Emerging markets are taking steps to strategically position themselves in the global value chain for electric vehicles (EVs), with several recent projects focused on the decentralised production of batteries for EVs. At the same time, however, these industrial developments highlight the carbon-intensive nature of mining the raw materials needed to produce EVs, though hopes remain that the process can be further decarbonised.
Supply Chain Shift
The world’s two largest producers of EV batteries announced major projects in Indonesia in April 2022. Headed by LG Energy Solution the second-largest EV battery maker in the world – a South Korean consortium is set to invest $9bn in a mines-to-manufacturing EV project in the country. The project covers every aspect of the battery production process, from smelting and refining nickel to the assembly of the finished product, and is part of an ongoing effort to reduce reliance on Chinese EV battery suppliers. With some 80% of battery materials produced in China, the automotive industry’s shift to EVs has been slowed down due to well-documented supply chain issues in recent years.
Indonesia is in a strong position to take over some production from China, and it has been moving to position itself as a centre of EV battery manufacturing for some time. In September 2020 the country released its EV Roadmap, which outlined plans to produce 600,000 four-wheeled EVs and 2.45m two-wheeled EVs annually by 2030. In March of the following year, four state-owned enterprises formed the Indonesia Battery Corporation (IBC) to manage the EV battery industry. Alongside local mining company Aneka Tambang, the IBC is a local partner in the new development.
April 2022 also saw the announcement of a $6bn agreement between China’s Contemporary Amperex Technology (CATL) – the world’s biggest EV battery maker – and Indonesian firms for a similar project.
Carbon Considerations
Indonesia holds around one-quarter of the world’s supply of nickel, a key component in EV batteries which itself accounts for some 35% of EV production costs. As has many the case for many other key global commodities, Russia’s ongoing invasion of Ukraine has impacted market dynamics for nickel. Russia accounts for some 11% of global nickel production, which has led prices to spike significantly since the invasion began in February 2022.
EV-related mining requirements highlight a paradoxical aspect of the automotive industry’s transition away from fossil fuels. A 2022 report produced by asset management firm LGIM and multinational mining company BHP concluded that the world will need to extract much greater quantities of key metals in order to limit global warming to 1.5°C above pre-industrial levels. According to the report, cumulative demand for nickel will quadruple over the next 30 years – with much of this demand associated with EVs.
Decarbonising Production
There are hopes, however, that the mining industry’s carbon footprint could be reduced, and with it the knock-on carbon footprint of EV producers. Leading multinationals – among them BHP, Glencore and Rio Tinto – have set carbon-neutrality targets. One key element of such plans is the incorporation of EVs into mining operations. A poll held in 2021 by industry website Mining Technology found that a majority of respondents thought that increased use of battery-powered EVs would be the most effective way to reduce the mining sector’s carbon footprint. At present, vehicles such as trucks account for as much as half of the total direct greenhouse gas emissions at mining sites.
An important consideration for the long-term sustainability of EVs is the impact of batteries – in terms of both production and disposal. The majority of EV batteries are manufactured in China, typically in older, fossil fuel-fired factories. It will therefore be important for newer projects to instead rely on renewable energy. Adequate disposal or recycling is also a priority, the latter of which is included in the new CATL development.
Read More from OBG
