EV Battery Supply: The Elephant in the Room
Two key recent events are shaping the future of electric vehicles in America. The first is the recent signing of executive orders from the Biden administration pushing hard for adoption of electric vehicles in the US. The second is rapidly increasing “zero emissions” mandates in California that place aggressive goals for OEMs to meet within the next 15 years. The combination of these two events is forcing car manufacturers to step up their plans for releasing both passenger and commercial electric vehicles or else face a combination of fines and consumer backlash. There’s just one problem: there aren’t enough electric vehicle batteries to go around.
A Quick Look at the EV Battery Supply Chain
Modern electric vehicles rely on lithium-ion batteries for their energy storage needs. There are effectively 4 key levels in the supply chain that creates the batteries that end up on electric vehicles:
- Raw Materials. Lithium-ion batteries generally contain some combination of aluminum, cobalt, graphite, manganese, and nickel. Of these elements, cobalt and lithium are limited by current mining supplies.
- Battery Cell Production. When most people think of a battery, they are actually imagining a single battery cell – a self-contained unit in either a cylinder or pouch format that can store energy. There are currently only a few manufacturers (Panasonic, LG Chem, and Samsung) that produce the large majority of EV battery cells from raw materials.
- Battery Module Production. Multiple battery cells are linked together with control and monitoring electronics to form a battery module. Battery modules can contain anywhere from 4 to over 100 battery cells depending on the cell type and end use requirements.
- Battery Pack Production. Multiple battery modules are then linked together and paired with charge and thermal management controllers to form a full battery pack. These battery packs are what form the core of an electric vehicle’s energy system.
Supply Limits and Ramp-up Times
The biggest issue with the supply chains above is that they were built out slowly over the course of the last decade with the expectation that EV demand would slowly increase over time. But with the rapid increase in EV focus that started in late 2019, current production simply isn’t high enough to meet the needs of every OEM planning to bring a host of new battery electric vehicles to market in the next few years. Production issues at mines and factories were compounded by the pandemic, constraining battery supply even further. And while new mines and factories are under construction, neither of these are quick or easy to build. New factories like GM’s in Tennessee, for example, aren’t scheduled to start production until 2023, and likely won’t ramp to full production capacity for a year after that. It’s simply not feasible to design, build, start, and scale battery production operations in less than a few years, especially when faced with pandemic constraints on related supply chains (like microchips) and labor.
The End Result
The net result of the above is a harsh reality. We’ve heard from OEMs we work with that battery supply for electric vehicles is likely to be constrained until 2025. This doesn’t mean that EVs won’t be widely available – they will – but it does mean that rapid price drops many people have been expecting for EVs might not materialize until around 2026. And if you have your eye on an upcoming EV release, you might have to put yourself on a waiting list for it. Of course, with the current general lack of supply in vehicles due to the chip shortage, consumers might already be getting used to waiting and paying more than originally planned for a new vehicle.
Everything we see in the market points to zero emission vehicles, led by battery electric vehicles, being the clear future of the automotive industry. However, keep in mind that switching production of millions of vehicles to entirely new powertrains takes time and comes with challenges. Chief among those right now is battery production, which will be a hurdle for several years still.