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EU battery 'passport' seen spurring more EV supply chain links with miners

New European Union legislation ushering in "battery passports" to ensure responsible mineral sourcing along the electric vehicle battery supply chain is expected to trigger more off-takes with miners.

Consultation on new laws covering batteries' full life cycle to reduce the social impact of Europe's battery industry "within and beyond" the bloc closed July 9. The legislation is slated to be enacted this quarter.

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Vulcan Energy Resources Managing
Director Francis Wedin.
Source: Vulcan Energy Resources

Francis Wedin, managing director of European Battery Alliance member Vulcan Energy Resources Ltd., expects the laws to include due diligence obligations for battery producers and manufacturers on the origin of raw materials for lithium-ion batteries.

The legislation, which previously focused on battery recycling, will effectively mandate the need for a "battery passport," he said.

The passport concept was introduced at a World Economic Forum meeting in Davos in January by the industry-led Global Battery Alliance and will start a trial phase in 2020. It will enable users to verify a battery's material provenance, chemistry and identity, and measure its sustainability and environmental impact.

Though Europe was previously expected to have 414 GWh of capacity by 2029, Wedin said its share by that point is now likely to be above 500 GWh following recently announced capacity expansions, which will give it the equivalent of the entire current global lithium-ion battery manufacturing capacity locally by 2029.

Benchmark Mineral Intelligence's projected 2029 megafactory capacity by region shows Europe with 16% of a 2,491.7 GWh per annum lithium-ion global production market.

Wood Mackenzie said in an Aug. 11 release that though Europe only accounts for 7% of global lithium-ion cell manufacturing capacity, it will reach 25% in 2030, with Asian manufacturers investing heavily in new plants there. The group cited Chinese battery maker Contemporary Amperex Technology Co. Ltd.'s Erfurt plant in Germany, South Korean chemical company LG Chem Ltd.'s Wroclaw plant in Poland and Samsung SDI Co. Ltd.'s Goed plant in Hungary.

European manufacturers Northvolt AB and Automotive Cell Company — a joint venture between TOTAL SE unit Saft Groupe S.A. and Groupe PSA's German subsidiary Opel Automobile GmbH — have also put forward "ambitious" plans to scale up in Europe and localize the battery supply chain.

"We understand from cathode manufacturers and other stakeholders that they plan to meet the demand for cathode locally," Wedin told S&P Global Market Intelligence.

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Miners attracting attention

Original equipment manufacturers, or OEMs, would focus on investments closer to home with money being scarce, according to Germany-based Christoph Stürmer, global lead analyst at PricewaterhouseCoopers' Autofacts consultancy.

However, he said they have been active in forward commodity contracts, citing Bayerische Motoren Werke AG securing supply deals for sustainable lithium from Australia in December 2019 and sustainable cobalt from Morocco in July.

"Between the cells and the mine, there are a whole lot of chemical plants to invest in ... but that's where other players are active, such as the global mining and chemicals groups," Stürmer told Market Intelligence.

Miners "should not have any problem attracting investments" given "the commodity business is much more profitable than automotive," he added.

Benchmark Mineral Intelligence's head of price assessments, Caspar Rawles, told Market Intelligence that Tier 1 cell suppliers are "hoovering up" long-term supply agreements and taking market share, while automakers are now entering joint venture plans with cell makers. "As the relationships between cell and automaker develop, these will become and stronger and likely be the course of the growing portion on cell supply," Rawles said.

He cited Germany's Volkswagen AG forming a joint venture with Sweden's Northvolt, which also inked a €2 billion EV battery cell supply agreement with BMW. Germany's Daimler AG also took equity in Chinese battery cell maker Farasis Energy (Gan Zhou) Co. Ltd. in July.

This trend has seen battery minerals explorers and developers shift towards carbon neutrality to attract major industry players' attention.

In this light, Wedin said that though it is "incredibly difficult" to secure permits for a normal mining operation in Europe, Vulcan's namesake project in Germany is essentially a geothermal power plant with a "bolt-on lithium extraction operation" with no open pit or underground mining, milling or crushing.

Wedin said he would not necessarily expect OEMs to invest in a mine or chemical plant, but an off-take prepayment investment, rather than a shareholder in the company or project, was more likely.

Vulcan inked an investment agreement with EU-backed KIC Innoenergy SE in July for staged cash investments into the junior, after Wedin presented to the European Commission and European Investment Bank in May alongside Volkswagen and BASF SE.