Electric cars are different from combustion-engined ones for more reasons than what powers them. While a regular car just needs a fuel tank, an EV depends on a battery pack that is a significant part of its price and production costs. According to Benchmark Mineral Intelligence, that may push anyone willing to sell EVs not only to establish long term contracts with cell producers. They may also start mining.
The magic number for electric vehicles is to reach a cost of $100/kWh. When we get there, EVs will have a production cost parity with ICE cars. That means government subsidies will not be crucial for them to be competitive.
In July 2019, we said Tesla was getting involved with a mining consortium in Indonesia along with Daimler and Volkswagen. We also know that Tesla’s next step is to produce its own batteries, probably already at that sweet cost spot. Benchmark Mineral Intelligence explains that those things are connected.
The only way to ensure lithium-ion batteries will cost less than $100/kWh would be to have control of the raw materials they demand, according to the company. Although we are talking about commodities, manufacturers in control of the source for raw materials would be in a much more stable situation than the ones that rely on contracts for that. Check what Simon Moores, managing director of Benchmark Mineral Intelligence, has to say about that.
“If an automaker owned their own lithium mine, they would be pressured by the cost of production, not the market price. Let’s say the cost of production is $5,000 to 6,000 for each ton of lithium hydroxide. The market price is $10,000 to $12,000 right now. So they are still in the clear providing they own a tier-one asset because the cost of the battery cell is 79 percent raw materials. We talk so much about cheaper batteries below $100/kWh but to keep them under $100/kWh long term, the only sure-fire way is to own the key raw materials.”
Think about it: if batteries are such a crucial part of electric vehicles, automakers have to make sure their prices are stable. Just like legacy carmakers care for the costs and reliability of their combustion engines and gearboxes, electric vehicle producers have to be concerned about the core of their products.
Gallery: Low Battery Prices May Depend On EV Makers Getting Into Mining
Tesla does not have that much legacy to deal with, which makes it a much more flexible car company than others. This corporate culture may be another hindrance for traditional manufacturers, as Moores stresses.
“Automakers won’t want to do that. Culturally, it’s not what they will do. They will want JVs (joint ventures) with battery plants or long-term contracts using our pricing as an index. But it’s still a contract that can be changed. Whereas if you own the source, that price is fixed. Lithium and nickel will be the biggest issues.”
As legacy automakers have started to copy Tesla to be competitive in the EV market, Moores believes they may also follow if Tesla starts mining its own raw materials for batteries. Especially because Benchmark Mineral Intelligence predicts a shortage for them by 2030.
“If one automaker makes a lithium move, the rest will follow, and you’ll have a rush akin to oil 100 years ago. It’s a dilemma that comes around every two years.”
Tesla is yet to release its news on batteries on the Tesla Battery Day, but all evidence points to it getting rid of its joint venture with Panasonic. It has bought Maxwell and Hibar Systems. It is filing patents for a million-mile battery. The next step may be to announce getting control of the means to do them. And these means are raw materials.