Lithium has hogged the top spot in EV batteries for some time, largely due to its early adoption in technology developed by Tesla. For more than a decade, the US-based company has been using lithium-ion batteries to develop and produce all-electric vehicles as well as clean energy generation and storage products.

But challenges to its position have emerged from other materials - which were already being used along with lithium in the cathode part of the battery cell - such as cobalt, nickel, manganese and iron. The makeup of the anode, by contrast, is graphite, but there is also a potential challenge here.

These threats have emerged as the lithium supply chain comes under increasing pressure amid a race by automotive manufacturers to meet ever-tightening environmental regulations and join the EV revolution.

The North American International Auto Show in the US state of Michigan this month has seen a number of announcements from companies that dramatically increase the total of EV and hybrids planned over the next several years.

Battery-grade lithium carbonate prices stand at $18.50-20 per kg on a cif China, Japan and Korea basis, according to Industrial Minerals' latest assessment on Thursday January 18, up from $18-20 per kg at the beginning of November.

If the status quo in battery technology remains, lithium supplies will start to come under severe pressure, giving prices an additional lift. However, given the plethora of mining projects in the works, the market may eventually move into surplus.

Future lithium supplies have been even more assured following the recent ruling in Chile - ending a spat between the government and major producer SQM over royalties - that will allow the company to significantly expand production.

But technology is adapting, particularly in a drive to improve costs, meaning the current makeup of EV batteries is changing. Supply-demand fundamentals of the competing EV battery materials will be important in determining which wins, as will the relative properties of the various materials and their suitability for use.

Cost

As with anything, the economics of producing an EV battery will be a key determinant for its adoption. As things stand, government policies are very supportive toward EVs, with numerous subsidies for the purchase of electric cars and buses as well as reduced or waived taxation, free parking and other perks.

But this situation will not last indefinitely. The better technology becomes and the more cost-competitive EVs are, the more likely it is that subsidies and other incentives will be withdrawn or, at the very least, pared back.

Analysts generally expect the United States to keep EV subsidies until 2022 and for China and Europe to remove them earlier, in 2020.

This is when emissions regulations, including the Corporate Average Fuel Economy (Cafe) standards in the US, will play a much bigger role in determining the type of vehicle that is developed and purchased.

Cafe standards, for example, aim to cut energy consumption by increasing the fuel economy of vehicles. The adoption of EV battery technology helps US automakers kill two proverbial birds with one stone, by not only meeting the correct regulatory requirements but also tapping into a trend for environmentally-friendly products.

The removal of subsidies will also push the cost of EV battery materials to the forefront.

According to analysts at Bank of America Merrill Lynch (BAML), the initial cost of an EV is high compared with internal combustion engine (ICE) vehicles, mainly due to the presence of lithium-ion batteries.

In a smartphone, a battery accounts for 1-2% of the cost of the mobile device. In an EV, it is the most expensive item, accounting for around 40-50% of the vehicle cost, BAML estimates.

Reducing the cost of lithium-ion batteries is possible - manufacturing capacity and new technology has propelled prices significantly lower over the past couple of decades. But there is further to go.

Currently, a lithium-ion battery pack costs $160-210 per kWh. Tesla is the lowest at an estimated $160 per kWh.

According to Kenneth Hoffman of McKinsey's Materials Practice, lithium-ion battery prices need to drop to around $100 per kWh to become cost-competitive with ICE vehicles. That inflection point is approaching much quicker than anticipated, Hoffman said, noting a best-case scenario of an average lithium-ion pack costing $93 per kWh by around 2030.

EV battery materials

There are five lithium-ion battery technologies competing to be the main choice for automakers, each using a different mix of materials in the cathode.

These are lithium cobalt oxide; nickel manganese cobalt (NMC); lithium nickel cobalt aluminium (NCA); lithium iron phosphate (LFP); and lithium manganese oxide.

China is promoting the use of LFP batteries through subsidies and rebates. LFP batteries are very stable but but do not provide a huge amount of power, and there have been moves of late in China to push toward NMC batteries.

Tesla uses an NCA battery for its Model S but is looking at a NMC combination going forward, with the 811 battery tipped as favorite. These battery cells are leading the way in energy density and already have much lower costs than mainstream battery technology.

A standard NMC lithium-ion battery is called a 333, meaning it uses three parts nickel, three parts manganese and three parts cobalt. But in an NMC 811 cell, the cathode is roughly 80% nickel sulfate, with the remainder split equally between manganese and cobalt. The goal of battery chemists is to continue to increase the nickel content and reduce the use of other materials, especially cobalt.

So what is the issue with cobalt?

Cobalt is already on the upper end of the cost range for EV battery materials, and supply issues have pushed prices higher still in recent months.

Because it is a byproduct of copper and nickel, the production of these metals is what drives cobalt supplies, rather than the cobalt price itself. This has led to fears of a supply bottleneck, exacerbated by the fact that the most significant producer of cobalt is the Democratic Republic of the Congo, where political instability as well as conflict minerals issues have grabbed headlines.

It has been reflected in prices, which have more than doubled since the end of 2016. Metal Bulletin’s low-grade cobalt price assessment rose to $36.90-37.80 per lb, in-warehouse, on January 24, up from 36.75-37.40 per lb on January 19.

As a result and despite cobalt’s positive qualities - including the fact that a number of lithium-ion battery configurations have high energy densities due to the use of cobalt in the cathodes - EV battery makers have started to either look for alternative materials or for new technology that requires less of its use.

There are also efforts to replace the graphite anode with silicon, which is cheaper and far more energy-dense but comes with questions regarding degradation and therefore lifespan.

For sure, there are many factors impacting future EV battery materials. Much depends on the speed of EV adoption, which battery technology becomes the industry preference and how supply-side issues play out. Recycling is also going to have a critical impact on materials choice, supply and cost.

What is certain, however, is that the space race for EV battery technology has only just begun.

MORE: Battery-grade lithium prices are available in Industrial Minerals' battery price report.