Cathodes in the cold

Volkswagen (VW) now looks to be progressing its very own lithium ion battery megafactory and Tesla is shortlisting battery partners for its Shanghai Gigafactory 3. 

Meanwhile, Benchmark Mineral Intelligence’s Lithium ion Battery Megafactory Assessment now stands at 72 plants and 1.59TWh of pipeline capacity by 2028. 

With little fanfare we have quickly progressed from the Rise of the Battery Megafactories to the Dawn of the Battery Megafactories (in Planet of the Apes terms), especially considering that over half of these battery plants are now operational at multi-gigawatt-hour capacities. 

The world’s biggest car producers and battery companies are becoming increasingly aligned. 

VW have publicly stated that three of Korea’s Big Four of LG Chem, Samsung SDI, SK Innovation are on their “preferred suppliers” list along with China’s champion, CATL. 

Meanwhile, Tesla is going through a similar selection process for its Gigafactory 3 in China to add to its close relationship with Panasonic at the Gigafactory 1 in Nevada, the world’s biggest battery plant. 

For further evidence that gaps in the downstream links of the supply chain are narrowing, you could look at Panasonic’s effort to diversify from its Tesla-focused automotive battery business to create a similar looking partnership with Toyota. 

This also marks Toyota’s lurch towards lithium ion battery propulsion, perhaps a private admission that fuel cell commercialisation is not happening as quickly as the auto-juggernaut would like. 

Over in the south-east US, a quiet but very important downstream electric vehicle (EV) hub has been developing after Alabama secured Mercedes investment to build a $1bn EV plant and battery pack facility in Tuscaloosa. This inspired SK Innovation to build a 5GWh battery cell manufacturing facility in the adjacent state of Georgia. 

With these holy alliances being built between the larger corporations in the supply chain, the question remains: what does this mean for the guys in the middle… the cathode makers?

The industry’s leading cathode manufacturers have quietly gone about their business, enacting significant expansions in preparation for this battery arms race that the world is in the midst of. 

After all, Sumitomo had to keep pace with Tesla, Umicore had to lay the gauntlet down for the rest of the industry with significant expansions over the last 2 years, such as its plans for European cathode production in Nysa, Poland, due to begin in 2020. 

The cathode makers are the supply chain’s soldiers of speciality. 

By carefully selecting certain grades of lithium, cobalt, nickel, manganese and aluminium to mix in specific ratios of NCM and NCA, and in some cases blend, they are able to gain superior energy density and longevity properties for the lithium ion battery way beyond what the industry expected only a handful of years ago. 

This R&D step is the enabler of the 21st century lithium ion battery and EV performance. 

Yet the problem still remains: cathode makers are the smaller fish in a sea that is rapidly becoming an ocean – they do not hold the sway of industrial power in the supply chain. 

No cathode maker yet owns significant raw material resources of their own, they rely on the miners and chemical refiners for their supply. 

While it is true that Panasonic makes small amounts of its own cathode, this an anomaly more than a trend. It also accounts for only a fraction of its annual needs and is not a core strength of the electronics group. 

One possible and more immediate future is for the big cathode producers to get bigger. 

It is perhaps the only way to protect their industrial power as we see the EV blueprint build out over the next 5 years. 

The next step in cathode’s evolution is likely to be integration with the chemical producers, particularly lithium chemical makers that would like more exposure to the EV battery trend. 

Cathode manufacturing after-all is the key step in turning cobalt, nickel and manganese (or aluminium oxide) into the material that the battery producers crave. It is the key to unlocking long range and energy dense EVs. 

Owning this capacity at scale would be an ace card for those lithium chemical producers outside of the largest suppliers that have not yet locked up tier one resources. 

It would also be a way for the biggest lithium producers to increase their influence across the supply chain, albeit at the risk of shifting focus from a volume to a speciality approach. 

Conversely, a cathode major could spend big to buy up key battery raw material resources – especially lithium and cobalt – and begin the supply chain integration from the middle to the source. 

One thing is for certain, if cathode makers stand still, they will at best see their margins erode at the hands of the most powerful in the supply chain – the automakers demanding cheaper lithium ion batteries. 

At worst, smaller cathode producers will struggle to compete and likely go bust. 

Therefore, expect these supply chain specialists to begin their fight back soon and not slip quietly into becoming a proxy-toll-processor for the downstream. 

But don’t expect them to do it with much fanfare.