Battery Metals

Increasing adoption of electric vehicles threatens oil demand which could plausibly peak before 2030, according to a new report.

In a note to its clients, Fitch Ratings said developments in 2017 show how technological changes and greater product awareness could lead to annual sales of 10 million battery-powered EVs by 2025.

Last year saw a slew of EV product announcements driven by technological advances such as the continued decline in battery costs, consumer preferences and environmental policy. Governments and manufacturers have set EV targets. OPEC has raised its forecast for the size of the EV fleet in 2040 to 250 million units from 140 million, and other forecasters have disclosed EV penetration assumptions for the first time.

Electric vehicle growth could see oil demand peak by 2030

To assess the potential impact of faster EV adoption, Fitch revisited the scenarios it envisaged in 2016 about the disruptive potential of battery technology and incorporated both conservative and more aggressive EV sales estimates based on car companies’ own announcements.

“The latter shows EV sales in 2025 slightly higher than in our extreme scenario from 2016 (which assumed a 33% compounded annual growth rate of EV sales). Of course, the path of EV sales relative to Internal Combustion Engine (ICE) vehicle sales will depend on how far consumer behavior and public policy goals support the heavy investment in EV production needed to meet bullish estimates,” agency noted.

But by considering a scenario where EVs’ cost and range are comparable to ICEs, consumers prefer driving EVs, policymakers mandate and support electrification, and carmakers see cost benefits of focusing on one drivetrain, it is not unreasonable to expect global EV stock by 2040 of over 1 billion, or more than half the vehicles on the road, Fitch said.

However, the ratings agency was keen to stress this is not its “core expectation” as the pace and pattern of EV adoption will be more nuanced.

“Manufacturers have a history of missing big strategic targets, the development of charging infrastructure remains a key uncertainty, environmental impact assessments and policy could change, advances in battery technology may slow, and ICE technology may itself adapt,” said Alex Griffiths, Group Credit Officer, at Fitch.

“But we believe the new extreme scenario has become more plausible over the last year. Applying it to oil demand, in combination with International Energy Agency’s New Policies Scenario assumptions on non-transportation use, shows oil demand peaking in 2029-30.”

However, even then, the peak is shallow, with oil demand in 2040 broadly unchanged from today, as the world still needs to consume vast amounts of oil. Yet, the absence of rising demand would be a significant structural change for the oil market and could make prices more volatile and, on average, lower.

As urbanisation accelerates, cities are at the forefront of changes in energy, mobility and consumption. Across regions, cities are experimenting with ways to improve air quality, reduce congestion and provide clean, reliable and affordable energy to their growing populations.

Automation and shared mobility will play a key role in this transformation, changing the ways that people commute in cities. Before long, fleets of electric autonomous vehicles (AVs) will drive people from their home to their office or the supermarket. These shared AVs will run at higher utilization rates, substantially reducing the cost of mobility and congestion.

Combined with more renewable generation, they will charge in hubs at optimal times, sometimes in the middle of the day, when wind and solar generation is most productive, sometimes at night, when rates are lowest. When the demand for mobility is low, these fleets will be able to return stored electricity back into the grid.

At the intersection of these trends, the electrification of mobility is poised to support cities’ ambitions and provide customers with cheaper, safer and greener urban mobility.

ENVIRONMENT, MOBILITY AND ENERGY

Our work with the World Economic Forum’s Future of Mobility and Electricity initiative identifies three primary benefits of the electrification of urban mobility.

First, the electrification of transport supports national and local ambitions for cleaner mobility. Even without significant changes in the sources of electricity generation – primarily coal, natural gas and renewables – an electric vehicle (EV) can still reduce CO2 emissions by 60% compared with internal-combustion engines. With more than 20% of emissions coming from light-duty vehicles in the US, EVs could be a major factor in improving air quality and the health of urban residents.

Second, as battery prices fall, EVs will soon provide cheaper mobility for individuals and fleets. With lower operating costs, the total cost of ownership for EVs – that is, how much owners spend over its useful life – should reach parity with internal-combustion vehicles over the next five years and continue to decrease. Shared across multiple customers, their patterns will also be optimised to reduce congestion in cities.

Third, if charging times and locations are carefully planned, EVs could provide additional benefits. Smart charging could schedule EVs to charge when electricity prices are low and stop charging when demand for electricity is too high. EV batteries can also store surplus electricity and distribute it back to the grid on demand – a feature that could be particularly significant for large fleets of EVs.

The current approach to the electrification of urban mobility – a steady, gradual change, which we call proliferation – would fail to maximise these potential benefits. Current programmes encourage the purchase of privately owned EVs, which spend 95% of their time parked, limiting the volume of miles or kilometers actually electrified.

Current approaches also deploy EV-charging infrastructure based on the patterns of privately owned vehicles, primarily in residential and business areas. Failure to integrate intelligently with the power grid can limit the business case for the charging operator and could lead to grid instability if too many EVs charge at the same time – especially if it coincides with peak demand times, like weekday evenings.

Smarter cities will take a more integrated and assertive approach to make the most of electric mobility by converging the grid edge and mobility evolutions, a paradigm we call transformation. These cities will encourage the electrification of high-use vehicles, especially fleets of shared, autonomous vehicles, to increase the volume of miles electrified. They will deploy charging stations to meet the needs of future mobility patterns, focusing on shared, autonomous fleets as well as private owners, and integrated with the electricity grid to facilitate smart charging at the best times. Transformation could bring the share of electrified miles up to 35% in some US cities by 2030.

While there are benefits in proliferation, accelerating the transition through transformation would create additional value to the society, with more electrified miles and the convergence of mobility and energy transformations.

· Electrified autonomous vehicles will revolutionise urban mobility by decreasing the overall cost per mile by up to 40% and reducing congestion in cities.

· Fleets that are integrated with clean, digitalised, decentralised and non-dispatchable (that is, not easily turned on and off) electricity resources will boost consumption of electricity generated by solar and wind generation, lessening the need to curtail production of these clean energy sources and further reducing total emissions.

· Public and commercial fleets of electrified vehicles will introduce more flexibility to electricity systems through smarter charging and ancillary services, optimising the electricity consumption and generation.

Taken together, the benefits of transformation could quadruple the value of new mobility patterns for society – up to $635 billion in the US by 2030.

To accelerate the path toward transformation, public and private decision makers should embrace three guiding principles:

· Take a multistakeholder and market-specific approach. Silos between different industries and players will have to be broken down and replaced with cooperation in defining policy and business model definition. Planners should take into consideration local characteristics, including the energy mix and the quality of public transport as they define the priorities of their mobility electrification strategy.

· Prioritise high-use vehicles. Focusing on fleets and high-use vehicles can maximise value by electrifying more miles while also reducing congestion and accidents.

· Deploy the critical charging infrastructure today while anticipating the transformations. Charging infrastructure should be carefully planned and be as interoperable as possible, to guard against the risks of stranded assets.

Utilities in Michigan are exploring electric vehicles’ benefits to the grid as they seek to recover costs for new charging infrastructure. 

A diverse coalition of environmental groups, utilities, automakers and charging companies are making progress on designing pilot programs to encourage electric vehicle adoption in Michigan.

Led by the Michigan Public Service Commission, advocates say the broad representation of interests is helping to solve complex questions around paying for charging infrastructure and potential impacts to the grid.

This week, stakeholders will meet in Lansing for a second time as utilities inch closer to launching EV pilot programs. State officials first brought companies and advocates together in August 2017 to study the issue after plans were abandoned for the state’s first utility pilot program a year ago.

Consumers Energy filed plans for a $10.6 million EV charging network in March 2016, though the company withdrew it in early 2017 due to opposition from several groups.

“One of the things that plagued the Consumers proposal was that it came out of left field a little bit,” said Charles Griffith, director of the climate and energy program at the Ann Arbor-based Ecology Center. The proposal was a small piece of a much broader rate case. “This time around the utilities will be much more targeted in terms of the types of infrastructure they’re trying to support.”

The Ecology Center is part of a coalition of environmental groups — Charge Up Midwest — pushing for better infrastructure and increased adoption across the region. The effort is multi-pronged, including a focus on directing portions of $65 million in settlement funds from the Volkswagen emissions scandal on electric vehicles and electrified school buses.

In November, environmental groups joined utilities and other transportation advocacy groups on a set of “guiding principles” for moving forward, after what Griffith called “productive conversations” with utilities.

These principles conclude that electrification — though it is lagging in Michigan — is in the public interest, and that electric companies are “uniquely suited” to improve it. Utilities are expected to introduce EV pilot programs later this year.

Sharing costs and grid impacts

Over the past year, Griffith says utilities have built a “better pitch for the economic rationale” of recovering costs from ratepayers to pay for infrastructure, demonstrating that EV charging can provide grid benefits as well as lower utility bills. Time-of-use rates and charging during off-peak times can help smooth demand on the grid, for example.

Concerns over who should pay for the infrastructure were raised by consumer advocates and the state Attorney General’s Office in Consumers’ original proposal. Regulators in other Midwest states are also grappling with utility proposals to spread costs among ratepayers.

“You’ll have more electricity demand, which has opportunities to reduce rates for everybody because you’re sharing the costs of the grid,” Griffith said, referring to spreading fixed costs over a greater amount of sales.

While some Michigan utilities offer special rates for EV charging, Griffith said it’s likely that pilot proposals will encourage users to do so during off-peak times. Utilities also acknowledge that this will require more consumer awareness.

Consumers has roughly 1,200 customers with plug-in electric vehicle-specific rates. The company says its pilot programs will include a focus on grid optimization, infrastructure and “customer experience.” Consumers’ approach will be to “test quickly, make ‘small bets,’ and maximize learning and flexibility rather than focus, prematurely, on final answers and conclusions.”

DTE Energy says in its filings that the immediate demand of a plug-in electric vehicle “can be comparative to that of an entire home, which can result in distribution system impacts if not properly managed.”

In worst-case scenarios, DTE notes system overloads can occur, though more study is needed. DTE is also working with Ford Motor Co. and General Motors to “better understand the impact of significant (plug-in electric vehicle) charging in the future.”

Indiana Michigan Power Co. (I&M), which also filed comments on potential programs, agrees that if not properly managed, greater EV charging would strain the grid. However, pilot programs can give a valuable first look at grid-use data and potential clean energy benefits such as lower emissions and increasing the demand for renewable generation.

“Since all customers have the opportunity to benefit from increased electric sales and reduced (greenhouse gas) emissions, it is reasonable for all customers to share in the necessary costs to bring these advantages forward,” I&M says.

The joint electric offensive by Porsche and Audi has launched ten months ago. Now the premium manufacturers are deepening their development partnership and achieving concrete results. The goal of the cooperation, which will create a pioneering architecture called the Premium Platform Electric (PPE), is to put future electric vehicles on the market more quickly.

By making effective joint use of their development capacities, the two high-tech brands are creating a larger scope for electrification, digitalization and autonomous driving, and for further development of highly efficient conventional drive systems. “If we had to tackle the challenges ahead on our own, the costs would be around 30 percent higher,” said Oliver Blume, Chairman of the Executive Board of Porsche AG. Rupert Stadler, Chairman of the Board of Management of AUDI AG, added: “The PPE is a key piece of the future for us. Thanks to this collaboration, which is unprecedented in the automotive industry, the characteristics, zero emissions and profitability all add up to an ideal combination. So in this case, 1+1 equals 3.”

The UK National Grid is looking to install an entire fleet of superfast electric car charging points along Britain’s motorways that would get their power from the country’s electricity network.

The idea behind the new superfast chargers is to alleviate the concerns of many consumers, who don’t think electric cars currently have enough range to be able to complete several journeys. The National Grid has said it has identified 50 potential sites for chargers, that would see 90 per cent of electric car owners being within 50 miles of a charger no matter which direction they travel in.

The chargers themselves will benefit from 350 kilowatts of power, which means cars can be charged within 5 to 12 minutes, far quicker than the 20 to 40 minutes it currently takes to fully recharge the battery.

The charging network will of course put a strain on the Grid; if 100 chargers were installed at each of the 50 sites, it would equate to 35 megawatts of power, which is enough to power 14,000 homes.

Graeme Cooper, project director of electric vehicles, National Grid said: “It’s the critical infrastructure that’s key, it’s about future-proofing the network so it has the capacity to charge cars as quickly and efficiently as possible.”

“Range anxiety is listed at the top of reasons for not buying an electric car. National Grid is engaging with various parts of the Government and is offering scenario planning as a potential answer to show what’s possible”.

If given the go ahead, the scheme to install the charging points will cost between £500m and £1bn.

The news is the latest development for electric vehicles in the UK, after Shell and BP have both confirmed they will be installing electric car charging points at select forecourts this year.

The road to an imminent electric vehicle future has hit a speed bump — one made of cobalt.

An essential ingredient in lithium-ion batteries that power millions of smartphones as well as plug-in electric cars, cobalt is in heavy demand.

But just as the silverish-gray metal has established itself as a critical element in the growth of the market in electric vehicles (EVs), cobalt has also become a source of serious ethical and economic concerns.

Most notably, the majority of the world’s cobalt production is concentrated in the Democratic Republic of Congo, where in many cases children work in hazardous conditions mining the metal.

And once extracted, there are questions whether enough long-term supplies of cobalt can be established to fulfill the hopes of policymakers in places like California who want to transform the transportation system from gasoline-powered vehicles to EVs.

Supporters think the problems associated with the mining of cobalt can sort themselves out but even the most ardent acknowledge human rights as well as supply-chain issues need to be resolved.

For many consumers. the connection between cobalt and clean-car technology may come as a surprise.

“There’s absolutely an educational process really that comes with all technology,” said Blaine Townsend, senior vice president at the Foster City-based investment firm Bailard Wealth Management who has written about cobalt’s supply chain problems.

“I think it’s really difficult for the average consumer to understand all the science and the rare earth minerals that go into” the production of batteries for EVs, smartphones and computers.

Why cobalt is so important for EVs

The cathodes in lithium-ion batteries typically used in EVs are made of metal oxides that contain a combination of cobalt and other elements.

Cobalt helps the cathodes concentrate a lot of power in a confined space. Without the element’s energy density, batteries in EVs without cobalt tend to perform worse.

It’s harder to recycle electric car batteries than lead-acid batteries used in gasoline-powered vehicles because of the number of materials involved and differences in how manufacturers build them.

As the EV sector attempts to move from niche-market status to mainstream acceptance, cobalt demand is surging.

California policymakers have pushed zero-emissions vehicles as essential to meet the state’s mandates to dramatically reduce greenhouse gas emissions.

Gov. Jerry Brown has set a target of 1.5 million clean-energy vehicles on California’s roads by 2025. In his final State of the State address last month, Brown ratcheted the number even higher — to 5 million zero-emission vehicles by 2030.

The United Kingdom and France have announced plans to phase out gasoline and diesel-powered vehicles by 2040. All 16 states in Germany — home of Mercedes-Benz, BMW and Audi — passed a non-binding resolution to ban the sale of new gasoline and diesel vehicles by 2030.

While no date was set, a government official in China last year announced the country’s intention to ban the sale of cars using fossil fuels. China represents the auto industry’s largest market in the world, even bigger than the U.S.

Automakers are making their own moves.

Tesla has begun rolling out its Model 3, with a stripped-down base price of $35,000, marketed as an EV for the masses.

Traditional carmakers have also made commitments, including:

Ford, which announced plans to spend $11 billion on EVs by 2022.
GM said it will add two more all-electric cars to its fleet later this year and at least 18 more by 2023. “General Motors believes the future is all-electric,” Mark Reuss, the company’s head of product development, said last October.
Volvo executives have vowed that by 2019 all its models will be either hybrids or powered solely by batteries.
Less than 1 percent of U.S. motorists own an electric vehicle but a 2017 report from the financial giant Morgan Stanley projected as many as 1 billion electric vehicles could be on the road worldwide by 2050.

Anticipating a flood in global sales of EVs, the demand for cobalt used in electric car batteries is expected to increase by nearly eight-fold by 2026.

The production of cobalt has quadrupled since 2000 but the price of the metal has skyrocketed, too — up more than 230 percent since the end of 2015.

Cobalt and the Congo

The vast majority of cobalt is a byproduct from the mining of nickel and copper and 54 percent of the world’s supply comes from one country — the Democratic Republic of Congo.

The Congo has suffered through two extremely violent civil wars in its relatively short history. The rule of law is haphazard and institutions are often riven with corruption. The country’s presidential election is set for December, two years later than scheduled.

Mining is a linchpin of the economy but the work is often dangerous. Freelancers, known by the French word creuseurs. use picks and shovels to dig up cobalt and child labor is common.

A 2016 report from Amnesty International cited estimates from UNICEF that about 40,000 boys and girls work in mines across the Congo, many of them at cobalt sites.

As with adult miners, the children are exposed to high levels of cobalt and work without gloves or masks, the report said.

Tesla has pledged to not take cobalt from child labor or creuseurs but it’s hard to track the metal’s origination once it has reached the end of the supply chain.

“It could come from 50 small suppliers to a middleman,” Townsend said. “That middleman and five other middlemen ship what they’ve got to a smelter in China and western companies have to buy from that smelter. So it’s really difficult to trace it.”

With an eye on its growing assembly lines of EVs, China has moved quickly to gobble up stocks of cobalt. According to the CRU Group, a mineral consultancy, China controls 62 percent of the world’s cobalt supply, with 90 percent of that coming from the Congo.

That’s left North American and European carmakers scrambling to sign contracts to ensure their own supplies of the raw materials needed for battery minerals.

It’s also led to searches for cobalt in other places. Canada is the fourth-largest producer of cobalt and miners in provinces from Ontario to the Northwest Territories are looking at potential sites to develop.

Cobalt production in the U.S. is small — just 650 metric tons were produced in 2017, according to the U.S. Geological Survey. The Congo, by comparison, produced 64,000 metric tons. Russia finished in second place with 5,600 metric tons.

Cutting the cobalt cord?

A number of chemical companies and researchers are working on batteries for EVs that rely less on cobalt.

Two South Korean companies plan to roll out batteries that are eight parts nickel and just one part cobalt and one part manganese.

But earlier this month, the chief executive at a Belgium-based multinational that produces cathodes for EV batteries said cobalt will still be needed for the foreseeable future.

“There isn’t a better element than nickel to increase energy density, and there isn’t a better element than cobalt to make the stuff stable,” Marc Grynberg, the chief executive at Umicore, told Reuters. “So (while) you hear about designing out cobalt, this is not going to happen in the next three decades. It simply doesn’t work.”

At the same time, Grynberg and others think concerns about cobalt supplies can be eased by finding a more efficient way to recycle smartphones. There are an estimated 1.6 billion discarded phones across the globe with batteries that include cobalt.

Analysis from researchers at MIT have predicted that while there may be some bottlenecks in the supply chain, no serious obstacles are in place for the next 15 years to blunt rising demand.

“I think what will happen is the lithium-ion battery is probably going to be a transitional power source,” said Townsend, “and scientists are going to figure out a different chemical composition to power the electric vehicles that has less risk from the supply chain standpoint.”

Others are less sanguine.

“Until there’s a replacement material that can hold a charge and create a charge we’ve got a problem,” said Lauren Fix, the executive director of The Car Coach, an automotive expert based in New York City who is critical of EVs.

“Tesla, GM or anyone else is going to have to raise the price of the vehicle to try to compensate for the increased costs” associated with rising demand and finite supplies, Fix said. “Combustion engines are not dead and the reason for that is we have a shortage of cobalt and this is pretty serious.”

Trying to make a deal

A number of automakers who have made commitments to build more EVs have put out requests to secure long-term cobalt supplies from international mining companies .

BMW, for example, is looking to ensure 10 years of supply.

K.C. Chang, a senior economist who focuses on commodities at the international research consultancy firm IHS Markit, said the negotiations will offer a good indication where the EV industry is heading.

“At the moment, the key negotiating points are the price as well as how much they can secure,” Chang said in a telephone interview from his office in Toronto. “You’re sourcing a very challenging mineral to find. So if it’s difficult to find and it’s very expensive, then it’s also hard to build more electric vehicles.”

If the negotiated prices are too high or supplies too tight, Chang said it will give automakers greater incentive to try to find alternative materials for batteries.

“I think electric vehicles have a bright future,” Chang said. “It’s just a question of how many more vehicles are going to be appearing on the road in the next decade.”

IHS Markit projects 94 million vehicles will be sold globally this year, with EVs accounting for 4 million (about 4 percent).