Analysis: Auto firms race to secure non-Chinese graphite for EVs as shortages loom

NextSource Materials

21/06/2023 07:00

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      EVs to account for more than half of mined graphite demand
    

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      Automakers seek supply from new Western graphite miners
    

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      Graphite biggest component by weight in EV battery
    

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      FACTBOX: Graphite companies and offtake deals  urn:newsml:reuters.com:*:nL8N38127E
    

  
    By Eric Onstad
       LONDON, June 21 (Reuters) - Automakers, including Tesla
and Mercedes, are rushing to lock in graphite supply from
outside dominant producer China, as demand for electric vehicle
(EV) batteries outpaces other uses for the mineral for the first
time due to soaring EV sales.
    Auto firms have been slow to plan for graphite shortages,
focusing mainly on better-known battery materials lithium and
cobalt, even though graphite is the largest battery component by
weight.
    Now, car makers are knocking at the doors of new producers,
such as Madagascar and Mozambique, as this year EVs are forecast
to account for more than 50% of the natural graphite market for
the first time, according to consultancy Project Blue. 
    Shortages of material produced outside of China will be even
more acute as legislation in the United States and Europe aims
to cut reliance on China for critical minerals. 
    "Automakers are in a real bind because there's been no
investment in Western graphite," said Mark Thompson, founder and
managing director of Australia's Talga Group Ltd  TLG.AX , which
plans to launch production next year in Sweden. 
    Each EV on average needs 50-100 kg of graphite in its
battery pack for the anodes, the negative electrodes of a
battery, about twice the amount of lithium.
    The main use of graphite has been in the steel industry, but
EV sales are due to more than triple by 2030 to 35 million from
2022, BMO Capital Markets forecasts.
    Graphite shortages are expected to rise in coming years,
with a global supply deficit of 777,000 tonnes expected by 2030,
Project Blue projections showed.
    About $12 billion of investment is needed by 2030 in 
graphite and 97 new mines required by 2035 to meet demand,
Benchmark Mineral Intelligence (BMI) said in a report.
    China produces 61% of global natural graphite and 98% of the
final processed material to make battery anodes, BMI said. 
    

    SUPPLY DEALS
    Talga group is seeking to supply automakers, such as Tesla,
Toyota and Ford, as well as battery producers such as Sweden's
Northvolt, Thompson told Reuters.   
    Tesla Inc  TSLA.O  and Northvolt did not reply to a request
for comment while Toyota Motor Corp  7203.T  and Ford Motor Co
 F.N  declined to comment. 
    Talga has already signed non-binding supply agreements with
two European battery makers that have links with Mercedes-Benz
 MBGn.DE , Stellantis  STLAM.MI  and Renault  RENA.PA .
    Mercedes said it was diversifying the sourcing of raw
materials, including graphite, and "have been in dialogue with
various suppliers for some time".
    "All the car companies are now scrambling to understand how
to source battery materials at the mine level," said Brent
Nykoliation, executive vice president of NextSource Materials.
    NextSource  NEXT.TO , which in April commissioned a mine in
Madagascar, is also in talks with auto companies, but said the
details were confidential.
    Tesla has been at the forefront in securing graphite, having
already agreed deals with Syrah Resources  SYR.AX , which
operates a mine in Mozambique, and with Magnis Energy
Technologies  MNS.AX .
    Syrah is building a U.S. processing operation, one of a
handful of plants being built outside of China that can
transform graphite for battery use.
    NextSource is building a processing plant in Mauritius while
Talga plans to construct a factory in Sweden.
    
    CHINA DOMINATES 
    Western processing operations, however, will grow slowly.  
    "China is still incredibly dominant in the graphite space
and we anticipate they will maintain dominance for years to
come," said George Miller, senior analyst at BMI.
    By 2032, China will still control 79% of production of a
type of processed graphite - uncoated spheroidised purified
graphite - compared to 100% in 2022, according to BMI.
    This Chinese influence on the market may make it difficult
for automakers who want to qualify for EV subsidies under the
U.S. Inflation Reduction Act.
    The IRA requires certain high percentages of battery
components to be produced in the United States, or in a country
with which it has a free trade deal.
    The European Union has proposed legislation that aims to
reduce dependency on any one country for any key raw material to
65% by 2030.
    Agreeing graphite supply deals is complex, requiring
extensive safety testing for material going into each model of
EV that can take up to three years.
    
    CARBON FOOTPRINT
    Western auto groups are focusing on deals with graphite
mines partly because it is around 55% less carbon intensive to
produce anodes with natural material compared to synthetic
graphite made from petroleum products.
    Natural graphite anodes tend to be cheaper and are
beneficial for cell capacity and power output, allowing cars to
run further distances before charging.
    There is also expected to be competition with the steel
industry, said analyst Reitumetse Chalale at Project Blue.
    Another anode ingredient is silicon, which also enables an
EV to drive longer distances before recharging.
    Currently, the maximum amount of silicon added to batteries
is about 10% because the material expands during use and can
degrade the battery.
    Companies are working on technology that would allow larger
amounts of silicon. If successful, that could be a threat to
graphite in the long term.

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Shortages looming of graphite for EV batteries    https://tmsnrt.rs/440tlyR
Graphite producers doing deals with automakers and battery
groups     L8N38127E 
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 (Reporting by Eric Onstad; Editing by Veronica Brown and Sharon
Singleton)
 ((eric.onstad@thomsonreuters.com; +44 20 7542 7093; Twitter https://twitter.com/reutersEricO;
 Reuters Messaging: eric.onstad.thomsonreuters.com@reuters.net))