This article is based on a roundtable discussion recorded on 8 October 2021 for our “The Assay Live” webinar series. It features Francesco Bressi, Investment Manager, RCF; Ken Hoffman, Senior Expert, Basic Materials Institute, McKinsey. Erez Ichilov, Managing Director at Traxys Battery Holdings; and Kimberly Berman, Special Projects and Equity Research Manager, BMO.
Everyone’s bullish on EVs. But are we in agreement around the adoption rates based on the materials available to keep vehicle production going?
Ken Hoffman: Government regulations was the thing really pushing the move to EV adoption. And that’s still very true. When it comes to your materials question, there’s going to be a lot of different ebbs and flows. We saw this year the massive, about 170%, increase year-over-year in LFP adoption. You will continue to see these ebbs and flows into these batteries based on availability of materials and how that is going forward. The good thing is we have many chemistries to move into and to move out to. So we do believe that we will find solutions to these material issues. It could be a very volatile ride for the raw material costs, but the revolution moving from an internal combustion engine world to it being an EV world, we think is almost unstoppable at this point.
Erez Ichilov: We think that the S-curve is here. And perhaps the more moderate type of 45-angle slope that we were seeing in some of the tables and projections a year or two ago, kind of reaching about 1/3 in 2030 and so on, is going to happen differently as far as the demand side is concerned. I think from that perspective, we’re talking about present tense. There’s no futuristic utopia about it. We’re there, everything except materials. And so from the demand side and in terms of adoption, psychology, pricing, costing, and pretty soon, also in terms of level of comfort and the ability to charge. Range anxiety is over, I think. I think we’re definitely there. And the only cloud that could potentially rain on the parade has to do with materials and with the supply side. But everything else is all set for this revolution to happen. And it might be a lot more like smartphones than what we thought initially.
Francesco Bressi: We are agnostic in terms of when we do our investment. So at the end for us, it’s about risk-return. But on the EV theme, I’m certainly in agreement with Ken. It’s a reality, and it’ll happen. It is more of a question whether it’s going to happen super-fast, or maybe slightly slower. But it’s coming. If you look at the numbers, you’ll see that really, 2020, there were about three million EVs sold. 2021, it’ll probably almost double the number, and that’s a huge increase. Of course, there are going to be ups and downs. But it’s coming. I think it’s inevitable.
Erez, do you have a view on supply chain challenges, whether they are short-term? Or do you see this becoming more of a long-term issue?
Erez Ichilov: Let’s put it this way. The stability and robustness of the supply chains that will support this segment are something that needs to be dealt with. We will have bottlenecks, like the bottleneck that we had during COVID, or now with the rise in gas and diesel prices, et cetera. But regional supply chains, I think, are something that will develop more and more for energy intensity reasons, for political reasons, and for the stability of manufacturing.
Ken, I wanted to backtrack just a tiny bit to how you see the supply-side crunch; people, industries, governments looking to localize. How do you see that developing? And when do you think these short-term blips are going to smooth out?
Ken Hoffman: Remember Ford Motor in the early 1900s. They had their own steel plant, they had their own glass plant, they had their own plastic plant because the industry at that time could not provide the materials that they needed and the quality that they needed and the on-time nature. So they built a massive complex right next to their auto works. You’re seeing Tesla move further and further upstream. You’re seeing Volkswagen move further and further upstream. What could very well happen from the OEMs is they will not wait for the mining industry to provide those materials. They will force the issue by making investments, by making joint ventures. You’re already starting to see this pretty significantly in lithium, and starting to see more and more in the nickel industry.
So, you’re really going to see the industry come together to solve this. And it could be through joint ventures. It could be through alliances. And it could be through direct investments, whereas before, most auto companies would say it’s not what they do – mining. Now they’re starting to say, “Well, who can we work with to get this mine off the ground faster? Because it needs to fill in what we need.” The number one ask we’ve had over the last 12 years is, “Can you provide us a carbon curve for every single lithium, nickel, cobalt, copper, aluminium, steel asset on Earth? Because we know we’re going to get taxed on this. How do we put all this together?” So the complications are quite massive.
Let’s pick on copper for now as a kingpin of electrification. Kimberly, you’ve put out some reports recently on copper as well. So perhaps you could take the lead on this one.
Kimberly Berman: Absolutely. When we did our numbers on the demand side, we saw there is really no substitute for copper. You can use aluminium; you can pre-treat it. But then, you need a larger engine – you need a larger facility. And it doesn’t bode well in extreme temperatures. And so you have a lot of technology on the chemistry side that needs to happen in order to make aluminium a substitute.
Wind turbines are also copper-intensive. One of the things about offshore wind is that people are thinking, “Well, let’s put them further and further offshore to alleviate some of the visual pollution and other problems.” By doing so you’re putting them in areas that are less ecologically diverse, because the ecological diversity is right by the shoreline. So the further out you build wind turbines, the more copper you need. It doesn’t pit. It doesn’t oxidize as much. It doesn’t deteriorate. It withstands seawater. So basically, on the demand side, you’ve got a huge issue coming your way if we don’t get this substitution involved.
We’ve had a couple of questions on graphite and synthetic graphite. Is synthetic graphite going to continue to be the dominant supply of graphite?
Kimberly Berman: Supply will comprise a mix of natural and synthetic, because synthetic has properties that are very good, and it’s consistent. And natural graphite actually increases capacity. When I started this about four years ago, they were saying, “Okay. Well, graphite has hit its peak.” But it didn’t in terms of energy-density. There were some improvements, such as by adding and having the right balance and having that right mix. And so yes, graphite, it’s going to be a combination. It’s going to be dependent on the OEMs, on what kind of secret sauce they put together
Larger flake graphite goes to industry, such nuclear reactors and steel. And then if you have the graphite that you put in a pencil, for example, you could make battery-grade anode material out of that. But you’re going to need a lot of it. And you’re going to need a lot of it to get just that battery grade. So there’s a sweet spot for cost. If a graphite mine has large flakes, they’re going to just send it to the industries that require that, for quite a large premium. So you’re looking at medium flake size. If you look at a graphite mine and you see that their flake size is small versus medium, let’s say, then that’s not going to be economical.
Erez Ichilov: What the size of the flake does is that as you micronize and shape the material in order to make it anode material, it’s a trade-off between what you spend on sizing and what you spend on purification. Larger flakes tend to be purer, but you spend more energy on micronizing them, and vice versa. So there’s always that sweet spot. The problem with synthetic is that there’s an embedded paradox, and that’s because it comes from needle coke, which is the residue of refining oil and petrol products, which, to some extent, graphite and new energy are going to displace. So potentially, the more successful we are in relying more on graphite, the less and less we will actually have the facilities, then, to provide artificial synthetic graphite.
So we need to get a lot better at increasing the components of natural in that natural-artificial silicon blend. But there is an embedded paradox there. Perhaps if we can’t keep growing the components of natural within the anode blend, we will need to develop ways of making green synthetic graphite.
Francesco Bressi: If I may add there, it’s not just a problem with graphite. I think, in general, people have failed to realize that if we want more renewables and decarbonization, that means more mining. And that connection probably is still not there. If we look at an electric vehicle, we’re all thinking about lithium, cobalt, copper, nickel. But the motors still need rare earths. With rare earth, there’s a process. Well, part of its supply chain is not exactly super environmentally friendly. And that connection – I don’t think people have actually grasped what it means.
