To stay on track for a net-zero scenario, every dollar invested into fossil fuel-based energy supply needs to be matched by an investment of five dollars into renewable energy sources all the way until 2050, believes Dev Ashish Aneja.
In this article, Dev Ashish (Vice President C4V & Ex-Head of EVs & Batteries at Invest India), tracks the recent investments made into battery upstream and emphasises the need for OEMs to start vertical integration of the battery value chain.
Investments are pouring into clean tech
Global Climate Tech VCs invested over $ 70 Bn in green start-ups in CY 2022, up 89% YoY. Climate Tech Venture investment is now 40x larger than it was a decade ago. As of 2 January 2023, there are 83 Climate Tech Unicorns around the world who are now collectively valued at $180B+. 2022 saw a new Climate Tech Unicorn every two weeks on average, with a range of public market exits, SPACs a popular route as the traditional IPO proved challenging more broadly.
Storage grabbed ~30% of these overall climate investments ($18.4 Bn), and the battery value chain took the lion’s share in the overall storage space.
The global Li-ion battery market is expected to grow with an annual CAGR of over 25% during this entire decade and grow from a mere 250 GWh in 2020 to over 4500 GWh in 2030. About 86% of this demand will be driven by EVs and 9% by stationary storage applications.
OEMs need to secure battery material access
As the world transitions towards an electrified future and demand increases for batteries, a resilient and sustainable supply of battery materials has become a major priority for Auto OEMs, Energy companies, Battery manufacturers and Governments.
EVs are getting much simpler with 10X fewer parts- most of the value is being driven by batteries and chips. Global OEMs are wanting to be electrochemists and chip designers themselves. They are fighting to secure a sustainable supply chain. On top of this, the battery market is becoming more and more consolidated. The top four battery makers account for over 70% market share globally.
Battery market consolidation is bad for OEMs. Global OEMs don’t want Asian players such as BYD, LG Chem & CATL to have significant market shares, which gives them too much pricing power.
Thus, vehicle OEMs are clearly seen making upstream investments and nurturing smaller battery players which can potentially increase competition. I am not saying that OEMs should become miners themselves. However, they need to take significant steps to secure their battery material supply. Sign binding supply agreements, pre-pay for the projects, do direct equity investments or whatever it takes to not only secure the supply but also control the raw material price to the best extent possible.
If these upstream investments don’t come quickly, the vehicle OEMs are risking their downstream investments (vehicle manufacturing plants). Learning curves tend to be much longer in the upstream battery materials industry. Over and above this, the time taken to put up an upstream plant is much longer than a downstream facility. Lack of timely investments on the upstream side will result in idle capacities for cell manufacturing plants & vehicle OEMs globally.
This trend is already started to happen internationally, with Tesla and BYD doing their vertical integration. Recently GM announced an investment of $650 Mn in Lithium America’s Corp to develop Thacker Pass in Nevada (the largest known supply of lithium in the US). Similarly, Stellantis has formed partnerships with companies such as Terrafame Ltd (Nickel Sulphate) & Vulcan (Lithium Hydroxide).
Would we see a similar trend in the Indian OEMs?
Especially now that we have identified 5.9 Mn tonnes of lithium deposits (it will take time and effort to ascertain the quantity and feasibility of profitable extraction), will India see a similar trend? For India to fulfil its ambitions of “Atmanirbhar Bharat,” we need a localized battery supply chain. PLI Schemes are doing their part in terms of enhancing the scale & localized content in EVs and Batteries- we have seen commitments from a few large Indian companies to build giga factories. However, we need more companies with proven technologies & credentials to come and set up material processing plants and, eventually, even extraction technology plants. I am sure 2023 will be another blockbuster year for the Indian EV & Battery industry, and we will continue to surpass the growth forecasts predicted by all major consulting firms.
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