3 SUMMER 2022 NO.64 / THOUGHT LEADERSHIP BRIEF Figure 2. Global Electric Vehicle Demand/Supply and Batteries (% of Total) Note: EV demand and supply as of 2021f. In adjusted supply joint ventures are reclassified by the origin of owners in supply. Battery as of September 2021. Battery component as of 2020. Source:Natixis, MarkLines, BNEF, SNE Research, Yano Research Institute EV producers in China, which already account for 40% of the world market, are in an enviable position to benefit from the strong growth expected in the rest of the Asian market thanks to the signing of regional trade agreements. As if this were not enough, the production of the heart of electric cars, batteries, which represent more than 40% of the total cost of an EV, is also concentrated in Asia, among South Korea, Japan and China. Again, China leads in battery components after a long struggle with Japan for component-supply dominance. Thus, China's market share for battery components increased from 43% in 2014 to 60% in 2020 thanks to the tight control of the supply of raw materials such as lithium, cobalt and nickel, for which prices have grown exorbitantly in recent years (Figure 2). The World of EV Batteries As electric vehicle (EV) makers ramp up supply to feed the growing demand, the most important component determining car performance is the battery, with 40% of total cost. Lithium-ion is the mainstream type and is dominated by Asian firms. As of September 2021, China has a global market share of 44%, followed by South Korea (35%) and Japan (16%). Among all, Chinese battery maker Contemporary Amperex Technology Ltd (CATL) is the leader with a market share of 31%. The leading role of China comes with challenges from South Korea. LG Chem is the second largest battery maker with a global market share of 25%. In non-China market, LG Chem captures 36% of sales versus 10% by CATL. The profitability of LG Chem has also matched that of CATL, showing why South Korea is a strong competitor in car batteries. Conversely, Japan seems to be falling behind in market share. For value added, though, Japan dominates high-end batteries while South Korea and China are in the medium to low space. In any event, innovation remains a key factor to determine evolution of the EV battery market. The composition and shape of lithium-ion batteries from car makers remain decisive with challenges also from new technologies, which may outdate old forms of batteries. Beyond innovation, another challenge is batter components. Although China may be leading in EV battery making and the related components, challenges still exist in securing supply of new materials, such as lithium, cobalt and nickel. In Asia Pacific, Australia can be the winner with large reserves to feed such demand, even though the main supply may come from other countries, such as Chile and Congo. Given the above, China’s dominance in the production of EV batteries and the increasing interest for other producers to diversify the sourcing of batteries points to another potential bottleneck in the global supply chain, feeding geopolitical tensions. In other words, the EV sector could soon look similar to that of semiconductors. RECOMMENDATIONS As EV manufacturers ramp up supply to meet growing demand, geopolitical risks are clearly emerging. The growing concern of many governments about supply-chain security is only set to increase in the EV sector, given China's dominance in battery components. Being such a useful tool for governments to showcase their efforts to combat climate change, components for EV batteries could easily become another key geopolitical standoff and, possibly, a new bottleneck in the global supply chain, as semiconductors now are. 100 80 60 40 20 0 China Europe Others/JVs EV Demand Adj EV Supply EV Supply Battery Battery Component Asia (ex. China) US
RkJQdWJsaXNoZXIy NDk5Njg=