Less than 20pc of the world’s nickel and cobalt supply will meet requirements laid down under the Inflation Reduction Act (IRA) by 2030, according to consultancy Benchmark Mineral Intelligence.
And this could mean EVs made with nickel manganese cobalt (NCM) chemistry batteries could miss out on subsidies, potentially tilting the balance towards the competing lithium iron phosphate (LFP) chemistry still dominated by China.
The IRA, introduced in August 2022, offers subsidies on EVs on the condition that a sufficient portion of their battery material comes from North America or a country with which the US has a free trade agreement (FTA). These savings, worth up to $7,500 on electric cars and $40,000 on heavy-duty trucks, can be passed on to buyers. The legislation plays a key role in helping mitigate the perennial problem of affordability for EVs.
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However, only 13pc of global nickel supply is set to be compliant with the IRA by 2030, according to Benchmark principal nickel and cobalt analyst Will Talbot, along with only 8pc of global cobalt.
Both metals are needed in NCM chemistry, which currently dominates EV battery technology. And it could raise fundamental questions about the effectiveness of the IRA as tool to pivot away from Chinese control of key pinch points in the EV battery supply chain, given China’s lead in the field of LFP chemistry, NMC’s main competitor.
A rapid increase in demand for both battery chemistries is still expected. In particular, LFP demand will be 3800GWh by 2030 and almost 8000GWh in 2040, according to Benchmark’s Will Talbot. This equals a 15pc pa increase.
NCM chemistries are also set to pivot towards higher nickel content, and batteries will account for around half of global nickel demand by 2040, Benchmark predicts.
Diplomatic solutions
Currently, the majority of IRA-compliant battery materials come from Cananda and Australia, and the two countries stand to gain from the current legislative landscape.
It is notable that Franco-Italian OEM Stellantis, which has been one of the most prominent investors in battery metals so far this year, has struck deals for nickel sulphate and cobalt sulphate in Australia and for manganese sulphate mined in Australia and processed in the US.
Its other 2023 nickel and cobalt sulphate investments are in Finland and Norway, which do not currently have a US FTA, but can serve its EU plants which also have rules of origin coming in. Benchmark raises the further possibility of US-EU agreement on battery metals.
And Germany's Mercedes signed in August 2022 a memorandum of understanding with the government of Canada on co-operation “including, but not limited to, securing sustainable sources of raw materials”.
Diversifying the sourcing of materials will be important, however, as a way of mitigating risks in supply chains. But the world’s three biggest producers of nickel do not have FTAs with the US.
Of those three, China and Russia are classified as “foreign entities of concern”. This is important because the IRA specifies that by 2024, compliant electric vehicles cannot have battery components manufactured or mined by these countries, even if they otherwise meet the threshold for compliant materials.
The industry has waited anxiously for the US treasury to clarify its interpretation of this term in the act.
Around half of the world’s nickel supply comes from Indonesia. An FTA with Indonesia would likely make it easier for US automakers to make larger numbers of NCM battery EVs eligible for subsidies in the US.
Even without any deal in place, car manufacturers are moving forward in trying to secure nickel supply chain lines. In March this year, US OEM Ford announced a joint venture to open a nickel processing plant in Indonesia.
In August 2022, peer Tesla signed a deal worth $5bn to buy nickel from Indonesian processors. But the automaker is “yet to invest directly in production”, says Talbot.
Looking ahead
The US has not committed to sourcing 100pc of its battery materials from compliant countries. It is, in fact, “technically and practically not possible” that the US can do so under the current criteria, says Benchmark analyst Jorge Uzcategui.
“More investment needs to be done at the mine and refinery level, [and] the US will also need to make more agreements with some of these [metal producing] countries,” he urges. These agreements could include an Indonesian FTA or one with the Democratic Republic of Congo (DRC), which produces around 80pc of the world’s cobalt.
Battery raw materials demand will outstrip supply by the late 2020s, according to Benchmark’s Talbot, putting specific markets into periods of deficit, with consequently higher prices. However, despite the likely dearth — and therefore potentially even more premium prices — of subsidy-compliant NCM minerals, Talbot does not see LFP monopolising the US market.
“The market share of LFP is going to grow but we do not see a world in which the EV space is only dominated by LFP or any one chemistry,” Talbot predicts. “There is plenty of room in the market for both NCM and LFP.”
Ciaran has written about finance, politics and culture. He is passionate about e-mobility and what it means for our way of life.
Ciaran has a Masters in Ancient Philosophy from Oxford University.
