Assessment of Global Li-Ion battery supply chain bottlenecks and implication for India's electric mobility transition. Research Project Under the guidance of Ms. Sonu Verma Rohan Kumar - 35B EPGDIB 19~20 Contents EXECUTIVE SUMMARY 3 ACKNOWLEDGEMENT 4 INTRODUCTION 4 MOTIVATION 6 OBJECTIVES 6 PROPOSED METHODOLOGY 7 CHAPTER 1: GLOBAL AUTOMOTIVE LITHIUM ION BATTERY SUPPLY CHAIN 8 1.1 T HE I MPORTANCE OF B ATTERIES 8 1.2 S OURCES OF R ISING D EMAND 9 1.3 E AST A SIA THE NEW M IDDLE E AST IN EV E RA ? 11 CHAPTER 2 : COMPONENTS OF A LI-ION BATTERY 12 CHAPTER 3 : LIB SUPPLY CHAIN SEGMENTS 16 3.1 R AW AND PROCESSED MATERIAL 16 3.2 C ELL COMPONENTS MANUFACTURING 26 3.3 C ELL /B ATTERY P ACK M ANUFACTURING 28 CHAPTER 4 : INDIA’S EV TRANSFORMATION 31 4.1 : LIB D EMAND F ORECAST - I NDIA 32 4.2 : L ITHIUM I ON B ATTERY V ALUE C HAIN - I NDIA 34 4.3 : L ITHIUM I ON B ATTERY S UPPLY C HAIN R ESILIENCE 36 CHAPTER 5 : BEST PRACTICES, POLICY MEASURES & WAY FORWARD 47 5.1 G LOBAL B EST P RACTICES 48 5.2 P OLICY R ECOMMENDATIONS 50 CONCLUSION 52 REFERENCES 53 Executive Summary India has emerged as one of the largest mobility market in the world and with a large population with low automobile penetration it has potential for sustained future growth. But this growth has tradeoff in energy security & environmental effects. India growing dependence on oil imports is a big drain on foreign reserve and also make country vulnerable to global geopolitical upheavals. The growing use of fossil fuel in vehicles has also made Indian cities among worst polluted in the world with long term health effects on the country’s population. Keeping these concerns and global technological advancements in view Government of India (GoI) has taken ambitious goal for transition to all electric public transportation by 2030. GOI announced Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) policy in 2015, with aim to increase the adoption of Electric Vehicles (EV). However, EV deployment in India has been slow, so far. This is because of various reasons like high cost of vehicles, lack of EV-related infrastructure, low subsidy on vehicles and awareness among users. This report looks into the most important component of EVs ie. Lithium-ion Batteries (LIBs) which account for about 40 –50% of an EV’s total cost. To make EVs adoption widespread in country it’s price premium compared to IC engine vehicles need to fall. For that to happen India needs to have local and robust LIBs value chain. This report looks into the complex and seldom discussed topic of global LIBs value chain and it’s key players. From the government’s targets for EVs and industry estimates LIBs market is expected to grow exponentially in coming decade. Report tries to estimate those demands and look into the associated value chain opportunities, challenges & risk involved. This report also tries to look into the resilience factors associated with LIBs ecosystem to develop in Indian market. These factors are calculated keeping the local future demand and associated global linkages. Finally in the report we provide the policy decisions required to make the LIBs ecosystem successful in the coming decade. We look into the global best practices and how those can be adapted to unique challenges in Indian context. Acknowledgement I am sincerely thankful to Indian Institute Of Foreign Trade for providing me the opportunity to write research paper in the form of dissertation on the topic “ Assessment of Global Li-Ion battery supply chain bottlenecks and implication for India's electric mobility” I am also thankful to my project guide Ms. Sonu Verma for guiding me in every stage of this research paper. Without the support it would have been very difficult for me to prepare the paper. Through this research paper I have learnt a lot how global value chains are interconnected and how it is required to have long term vision and planning to mitigate the associated risks. I hope this research paper can help the policy makers and the industry in transitioning to EV era of mobility in India. Introduction Automobiles sector is one of the most important growth engine for any country, particularly so for rapidly urbanizing and developing country like India. Rapidly growing middle class and high growth rate in last two decades have made India one of the biggest automobile market as well as manufacturing hub. Cheap and trained manpower, business friendly policies and tax structure attracted major auto manufacturers to set shop in India which has in-parallel led to development of very robust domestic as well as global supply chain ecosystem. But this rapid growth in automobile sector poses many challenges. It has increased country’s dependency on foreign crude oil and made it more vulnerable to global political & economic fallouts. The environmental challenges are the biggest concern in Indian cities which are trying desperately to control the vehicular emissions. India’s population is rising and so is the migration from rural to urban areas. It is projected that more than 50% of population will live Indian cities in coming decades. This rapid growth comes with many social, economic, and environmental downsides. Globally energy transition is underway. Carbon-dioxide emissions have plateaued for the past three years. In 2015, 195 countries signed Paris Accord to limit global temperature rise to 1.5 Celsius-degrees. Countries are beginning to decouple greenhouse-gas emissions from economic growth. Nowhere is there greater potential to accelerate the energy transition than India, the world’s third - largest emitter and home to a growing, urbanizing population of more than 1 billion. In 2013, Indian government commenced National Electric Mobility Mission Plan-2020 (NEMMP-2020) under this mission a scheme called Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME-India) launched to promote EV technology. Under the FAME-India scheme Indian government had provided all the necessary support the respective industry for the development of EV market and ecosystem to manufacture HEVs/BEVs by 2020. As per the NITI Aayog’s transformative mobility report -2017, it has set out a roadmap with target for pure electric vehicle and it is stated that there will be 100% public transport vehicles and 40% of private vehicle become pure electric by 2030. While India is not a frontrunner in promoting and developing an e- mobility ecosystem, multiple compelling reasons make this shift in mobility seem inevitable. A transition to electric mobility has the potential to reduce oil imports, address air pollution in cities, and help meet India’s climate commitments by reducing the energy intensity of the gross domestic product (GDP). Analysis indicates that development of in-house battery value chain will act as an opportunity as well as enabler for successful transition to electric mobility in coming decades. But there are challenges and bottlenecks which needs to be analysed and planned for. Currently India is not having Li-Ion battery manufacturing facilities and has no control on global raw material supply chain. Both cobalt and lithium are highly concentrated in a few countries and highly centralized. This portrays a supply chain risk concern owing to geopolitics and market rivalry. When assessing the value and potential risks to manufacturing supply chains for EV batteries, data for upstream raw materials flow needs closer scrutiny, integrating raw materials into technology supply chain analysis by looking at cobalt and lithium — two key raw materials used to manufacture lithium-ion (Li-ion) battery. Motivation Many research and policy documents are available on the domestic challenges, opportunities and policy requirements for Electric Mobility transmission in India. But there are surprisingly very less research on the supply chain bottlenecks which are global in nature and its long term impact on EV ecosystem development for India. If lesson is to be learnt from history ensuring energy security for a country should be on the top most priority while framing long term policies. The prime example of fallout of ov er dependence and it’s implication on global supply chain is ongoing pandemic Covid -19. If India wants to achieve full EV transition and emerge as global economic powerhouse in 21st century it has to have robust energy security policy in place and resilience to any supply chain shocks due to global political, economic or any other adversity. Objectives a) Analyse global automotive lithium ion battery supply chain and its strategic significance. b) Find out the projected future demand of Li-Ion battery in India and associated supply chain challenges and opportunities. c) Evaluate India’s resilience to Li-Ion battery supply chain against set indicators. d) Policy framework required for supply chain resilience and best practices from around the globe. Proposed Methodology a) Qualitative study through secondary research and examination of prominent literature in this area. b) Using demand forecasting model to find the future demand of the Li-Ion Battery in India. c) Calculation of resilience indicators characterized by a sustainable and secure access to raw materials, diversified up stream & downstream supply chain.. d) Case Studies approach to examine viability of successful models implemented around the world Chapter 1: Global automotive lithium ion battery supply chain 1.1 The Importance of Batteries World is on cusp of energy transformation , moving away from the reliance on fossil fuels which started way back in early 20 th century. Renewable is the mantra of 21 st century and one of the sectors leading the transformation is mobility. Electric Vehicles have been at forefront of discussion since more than two decades and slowly the popularity and reach has grown from Prius Era in USA to modern days Tesla Model 3 & BYD in China. Leading this transformation has been the introduction of Lithium Ion Batteries in EV with continuous improvement in energy & power density, safety, cost and charge cycle. Batteries are also the key differentiator between the various EV manufacturers. The energy stored in the battery determines the range of the EV, range anxiety being the major bottleneck in EV adoption. While some hybrid electric vehicles (HEVs) still use nickel metal hydride batteries, LIBs are now mainstream batteries for plug-in hybrid vehicles and battery electric vehicles (BEVs) due to technological benefits over other battery chemistries. Till few years ago, market for LIBs was mainly dependent on portable electronics sector which uses smaller form factor batteries. The wider adoption of EVs and promotion from governments around the world to decarbonize transportation has shifted the demand to a larger batteries. This shift has also brought in limelight the complex supply chain dynamics of LIBs. In 2016, The Economist mentioned lithium ‘‘the world’s hottest commodity ” (Economist, 2016) The Washington Post has traced the supply chains of both Lithium and Cobalt outlining their impact on the local populations of South America and Africa, respectively. (Washington Post, 2016) This shows that new technologies are fundame ntally ‘‘materials dependent.’’ and are therefore subject to the supply chain issues that accompany those materials. Projected growth for LIBs, driven by wider adoption of E- Mobility warrants a detail understanding of the value chain, potential bottlenecks and risks associated along the way. 1.2 Sources of Rising Demand Li-ion batteries have three major demand drivers: consumer electronics, energy storage, and transportation. Consumer electronics This was the initial driver of li-ion battery commercialization. Proliferation of smartphones, laptops, and other digital devices is projected to increase demand for LIBs from 26 GWh in 2015 to 54 GWh in 2025. (statista, 2020) Energy storage Achilles heal of renewable energy like solar is its intermittency, having cheap & efficeint storage capacity would make renewable energy far more attractive to consumers and governments by mitigating supply disruptions. Bloomberg New Energy Finance (BNEF) predicts that energy storage demand for li-ion batteries will explode from 1 GWh in 2016 to 200 GWh in 2030. (Curry, 2017) Transportation Most important future determinant of demand for li-ion batteries will be electric vehicle (EV) penetration in the transport sector. Just as internal combustion engines (ICEs) made oil a crucial commodity, the continued electrification of transport will require enormous volumes of li-ion batteries and will turn them into a global necessity. Overall demand is set to skyrocket in 15 years, from 19 GWh in 2015 to 1,293 GWh in 2030. Increased demand for EVs will turn li-ion batteries into a commodity-like product over the coming decades. EV adoption has been growing rapidly over the past decade, with the global stock of electric passenger cars passing 5 million in 2018, an increase of 63% from the previous year. The International Energy Agency (IEA) estimates that, the global stock of EVs (including gas- electric hybrids) could increase from 5 million in 2018 to 253 million in 2030. (IEA, 2019). 1 81 200 2016 2024 2030 Demand (Gwh) Year 1.3 East Asia the new Middle East in EV Era? If the projected forecasts are true, li-ion batteries will, by the middle of 21st century, be as cheap and ubiquitous as the oil that powers cars today. The important difference between batteries and oil is, of course, that oil is a natural endowment which whereas batteries are a manufactured. This distinction projects that effective control of li-ion batteries will be dominated by countries that have technological edge and effective supply chain control to manufacture them at the largest scale and the lowest cost. China, Japan, and South Korea already account for a significant majority of global li-ion battery production. Delving into the value chains that drive this production is key to understanding the opportunities and risks for the li-ion battery industry at a time of unprecedented uncertainty about the future of economic globalization in post Covid-Era. Chapter 2 : Components of a Li-ion Battery Before we discuss the global value chain of Li-Ion Batteries let us understand the makeup of the batteries. A Li-ion battery consists of four major components – the cathode, anode, electrolyte and separator. Cathode In Li-ion batteries, chemical reactions inside the cell create flow of electrons. The terminal that accepts electrons becomes negative and the one that loses electrons becomes positive. The Li-ion battery uses lithium as the positive material, which makes up the cathode (the positive electrode). However, the cathode is made up of a compound of lithium since lithium is unstable in its elemental form. The properties of a cathode are instrumental in determining cell capacity and potential difference between the cell electrodes. As we will discuss further there are different LIBs types as per the compound used in cathode. Anode A majority of Li-ion batteries use graphite as the anode ( the negative electrode). Graphite can either be synthesised artificially or naturally and is used as an anode as it is stable, inexpensive, light and porous. Electrolyte While the electrons flow between the cathode and anode in the external circuit, the ions flow internally in a cell to balance the transfer of charge. The electrolyte facilitates this reaction by providing a medium for the transfer of ions. The electrolyte in a Li-ion battery is a lithium salt, for example, LiPF6 (Lithium hexaflurophosphate). Separator A separator is used to keep the electrodes from short-circuiting. Different insulating materials like polythene, polypropylene or ceramics can be used, depending on cell chemistry. The material should be such that it allows for the transfer of ions essential to the chemical reaction. Figure 1 : Schematic of a Li-ion cell As explained LIB consists of graphite anode, a cathode, separated by a liquid organic electrolyte. Our focus will be on cathode materials, with some discussion on the graphite used in anodes. Multiple cathode materials are currently in commercial use for LIBs. LITHIUM COBALT OXIDE (LCO) Li-ion battery consisting of around 60% cobalt oxide and 40% lithium, mainly used for consumer electronics. LITHIUM NICKEL MANGANESE COBALT (Li(NiMnCo)O2 or NMC) Most EVs are using this variant of LIBs. There are different chemistries in NMC. NMC-111, NMC-811, and NMC-622 (numbers denote the ratio of Nickel, Cobalt, and Manganese on a mole fraction basis). As the Ni content increases, the energy content goes up, but usually at the expense of stability The goal of the R&D is to reduce the cobalt oxide content and increase the nickel content. The NMC is likely to become the standard for electric vehicles thanks to its long-lasting charge and adoption by nearly all major battery cell producers besides Panasonic. NICKEL COBALT ALUMINIUM (Li(NiCoAl)O2 or NCA) Here manganese is replaced with aluminium, using 80% nickel, 15% cobalt and 5% aluminium all in a non-metallic, chemical form. ‘Panasonic/Tes la battery’ is NCA. Below table shows estimate of the approximate amount of metal (in kg) required per kilowatt-hour for five prototypical cathode materials LIBs. (Elsa A.Olivetti, 2017) Lithium Iron Phosphate (LiFePO4) This chemistry, commonly referred to as LFP, is relatively new and expensive. Its strongest attribute is safety, but its energy density is about average with limited prospects for improvement in the future. Chinese auto manufacturer BYD in particular has backed this chemistry, which is primarily being used in electric buses. Lithium Manganese Oxide ( LiMnO4) This chemistry, commonly referred to as LMO, is one of the more well- established chemistries and was used in the Nissan Leaf and the recently discontinued Chevy Volt. However, It is one of the most expensive and has the lowest energy density when compared to other chemistries, but is considered about as safe as the LFP chemistry. Different cathode chemistries have trade offs — in terms of cost, energy density. In the three types of battery outlined here, and in the varying other versions on the market, five critical materials are worth discussing which we refer to as the core “battery metals" Lithium , Cobalt, Nickel Manganese, Graphite. Chapter 3 : LIB Supply chain segments The supply chain of LIBs can be segmented into 6 segments spanning the spectrum from raw material mining to battery recycling. (Natalia Lebedeva, 2017) These 6 segments can be further categorized under the lower, middle & upper value chain. In the following section each battery supply chain segment is discussed highlighting key figures and challenges. 3.1 Raw and processed material Lithium A typical Tesla Model S battery pack contains roughly 63 kg of lithium, about 14% of the total weight of the battery pack. Lithium is extracted from lithium minerals (spodumene) or by evaporation of brine with a high concentration of lithium carbonate. Today, the world’s lithium production is split evenly between mineral and brine. Six mineral operations in Australia, two brine operations each in Argentina and Chile, and one brine and one mineral operation in China accounted for the majority of world lithium production. (Survey, 2020) Capital input for producing lithium from brines is high but subsequent operating costs are comparatively low. While less expensive to mine than rock, lithium extraction from brine can take 12 to 18 months to reach extraction levels. Project scale up usually takes between eight to 10 years for brine compared to two to three years for spodumene. (Commission, 2018) 55% 23% 10% 8% 2% 2% 0% Lithium Production - 2019 Australia: Chile: China: Argentina Zimbabwe: Portugal: Brazil: KEY PLAYERS As can be seen from the data 4 companies are controlling the of Lithium extraction. Albemarle and SQM, process LCO from Chile’s largest salt flat, named Salar de Atacama. Another Li producer, Food Machinery Corporation (FMC), produces lithium hydroxide and LCO from Argentina’s Salar del Hombre Muerto lithium brine deposit. Australian company, Talison Lithium, extracts lithium-concentrate (spodumene) from the world’s largest lithium ore deposit in Greenbushes, Western Australia. China based Sichuan Tianqi Lithium own 51% share of Talison Lithium and the US based Albemarle owns 49% share in it. Sichuan Tianqi Lithium further processes the spodumene in China to produce LCO. No. 1 EV manufacturers, Build Your Dream (BYD) takes L i from Tibet’s Lake Zabuye. The mining is operated by Tibet Shigatse Zhabuye Lithium High-Tech Co. Ltd. In 2016, BYD bought 18% stake in it. Challenges Lithium supply security has become a top priority for battery manufacturers as well as OEM. Strategic alliances and joint ventures between battery manufacturers, mining companies continue to be established to ensure a reliable, diversified supply of lithium for vehicle manufacturers. As we can see currently more than 75% of worlds Lithium is produced in Australia & Chile. In terms of risks associated we also can compare the associated political risks in the countries involved. All political risk scores throughout are taken from Marsh and are based on Fitch BMI Research. (MARSH, 2017) The score, on a scale from 1 to 100, is an index that is composed of the average of several specific risk scores. The higher the score means less risk and more stability. 75 69.7 68.7 55.7 36.2 0 10 20 30 40 50 60 70 80 Australia Chile China Argentina Zimbabwe Political Risk