Graphite demand is likely to grow by a factor of eight by 2030 over 2020 levels (4.2 metric tons over a supply of 3.0), and 25 times by 2040.
Get Ready for GRAPHITE Shortages, as EV Battery Demand Surges
Source: May 11, 2023 www.kearney.com
Graphite is the most common base for the anode, far superior to current alternatives. It might seem secondary, yet it is crucial for releasing electrons from the cathode to the external circuit. That’s because graphite is both stiff and highly conductive, and its layered chemical structure enables it to store electrical charges better than other materials. Nearly all anodes, whether for lithium-ion or the main alternative batteries, rely heavily on graphite. This is true for stationary batteries as well as storage in cars.
Graphite is the largest single component of batteries, and electric cars typically include 50 to 100 kilograms of the mineral. Graphite made up 2 percent of the battery cost in 2022 prices (28 percent for weight); the corresponding figures for lithium are 21 percent and 3 percent. Chargers for most EV batteries also rely heavily on graphite as a component. (Besides the cathode and anode, EV batteries consist of electrolyte and separators, neither of which involve scarce minerals.)
How to prepare for the squeeze/de-risk your graphite supplies
A few manufacturers are already starting to de-risk their graphite supplies, but there’s no easy solution. The reliance on China, which provides about three-quarters of the world’s supply of both natural and synthetic graphite. To de-risk graphite supplies, companies need to broaden their supply base.
For EV firms that sole-source their graphite from China, the immediate priority is to look for alternatives. Many companies have been doing this since even before the pandemic. For 2017–2020, all US firms (including non-EV) relied on China for only a third of their graphite supplies; the other main suppliers were Mexico (21 percent), Canada (17 percent), and India (9 percent). In order to obtain US government subsidies, EV makers may need to drastically reduce their reliance on Chinese graphite.
The most likely short-term sources are the mines opening in Mozambique, Madagascar, and other African countries. These mines are looking for contracts, but procurement needs to factor in the frequent phases of political instability those countries have shown.
In the medium to long term, customers can build relationships with suppliers in Turkey and Brazil. Existing mines there may already have locked up their existing production, but the two countries hold enormous reserves and are likely to expand production soon.
Companies in the United States and Europe, however, need to be aware that most of the demand growth for graphite will likely come from Asia. So suppliers will be focused on customers there, not in the West.
As for supplies of synthetic graphite, the challenge here is the processing of those fossil-fuel by-products. US production is likely to fall due to strict environmental regulations and costs. Beyond the immediate sourcing, companies have a variety of options for reducing risk in graphite supplies:
Long-term contracts. Tesla has extensive formal agreements with Syrah in Australia to buy graphite from mines in Mozambique. GM has a six-year agreement with Posco (a South Korean steel maker) to supply synthetic graphite.
Demand reduction. BMW is pioneering technology to reduce the graphite content in batteries (silicon is the best alternative).
Near-shoring. To reduce political risk, Tesla is evaluating mineral resources from Canada. Hyundai is likewise evaluating localization to ensure a stable supply. These are mid- to long-term approaches, not quite fixes.
Building on these approaches, we recommend multiple initiatives across both the short and long term:
Seek long-term contracts with a broad mix of suppliers. Long-term contracts will ensure a steady supply even if the market is squeezed tight, and could work with either commodity aggregators or with mines/processors directly. The optimum mix includes two to three established suppliers and two to three recent entrants as challengers. Because these are commitments over several years, buyers will need to predict their own needs for graphite as well as assess the supplier’s plans for expansion. They should also segment suppliers based on their political risk profile and geography. Vertically integrated suppliers will need extra attention because some of their mines may be closing soon.
Form strategic partnerships across the value chain. Some large buyers may want to go further and create formal partnerships with suppliers, especially at nodes with constraints. Outright acquisition and vertical integration has become a popular option, but it brings risk as well from greater corporate complexity and lost flexibility in a volatile market.
Reduce internal specifications and demand. Some battery makers have highly specific requirements for their graphite, both types and grades. Maybe they needed these specifications early, but now they should consider reducing these specifications in order to expand the potential suppliers. (Fewer specifications also helps to reduce internal complexity.) With recent advances in purification, they can also evaluate using both synthetic and natural graphite.
Watch developments in graphite recycling. Researchers and start-ups have made breakthrough innovations in recycling used EV batteries, and graphite reuse may soon be practical. Large graphite customers should follow these developments and consider investing in feasible ideas to stay ahead of the curve.
Monitor sub-tier risks. The graphite value chain is complex, and disruptions in flows to a primary supplier can upset ambitious plans for batteries. Automakers and others depending on steady flows of graphite can work in advance to identify and mitigate risk in the supply base. The COVID-19 pandemic showed how disruptions in semiconductors could hobble most of the automobile industry. If EV batteries, as expected, become crucial to the future of transportation, then carmakers will need to expand their risk management to graphite suppliers—from natural disasters and labor unrest to geopolitical instability.
EV battery makers, and their auto-maker customers, have long realized the potential for supply bottlenecks for crucial battery minerals. Yet graphite, because of its seemingly secondary role in batteries and its large existing supply base, has attracted less attention than its supply risks warrant. As EV production takes off in this decade, customers in the EV and other industries will discover unexpected shortages and price jumps. The time is now to reduce those risks with attention to internal needs and external developments.
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