Battery raw material supply deals take spotlight in US automakers’ earnings

US automakers General Motors (GM) and Ford highlighted their strategic long-term supply deals in their second-quarter earnings, with lithium facing a supply deficit in the coming years as electric vehicle demand is expected to grow

GM, the largest automaker in the United States, signed an eight-year deal with South Korea’s LG Chem on Wednesday, July 27, starting in the second half of 2022, for 950,000 tonnes of cathode active material (CAM), a key battery material which consists of processed lithium, nickel and other elements representing 40% of battery costs.

The CAM secured by GM will be used by Ultium Cells, a joint venture between GM and battery manufacturer LG Energy Solution, at its battery cell plants in the US states of Ohio, Tennessee and Michigan.

Earlier in the week, Fastmarkets reported that the US Department of Energy conditionally committed to lending $2.5 billion to Ultium Cells.

The deal follows GM signing a six-year lithium hydroxide supply agreement with producer Livent, set to begin in 2025, earlier last week as well.

GM’s flurry of activity comes as the carmaker said in its second-quarter earnings report that it plans to produce 400,000 electric vehicles (EV) over the course of 2022 and 2023, with the aim to reach 1 million units of annual EV capacity in North America in 2025.

“We have binding agreements securing all battery raw material to support our plan for 1 million units of annual EV capacity in North America in 2025,” Mary Barra, GM’s chair and chief executive officer, said during the second-quarter earnings presentation on Tuesday, July 26.

“These are commitments with strategic partners for key materials like lithium, cobalt and nickel. This includes new multi-year agreements announced today by Livent Corp, for lithium, and LG Chem, for cathode material,” Barra added.

According to GM’s earnings presentation, the company will have direct sourcing of up to 75% of the company’s battery needs through 2030.

Ford has also announced a series of new initiatives for sourcing battery capacity and raw materials in order to reach its EV run rate goals of 600,000 EVs by late 2023 and 2 million EVs by the end of 2026.

Localizing North American supply chain

Both automakers have also repeatedly emphasized the importance of localizing its supply chain. GM said the deal with Livent was in line with its vision of its localized supply chain.

GM’s announcement with LG Chem said both companies will explore the localization of a CAM production facility in North America by the end of 2025.

“GM and LG Chem will explore the localization of a CAM production facility in North America by the end of 2025. And Livent has a goal to transition 100% of the lithium hydroxide they are processing for GM to the US,” Barra said in GM’s second-quarter earnings conference call.

Localization is also a focus for Ford, which announced earlier in July the finalization of a joint venture to build a North America battery plant with South Korean battery manufacturer SK On Co.

“Our pending joint venture with SK Innovation called Blue Oval SK will produce EV battery cells and arrays, helping us secure supplies of batteries at competitive cost and performance levels really critical, given our demand for our new electric vehicles,” James Farley, Ford president and chief executive, said in Ford’s second-quarter earnings call.

Automakers have been increasing their efforts to secure battery raw materials higher up in the supply chain, with demand expected to continue and rise in the coming years and as a way to manage sourcing risks associated with environmental, social and governance (ESG) factors.

“We think this strategy will mitigate risk, drive down costs and help us deliver upside volume opportunities,” Barra said.

US upstream hurdles

The scramble for more affordable supply comes as demand for battery raw materials, especially lithium, is expected to grow and outpace supply in the coming years.

According to Fastmarkets research, global apparent demand is forecast to jump from 722,000 tonnes of lithium carbonate equivalent (LCE) in 2022 to 934,000 tonnes of LCE in 2023. The market is forecast to be in a 60,000-tonne LCE deficit and expected to grow to an 89,000-tonne LCE deficit over the same comparison.

US EV demand significantly outpaces mined supply in the country, with Fastmarkets research estimating mined supply at 3,000 tonnes of LCE in 2022 while EV demand specifically is forecast at 31,464 tonnes of LCE. The gap is expected to widen in 2025, with mined supply at 18,180 tonnes of LCE and US EV demand at nearly 82,000 tonnes.

With the price of battery raw materials constituting such a high proportion of total pack cost, the choice of cathode materials is particularly important for original equipment manufacturers considering the recent price increases, according to Fastmarkets researchers.

For instance, Fastmarkets’ assessment of the lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price ddp Europe and US was $75-79 per kg Wednesday, unchanged from a week earlier but up by nearly 117% from the beginning of the year.

While both carmakers have focused on localizing mid-stream battery cell production in North America, localizing further upstream into lithium extraction in the region faces headwinds. Until more US supply comes online, market participants in North America will likely still be exposed to risks associated with sourcing lithium internationally.

New supply to feed battery cell manufacturers in the US is struggling to come online for now, with some new projects facing hurdles in receiving stakeholder support for mining permits.

“The biggest impediment to increasing US production is federal environmental permitting. Lithium resources are often found on Federal land,” Jordan Roberts, battery raw materials analyst at Fastmarkets, said.

“That means mining projects will be subject to the full range of the federal government’s environmental laws and public engagement requirements,” Roberts added.

Both GM and Ford have signed long-term deals with domestic US lithium miners to feed their cell production ventures.

Ford announced on July 21 a binding five-year offtake agreement starting in 2025 with lithium carbonate producer Ioneer for a total 7,000 tonnes of lithium carbonate from its Rhyolite Ridge operation, roughly 34% of Ioneer’s annual carbonate production from the project in the first three years.

The project is located on federal land north of Las Vegas, in the US state of Nevada, and faces opposition from the Center for Biological Diversity due to its potential impact on an endangered plant. The US Fish and Wildlife Service is proposing to designate 910 acres near the mine as a critical habitat for the plant.

Ford also announced on July 21 a non-binding memorandum of understanding with Compass Minerals for an unspecified, but “significant”, quantity of battery grade lithium product starting in 2025 from its Utah project. According to Compass, the project has existing permits, water rights and operational infrastructure for extraction.

GM signed an investment in Controlled Thermal Resources’ Hell’s Kitchen lithium mine, located in southern California. That deal will give GM first rights on the lithium produced by the first stage of the project and an option for a multi-year relationship. The project is scheduled to deliver 25,000 tonnes of LCE in 2024.

Visit our dedicated battery raw materials page to discover more insights on the factors at play in the industry in 2022 and beyond.

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