BMW has announced that it will buy cobalt from mines in Australia and Morocco as it makes further steps towards securing its supply of battery raw materials.
This follows on from BMW’s announcement in September last year that it had agreed a five-year supply arrangement to source lithium hydroxide from China’s Ganfeng Lithium. It was only earlier this month that another OEM – Volkswagen – signed a memorandum of understanding with Ganfeng. These signs suggest auto manufacturers are treating battery raw material supply with more urgency as they undertake bold electric vehicle strategies.
In cobalt’s current low-price environment OEMs are trying to lock up supplies and finalise long-term supply deals. Pricing terms for this particular deal remain unknown but were likely negotiated at the market low in mid-March.
Discussion surrounding cobalt is usually focused on the Democratic Republic of the Congo (DRC), which is responsible for three quarters of global production. BMW, amongst other OEMs, had looked closely at sourcing cobalt from the DRC but has, for now at least, decided to source from elsewhere.
However, BMW’s countries of choice – Australia and Morocco – both have limited production capacity.
In 2018 the combined cobalt production of the two countries was 5,000 tonnes, which is enough cobalt to produce approximately 350,000 electric vehicles. To put that into perspective the BMW Group sold approximately 2.5 million vehicles in 2018, of which 140,000 were electrified models.
BMW will have potentially paid a premium for this material compared with the price they could have achieved by sourcing DRC cobalt hydroxide.
The group’s actions could potentially initiate the start of a premium market for non-DRC cobalt within the downstream industry. As the limited amount of non-DRC production is locked up in long-term deals by cell manufacturers and auto makers, producers with non-DRC operations will take the opportunity to command higher prices.
Whilst this may occur in the near-term, the trend is unlikely to continue for long as highly price sensitive automakers will find themselves competing for units with alternative industries, such as superalloys, which are far less price sensitive.
The reality is it will be extremely challenging for large scale automakers to avoid sourcing some (if not the majority) of their cobalt from the DRC without further investment in cobalt development projects elsewhere.
There is no love lost between automakers and cobalt – OEMs do not like the supply chain risks and ethical issues associated with cobalt. There is also a battle between cobalt and nickel, with current trends moving towards increasing nickel content in cathodes, at cobalt’s expense, as OEMs pursue higher energy density batteries such as NCM 811 (nickel, cobalt, manganese). For these reasons, OEMs have publicly announced their desire to reduce cobalt’s use in battery cells and to ultimately remove altogether.
But as the nickel content in a battery cell increases, and cobalt decreases, there are safety implications for batteries which have not been overcome. Therefore, cobalt will remain a key material in the supply chain and will not be engineered out of batteries for the foreseeable future, despite the discomfort of OEMs. BMW’s latest announcement is a prime example of this.
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