The COVID-19 pandemic has resulted in a series of rare events distressing almost every industry. However, the shocking economic consequences of COVID-19 and the ever-growing US-China trade war, both considered as "serious" threats to Australia, could bring welcome changes to our battery industry, if we seize the opportunity.
The one-country, battery supply chain problem
Strategic distrust has led to calls for changes in our relationships with China, as some nations push for a strategic decoupling from the country.
One primary market that could be affected by this, and the emerging COVID-19 crisis, is the global lithium-ion battery industry.
China accounts for a 73% share of the world's lithium cell manufacturing capacity, a rapidly-growing market valued at USD$44.2 billion in 2020, where its future sales will be mainly driven by electric vehicles.
Like many others, the lithium-ion battery industry will be reset to a "new normal" post-COVID-19, which will require a new consideration – managing uncertainty and adapting to new, evolving, and even shocking market conditions, mostly around resource availability. Because China dominates the global lithium processing, reliance on it increases the risk of disruptions in the supply chain.
Take for example Tesla, the EV manufacturer known for the super batteries used in its high-performing vehicles. Tesla assembles the car battery packs in the US, specially designed and optimised for Tesla vehicles. These battery packs are assembled from cells that are manufactured by the Japanese company Panasonic. The cathode material, which represents 22% of battery costs, is also manufactured in Japan.
Australia has the opportunity to change things for the better by banking not only on its natural deposits, but also on its unparalleled political stability, robust global ties, investment attractiveness, well-regulated economy, and world-leading researchers in processing and manufacturing battery materials.
But a main part of the lithium compounds used to make Tesla's cathode materials are processed in China. Those chemicals are made using Australia's lithium spodumene concentrate, and to some extent, the lithium carbonate from Chilean and Argentine brines as feedstock.
While Australia and Japan are more like reliant partners, China has always been a strategic competitor. And this one country controls the processing of almost 90% of the world's battery-grade lithium.
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Elon Musk has always wanted to own the supply chain of Tesla's batteries. A primary goal of every EV manufacturer is to have its own materials manufacturing plant to better control the supply chain.
Until now, there might not have been strong strategic reasons or economic incentives for the EV manufacturers to do that; however, things might just have changed.
Toyota's Shigeki Terashi once said: “The one who conquers batteries will conquer the electrification of cars.”
European and American EV manufacturers realise that any potential disruption in the battery supply chain coming from China may jeopardise their critical cost-cutting strategies – and the cost of the battery contributes to 40-60% of the vehicle's overall price.
While the world is developing geopolitical concerns about the concentration of industrial activity supporting the battery supply chain in China, Australia may have been presented with an unprecedented opportunity, given its unparalleled resource deposits.
Should we make the batteries?
Australia produces all of the 10 mineral elements required to produce most lithium-ion battery electrodes. Most importantly, Australia is the world's No.1 lithium producer, contributing up to 50% of the world's lithium mine/concentrate. This number is only 6% for China. Australia is also ranked first for global nickel and iron ore resources, second for cobalt, and fourth for manganese, all essential cathode materials. As for the anode material, Australia ranks eighth for graphite resources, also a leading miner of natural graphite.
Despite this, Australia’s global share of electrode material production is almost zero.
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When it comes to manufacturing electrode materials, producing cells, and assembling batteries, Australia has been historically a technology taker, not a giver.
In 2018, Future Smart Strategies claimed Australia earned only 0.53% of the ultimate value of its exported ore (A$1.13 billion), a shockingly small profit. Some 99.5% (of an estimated A$213 billion) of the value of Australian lithium ore is added through offshore processing, cell production, and battery assembly.
The lithium-ion battery industry chain can be divided into five main streams:
- Mining for materials
- Refining and processing
- Making battery materials
- Manufacturing the cells
- Assembling the cells into battery packs.
Australia does well within the first stream, and then we drop the ball. It's no surprise that the least value is within the mining, and the most profit is within the assembly; hence we have the least possible profit from this enormous market.
This evidence begs the question: Why doesn’t Australia make batteries if the nation has the world's largest share of battery resources?
As opposed to Europe and China, Australia has no critical need for mass purchasing of batteries; for example, we have little domestic EV demand. While Australia lacks domestic commercial attraction, making batteries and exporting them could bring us certain benefits such as a more vibrant economy, growth in the engineering jobs market, and even national pride. However, lithium batteries are considered dangerous goods, and mass shipping will have growing implications. So, the furthest we can develop could be somewhere within the materials supply chain.
How important is that for Australia and the rest of the world? What policies should be enacted, and what technologies should be used?
The COVID-19 complications to China's supply chain are expected to drive the European Union and the US to increase their investments in battery technology. But, getting hold of the refined material will remain a challenge, the key to which may be in Australia's hand.
Though it may be doubtful that they could exceed the leadership of China in the battery supply chain, if EU or US could buy battery materials not only mined but refined and processed in a partner country such as Australia, even though the supply chain cost will potentially be higher, it would be more resilient and eradicate geopolitical shocks such as that of the COVID-19 crisis.
The cost of Australian manufacturing is among the world's highest, mainly due to high labour wages and energy costs. However, implementing highly automated refining and processing plants supported by foreign investment and technology transfer, and using renewable resources to make electricity, could bring cost-competitiveness.
Additionally, the Australian government could support innovation and research by investing in enablers such as CSIRO and universities. Marked progress has been brought to the fields of refining and processing of traditional and next-generation battery materials through research led by Australian scientists.
A few examples are the development of new lithium extraction techniques by Monash University, solid-state electrolyte by CSIRO and Deakin, and lithium-sulfur batteries by Monash University.
Australia has the opportunity to change things for the better by banking not only on its natural deposits, but also on its unparalleled political stability, robust global ties, investment attractiveness, well-regulated economy, and world-leading researchers in processing and manufacturing battery materials. It looks like a lot of work, but a nation's ultimate security may not be solely attained by being blessed with natural resources. After all, "there is no security on this earth; there is only opportunity".
