, battery density, cost of battery cells, etc).
     

  3. Greater selection of EVs across more segments (e.g. pickups & SUVs) and across more brands (other than Telsa), for consumers to choose from
     

  4. Subsidies and incentives from local/state/federal agencies for EVs will rise, reducing the all-in-cost of ownership for EVs, while levies/taxes/fines of ICE will also rise simultaneously. Essentially, ICE cost up, EV cost down
     

  5. As OEMs produce more EV’s in greater numbers, they will generate significant economies of scale and operating leverage and be able to pass through the economics to the customer, reducing the price of EVs to consumers
     

  6. EVs require around 30% less labour and significantly less parts and complexity in the manufacturing process compared to ICE vehicles – which will be another driver of EVs being cheaper than ICE in the medium term
     

From Morgan Stanley Research Report, The Global Electric Vehicle Portfolio: 64 Stocks that Benefit from Rapid EV Adoption, October 26, 2020, p. 4
 

As a result, demand for the critical materials required for battery cells is expected to surge for the next decade.

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A large EV battery requires about 25kg (55 lb) of graphite for the Li-ion anode. This accounts for approximately half the weight in a battery. There are currently considerable R&D efforts devoted to advancing the efficiency of the battery cell - including finding substitutes for graphite (see Competition). However, in the short-medium term (5-15 years) the consensus is that the majority of battery cells will continue to use graphite because it has been proven to be good enough.

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Graphite Supply Chain for EV Batteries

The graphite supply chain for EV batteries begins with the mine and initial processing. The graphite must reach a minimum 95% pure concentrate to be considered. The graphite is then delivered to a downstream processor to produce a further purified, coated and spherical graphite product. China currently controls these processes and non-Chinese graphite producers have struggled to obtain the consistent quality required by the EV battery market. The material is then sold to the anode manufacturer and in turn the battery cell manufacturer. The EV automobile company acquires the battery cell from a battery cell manufacturer.

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Historically, most EV batteries have been produced in Asia by companies such as CATL, Samsung SDI, LG Chemical, and BYD. However, as automobile manufacturers race to integrate EV technology into their fleets, there is an increasing emphasis on bringing that technological component in house (initially through partnerships with the cell manufacturers). In order to do that, auto manufacturers must secure their supply chains of critical materials such as graphite.