PLEASE ANSWER WITHIN 50 MINS RATING WILL BE GIVEN

EV Makers Next Headache: Scarce Battery Chemicals, Made in China

Lithium used to make electric-vehicle batteries is getting dear; that is only leading edge of supply-chain problem

By Jacky Wong

Jan. 21, 2022

Last year was the year of electric vehiclesglobal sales are likely to have hit a record, in turn pushing up battery demand. Now too much of a good thing is causing problems: Many key battery materials, including but not limited to processed lithium itself, are in short supply and prices are rising sharply.

Adding to the geopolitical risks for global auto makers is the supply chain concentrated in a country determined to make itself the EV capital of the world: China.

Lithium is the most spectacular example: Prices of lithium carbonate have quintupled in China from a year earlier, according to Benchmark Mineral Intelligence. Other battery materials from nickel to cobalt have also been rising and could remain elevated as new supply will take time to come online. Sustained high costs will eventually pass onto car makers.

The rapid rise in demand for EVs has also created shortages in some lesser-known components that go into batteries. For example, Morgan Stanley says supplies of binder material polyvinylidene fluoride or PVDFused to enable connections between electrodeswill likely be insufficient to meet demand until 2025. The bank says global battery-grade PVDF capacity will more than double between 2021 and 2025but demand will quadruple. Manufacturers might be able to substitute regular PVDF for battery-grade PVDF to make up some of the shortfall, but that would add cost and take time.

Wet separators, which are placed between a batterys positive and negative electrodes, are another battery component that could face shortages, according to the bank.

Shortages are adding to already substantial concentration risks regarding Chinas dominance in the EV supply chain. The country has three-quarters of the worlds wet-separators market and more than half of that for battery-grade PVDF, according to Morgan Stanley. Most of the mining for materials like lithium and cobalt isnt in China, but the country dominates the subsequent steps in the value chain.

Lithium prices are rising as demand for the key ingredient in electric car batteries grows, amid a broader push to move away from oil and gas. But extraction of the metal is time consuming and potentially harmful to the environment and plans to produce more have prompted protests.

China in general has more than 60% market share in the chemical processing and refining of critical battery minerals and that might be above 80% for some materials like cobalt and graphite, according to Benchmark. China also mines more than 60% of the worlds natural flake graphite. Companies like Hong Kong-listed Ganfeng Lithium, which supplies lithium compounds to Tesla, have also been expanding upstream, acquiring mines overseas.

While other countries will also invest in more localized supply chains, Chinas head startin part due to years of generous EV subsidies which helped nurture a robust battery supply chain upstreammeans it will remain dominant for the next few years at least.

Securing material supplies is also getting more important for car makers. They will increasingly need to either vertically integrate or establish joint ventures with battery suppliers, says Yu Du, research analyst at Rho Motion. Tesla, for example, signed an agreement with Australian miner Syrah Resources this month to secure graphite supply. In a comment to the U.S. Trade Representative supporting the waiver of tariffs on artificial graphite imported from China, the car maker said there are no suppliers in the U.S. that meet its specifications and capacity requirements.

EV sales have been speeding ahead, but the supply chain has a lot of catching up to do. Expect that to cause a lot of headaches for EV makers in the months and years aheadand potentially geopolitical jitters.

Review the above case study and answer the questions below:

First give a short brief of the case. Then, answer the following questions:

1. What kind of supply chain management, procurement and production strategies are important for companies to minimize the shortages and not lose sales?
2. What are the challenges of global sourcing in procurement strategies when many variables mentioned in the case are impacting costs of essential materials?
3. What is the importance of supplier relationships to an organization to successfully procure materials and contain costs?
4. How will the current issues that are impacting the global markets impact the global sourcing for the batteries to make the final product? What solutions can be provided?