Why is graphite so hard for Western automakers to replace?

China is dominant in both forms. Natural graphite is mined; synthetic graphite starts from coal tar pitch or petroleum coke and is heated in furnaces to thousands of degrees. Sanderson says China's grip here goes beyond anything a single country held in fossil fuels, and that being ahead brings scale, which brings cost. That leaves Western buyers asking how to make a dent at all. Subsidies such as the Inflation Reduction Act are one answer, but the US recently extended the period in which carmakers can still use Chinese graphite, which he reads as a measure of how hard the shift is.

Can Europe meet its critical raw materials targets?

The targets are 10% of annual consumption extracted locally by 2030, 40% processed within the EU, 25% from recycled material, and no more than 65% from any single third country. Sanderson calls them very ambitious, mainly because the starting point is close to nothing. The policy exists; what he questions is the support behind it. Money in Europe and the US has gone to battery factories, while mining and processing sit waiting on permits. His example is a graphite mine in Sweden still waiting on a Supreme Court decision on an appeal, and time is the thing Europe does not have.

Who controls cobalt and nickel supply?

The Democratic Republic of Congo is what Sanderson calls the Saudi Arabia of cobalt, and Chinese ownership there has grown. China Molybdenum acquired the Tenke Fungurume copper and cobalt mine from Freeport-McMoRan during a downturn in copper prices, and has since passed Glencore to become the largest cobalt producer in the world. In nickel, Chinese companies have invested billions in Indonesia, converting the country's ore into battery material. He credits that willingness to put money in the ground while naming the costs: hand-dug cobalt including child labour, and Indonesian processing on a coal-based grid.

Does the rise of LFP remove the need for nickel and cobalt?

Not entirely. Sanderson notes that LFP was written off as a chemistry for low-range Chinese cars until BYD and CATL improved pack-level energy density enough for Tesla and other Western manufacturers to take it up, and it avoids both nickel and cobalt along with their supply chains. But different vehicles need different batteries. Trucks, and markets such as the US where range matters, still call for higher energy density, so he sees a continuing future for NMC and NCA. LMFP, which adds manganese, raises its own questions about whether new manufacturing lines are needed.

Is sodium-ion a realistic alternative to lithium-ion?

Not at today's prices, though he would not write it off. What he has heard is that lithium needs to sit at around 150,000 renminbi a tonne or above for sodium-ion to be economic, and that sodium cells can cost roughly double lithium-ion. With lithium low, the economic case is under question. His counter is that nobody can forecast commodity prices, and that low prices curtail investment now, which sets up the next rally. He also frames it as energy security: China wants a suite of technologies and fewer choke points, and stationary storage does not carry the demands of an electric vehicle.

Episode 142 · 7 September 2024 · 00:28:27

Mine to battery, and the emissions in between

Deep dive into battery supply chain with Henry Sanderson

The author of Volt Rush on why Australian lithium is roasted in China, what China Molybdenum's Tenke Fungurume purchase says about buying in a downturn, and why he still does not think globalisation is dead.

Read the article: Mine to battery, and the emissions in between

Henry Sanderson

Executive Editor, Benchmark Mineral Intelligence

Sanderson wrote Volt Rush, a book about the raw materials behind the clean energy transition and China's position in those supply chains. He previously covered commodities for the Financial Times and reported from Beijing for Bloomberg.

Recorded in London

What this episode covers

Lithium is dug out of big open pit mines in Australia, put on a boat to China, then trucked to a plant where it is roasted at high temperature using sulphuric acid. Henry Sanderson keeps returning to that route because it carries the argument behind Volt Rush: moving off fossil fuels is still an industrial process, with mines, furnaces and reagents attached. China accounts for over 65% of processed lithium, he says, which makes the trade look like iron ore and steel, an Australia to China relationship. The energy that goes into it lands as hidden emissions in the battery, and then in the car.

Graphite is the harder case. China is dominant in both natural graphite, which is mined, and synthetic graphite, which starts from coal tar pitch or petroleum coke and is then heated in furnaces to thousands of degrees. Sanderson describes that level of control as greater than anything one country held in fossil fuels, and notes that being ahead brings scale, which brings cost advantage. So the question for Western automakers is how to make any dent at all. He reads the United States extending the period in which carmakers can still use Chinese graphite as a measure of how slow the shift really is.

Europe's targets are on the record: by 2030 at least 10% of annual consumption extracted locally, 40% processed within the EU, 25% from recycled material, and no single third country supplying more than 65%. Sanderson calls those very ambitious given that the base is close to nothing. Permitting is the bottleneck he names, citing a graphite mine in Sweden still waiting on a Supreme Court decision on an appeal. A Chinese official had that week described the country's industrial parks as a well-stocked gym, which is his point about what the West gave away when it offshored: nobody to take the waste product, nowhere nearby to buy acids and reagents.

Cobalt supplies the sharpest example. The Democratic Republic of Congo is the Saudi Arabia of cobalt, and Sanderson traces how China Molybdenum bought the Tenke Fungurume mine, one of the best copper and cobalt assets anywhere, from the American company Freeport-McMoRan when copper prices had fallen. It has since overtaken Glencore as the largest cobalt producer in the world. Chinese firms have also put billions into Indonesian nickel processing. He does not soften what comes attached to either: people digging cobalt by hand, including children, and nickel plants running in a coal-based economy.

The rise of LFP caught out people who assumed it was only for short-range cars in China. Sanderson credits BYD and CATL with pack-level engineering that lifted the energy density far enough for Tesla and other Western buyers to adopt it, with LMFP adding manganese as a next step. He still sees a future for nickel and cobalt, because trucks and range-sensitive markets such as the US need the density. On vertical integration he is measured: BYD builds its own cells, semiconductors and vehicles, but most carmakers stop short of mining, with General Motors backing a US lithium mine as one of the exceptions.

Volatility runs underneath all of it. Lithium prices have swung hard, and his argument for integration is that a cell producer holding a lithium asset can carry it through a bad year, while a company with a single asset has to shut it down. Chinese firms have bought at the bottom of the cycle; Western investors turn cautious there instead. He does not think globalisation is dead, expecting a few areas such as rare earths to be walled off for military reasons and the rest to settle into joint ventures. On sodium-ion, he has heard that lithium needs to be at least 150,000 renminbi a tonne for the economics to work.

Questions from this episode

Why is so much lithium processed in China?: Because the West was happy to offshore it. Sanderson describes these steps as low value, energy intensive and polluting, exactly the work that got sent away, and China then mastered them. Spodumene is mined in Australia, shipped to China and trucked to a plant where it is roasted at high temperature with sulphuric acid. China accounts for over 65% of processed lithium on his figure, which makes it a mirror of the iron ore and steel trade. The cost came down, but the emissions went up, and they end up inside the battery and the vehicle.
Why is graphite so hard for Western automakers to replace?: China is dominant in both forms. Natural graphite is mined; synthetic graphite starts from coal tar pitch or petroleum coke and is heated in furnaces to thousands of degrees. Sanderson says China's grip here goes beyond anything a single country held in fossil fuels, and that being ahead brings scale, which brings cost. That leaves Western buyers asking how to make a dent at all. Subsidies such as the Inflation Reduction Act are one answer, but the US recently extended the period in which carmakers can still use Chinese graphite, which he reads as a measure of how hard the shift is.
Can Europe meet its critical raw materials targets?: The targets are 10% of annual consumption extracted locally by 2030, 40% processed within the EU, 25% from recycled material, and no more than 65% from any single third country. Sanderson calls them very ambitious, mainly because the starting point is close to nothing. The policy exists; what he questions is the support behind it. Money in Europe and the US has gone to battery factories, while mining and processing sit waiting on permits. His example is a graphite mine in Sweden still waiting on a Supreme Court decision on an appeal, and time is the thing Europe does not have.
Who controls cobalt and nickel supply?: The Democratic Republic of Congo is what Sanderson calls the Saudi Arabia of cobalt, and Chinese ownership there has grown. China Molybdenum acquired the Tenke Fungurume copper and cobalt mine from Freeport-McMoRan during a downturn in copper prices, and has since passed Glencore to become the largest cobalt producer in the world. In nickel, Chinese companies have invested billions in Indonesia, converting the country's ore into battery material. He credits that willingness to put money in the ground while naming the costs: hand-dug cobalt including child labour, and Indonesian processing on a coal-based grid.
Does the rise of LFP remove the need for nickel and cobalt?: Not entirely. Sanderson notes that LFP was written off as a chemistry for low-range Chinese cars until BYD and CATL improved pack-level energy density enough for Tesla and other Western manufacturers to take it up, and it avoids both nickel and cobalt along with their supply chains. But different vehicles need different batteries. Trucks, and markets such as the US where range matters, still call for higher energy density, so he sees a continuing future for NMC and NCA. LMFP, which adds manganese, raises its own questions about whether new manufacturing lines are needed.
Is sodium-ion a realistic alternative to lithium-ion?: Not at today's prices, though he would not write it off. What he has heard is that lithium needs to sit at around 150,000 renminbi a tonne or above for sodium-ion to be economic, and that sodium cells can cost roughly double lithium-ion. With lithium low, the economic case is under question. His counter is that nobody can forecast commodity prices, and that low prices curtail investment now, which sets up the next rally. He also frames it as energy security: China wants a suite of technologies and fewer choke points, and stationary storage does not carry the demands of an electric vehicle.

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Part of Raw materials and mining

Transcript

About this transcript. Generated automatically from the recording, then corrected against a glossary of company and guest names. It has not been checked line by line. Machine transcription mis-hears technical terms, numbers and names, so treat any figure here as a prompt to check the recording rather than a quotation of record. Spotted something wrong? Tell us.

0:00Introduction

Dr Simon Engelke

0:00And welcome everyone. Thank you so much for joining us for the Battery Insiders podcast today live from London. It's a really exciting time because in the world of batteries, there's a lot of momentum and a lot of topics are getting updated and you might have read about it. And there's a fantastic book called Volt Rush, which I personally very much enjoyed. And I'm extremely delighted to have actually the author with me today, Henry Sanderson, who actually wrote that book. So we're going to talk about this book. He's also, I think, a really fascinating person. He has been in lots of different positions. He's also the executive editor of Benchmark Mineral Intelligence, but also previously has been a commodities correspondent at the Financial Times, as well as before that, even with Bloomberg in Beijing, and actually just came back from a conference with Financial Times on the future of automotive. So I think it's a lot of momentum and I can appreciate the work you've been doing there as well. But now, welcome.

Henry Sanderson

1:04Thanks very much for having me.

Dr Simon Engelke

1:06Brilliant. So maybe we can dive in right away and talk about this book, Volt Rush. Again, I personally have told you I gifted it to many people, many Battery MBA lecturers or recipients and other friends of mine.

Henry Sanderson

1:16Thank you. I owe you a beer.

Dr Simon Engelke

1:17I will take you up on that on one day. And maybe if you could just maybe share a bit about what has been your thought behind it and also a bit of an overview for anybody who hasn't read it yet.

Henry Sanderson

1:27Yeah. So the book really came out of my experience writing about commodities, writing about mining, in combination with my interest in China and also in clean energy. And the book really tries to give readers a sense of how many of raw materials, the process of extracting, processing, mining raw materials, but also how many how we'll rely on raw materials for the clean energy transition. Because I think many people used to think, you know, moving from fossil fuels to clean energy would somehow, you know, not not involve industrial processes or minerals, raw materials, mining.

2:08What Volt Rush set out to show

Henry Sanderson

2:08But I think we the book tries to show that we'll need many more of these mined minerals to make all the clean energy technologies we require. And in addition, the geopolitics of the energy transition is being quite driven by these raw material supply chains. So the whole supply chain from mine to to battery. So the book really tries to combine these two things, which is let's open everyone's eyes to realize what this energy transition transition actually means in terms of building these new technologies. And secondly, the geopolitics of it and how China has taken a really, you know, very dominant role in these clean energy supply chains all the way from mine to to battery. So that's that's what I was trying to get across. But the book tries to be optimistic and hopeful. I don't think I could have written a book that says, you know, everything's bad because we are relying on on mined raw materials and there's problems in these supply chains. I try to be hopeful and optimistic because that's the way I want to think about it. And that's the way I want the world to move where, you know, we can improve these processes. In many cases, we can improve much easier than than with fossil fuels, such as recycling, which I'm sure we can talk about. So I try to say, open our eyes. And once we realize what what it requires, we can improve we can improve these supply chains and the geopolitics feeds in because once we localize and reassure, often we can improve these processes as well. So that's what I try to achieve.

Dr Simon Engelke

3:41No, I think. Yeah, I mean, as someone has been in the battery space and dealing with a couple of these topics, but I think you read really in depth and follow it. Also, there's the stories of these individual minerals. And I found this really fascinating. I remember I already mentioned to you one thing I really found fascinating was lithium, right? And lithium kind of roasting. I think you found great terms. I guess that's a way to do. And I kind of like, you know, taking the hard work from Australia and then being from China to this really energy intense process from a roasting and refining, etc.

4:09Lithium: Australia to China, and the roasting step

Dr Simon Engelke

4:10Maybe if you could share a bit more on that.

Henry Sanderson

4:11Yeah, so I think, you know, what the book tried to show is that all these supply chains are pretty energy intense. And, you know, China has dominated them in many cases because these were considered low value or energy intense polluting supply chains that we were happy to to offshore. And I think now the West is trying to reassure them. It's realizing how difficult it is to do these things, right? And how energy intense it is. And you need lots of sulfuric acid and all these other things. And China's really mastered the art of a lot of these processing steps in the supply chain. So if you take something like lithium, it's dug up from, you know, big open pit mines in Australia. And then, as you say, put on a boat to China and then truck to a processing plant where, you know, it's roasted to, as you said, high temperatures and uses sulfuric acid, etc. So all of this increases the carbon footprint of the battery and eventually the electric vehicle. So on the one hand, you know, China has got the cost down and managed to really master these supply chains. But on the other hand, there's a lot of, I guess, hidden emissions in these supply chains that ends up adding to the carbon burden of the electric vehicle. And what we need to do is, you know, as the EVs get scaled up, we've got to ensure that the supply chain is cleaned up and the emissions are reduced. Because we don't want to emit unnecessary CO2, right, in this process. So I think that's really part of it. But, you know, China accounted for, you know, over 65% of processed lithium. You know, so it's really like an iron ore and steel. It's this Australia-China relationship, right? So Australia produces, you know, the spodumene, the lithium that's dug up and China processes the lithium.

6:07Graphite, natural and synthetic

Henry Sanderson

6:07So, you know, people are trying to take a hard look at that supply chain now and find ways to improve it.

Dr Simon Engelke

6:15Fascinating. I think another kind of, you know, material, when we're talking about a lot of graphite, I think it's quite a hot topic right now. And all of OEMs having these challenges, trying to figure out, you know, how they can diversify the supply chains with the U.S. IA, right, trying to kind of also find ways out of China and realizing it's very difficult. Right now, maybe we could expand a bit more on graphite.

Henry Sanderson

6:35Yeah, so graphite is another mineral where China has, you know, almost absolute dominance. And again, this is way more than what we've seen in fossil fuels in terms of one country having, you know, control of the supply chain. And with China and graphite, it not only, you know, graphite can be man-made synthetic graphite or natural graphite, which is dug up and mined. But China is equally dominant in both. So the synthetic graphite, you know, is, you know, can come from coal tar pitch or from pet coke, petroleum coke. So it begins, you know, from that area. And then it gets sort of heated up, again, to thousands of degrees in these furnaces in China. And all this process is very carbon intense and has a big footprint on the eventual battery. So obviously, as we try to improve these supply chains, can you do synthetic graphite in a better way, using renewable energy, using other processes and natural graphite as well? Can we, can we, it can be mined elsewhere. So can we then process it elsewhere as well? But graphite is a huge problem for Western automakers, for the whole EV industry. If you're thinking geopolitically, right, if you're not, fine. But if you're thinking geopolitically, you know, how do you even make a dent in that market share that China has? And also, because they're ahead, they've got the scale, which gives them the cost advantage.

8:04Subsidies, de-risking, and how far to go

Henry Sanderson

8:05So how do you compete? And so the subsidies like the Inflation Reduction Act are one way to compete with China. But the U.S. has just the other day sort of extended the timeline for graphite. So giving automakers slightly longer time where they can use Chinese graphite. So that just highlights the difficulty of shifting these supply chains. So there's a real fundamental question for the West, which is, you know, what's required to do it, to recreate or to reduce reliance on China? What's required in terms of subsidies or policy? And then where are you going to focus your attention? And also, what is a comfortable level of de-risking or reducing reliance on China? So these are all sort of fundamental questions because we are now in a period where we need to decarbonize even more rapidly, right? You've seen the reports about the temperatures. But yet, you know, we have these geopolitical concerns. So how do we balance the two? That's a really fundamental issue.

Dr Simon Engelke

9:07Totally. And I mean, you know, pun intended, but like I feel it really has been a Volt Rush, you know, in getting lots of the synthetic graphite companies and startups going in Europe as well, I think. And all over from New Zealand to Europe and Scandinavia. I've seen a few of them pop up since also your book came out. So I think, you know, companies and startups are trying. But I think getting the capacities, as you said, just making a dent seems really challenging. But I think, again, we also have seen your regulation catching up since then as well, right? From your Critical Raw Materials Act, you know, having requirements on diversifying supply chains, don't have too much from one region. Precisely.

Henry Sanderson

9:43Yeah, so yeah, Europe set these quite ambitious targets where, you know, by 2030, they're saying at least 10% of the annual consumption should come from locally extracted minerals, but 40% processed within the EU. So that's a very high target, given that it's, you know, basically nothing now.

10:02Europe's raw material targets and the permitting problem

Henry Sanderson

10:03And 25% from recycled materials, also very ambitious. And then it says, well, no single third country should supply more than 65%. So, you know, obviously aimed at China. So, you know, the policy's there. But the question is, what are you going to do to support this policy, these targets? And I think in the US and Europe, we have seen a lot of money go to battery factories, to other parts of the supply chain. But it's the mining and the sort of raw material mining and processing that's so challenging. You know, permitting, getting approval for these projects. For instance, there's a graphite mine in Sweden and it's still waiting on a Supreme Court decision on an appeal to the mine. So it all takes a lot of time in Europe to kind of get it going. So that's the real challenge. And we don't have time, right? Time is the one thing that we don't necessarily have.

Dr Simon Engelke

10:58Totally. I was just recently in Brussels and definitely I've seen a sentiment, right, like that we need faster permitting. So I think people are aware and also I think, you know, on the regulatory side, I think there is momentum in this. But, yeah, momentum has to be fast.

Henry Sanderson

11:11Yeah. I think it's hard because, you know, as I say, China has a very good ecosystem, industrial ecosystem. And they have these industrial parks where, you know, you can get supplies of the acids and reagents and the infrastructure and the energy. I think a Chinese official called them this week like they're like a well-stocked gym. You know, you've got everything you need. And I think the problem with Europe and the U.S. is we've lost so many of these other industries. So what do you do with the waste product? Who's going to take that? Where do you get the, you know, the other supplies from? So you don't have that advantage that China has where the local government will say, oh, here's the industrial park. You know, we'll give you tax breaks. We'll, you know, so much of activity in China is on the local level as well where they give companies advantages in these industrial parks.

11:59Industrial parks and the ecosystem the West lost

Henry Sanderson

11:59So it's incredibly hard to replicate that sort of industrial ecosystem.

Dr Simon Engelke

12:04Which actually fun fascinating. I actually did another podcast a while ago where we actually spoke about these industrial parks for someone that's been in China setting up industrial parks, etc. We actually shared, for example, in Germany, there were a lot of these industrial parks before. It's in other industries, right? And they're kind of, as you said, they got a bit forgotten. It was more attractive to offshore it, right? And as you said, it's also kind of interesting how maybe there are sometimes full circle moments, it feels like. And then, you know, again, in China, it's also, you know, fantastic how things have been optimized, right? Some processes, etc. And really kind of, you know, again, and now kind of exporting it in other regions again. And really ramping up these industries. So it's kind of fascinating to see how things are, I think, then, also, when you look a bit in history. Right. How things tend to kind of not static. They're going back and forth in a way.

Henry Sanderson

12:47Yeah. And I think we're seeing this, you know, such a deep fundamental rethink in the West now about, you know, market economies and what's the role of the government. You know, we had so many decades of, you know, I guess neoliberal thinking. And, you know, the government was the problem, not the solution. But the problem was it all worked well while China was lower down the value chain and was doing all these things that were not particularly high value. But now it's like, well, wait a second. They have the whole clean energy supply chain, but they're also producing electric vehicles, high value electric vehicles with, you know, AI software, self-driving, etc. And exporting those vehicles. So they moved up the value chain. So they're massively threatening, you know, Germany and other countries. So this is the real issue. And they've used the advantages they've gained, you know, for many years making things lower down the value chain to improve the cost of the higher value things. So now it's a very difficult situation to compete with that. And I think it is sad in many respects because I think like Germany in the early 2000s was really driven by a desire to switch to renewable energy and also have industries that could export solar panels and other clean energy technologies.

14:04The rise of LFP, and LMFP next

Henry Sanderson

14:04And has really lost a lot of that business to China.

Dr Simon Engelke

14:08Yeah. So now we spoke a bit about lithium, right? We spoke a bit about graphite, two very important components, which also in the world of we're going more LFP and can talk about this implication as well in China. I think the other two technologies which could be somewhat competition would be sodium-ion, right, for lithium. And we can talk about lithium metal or maybe for graphite and silicon, which can reduce some of the graphite dependence. So there are, of course, approaches which could also maybe, you know, impact again some of the needs for that. Yeah. So we can talk about that. But also I want to make sure we talk about cobalt, maybe a bit of nickel, which of course is also more on the NMC side, right, and NCA side, which is still the high energy dense form. Again, LFP is a big challenger, I would say. And we've seen, you know, how we see the numbers getting pushed and the boundaries being pushed with LFP as well now. But maybe I also could share some of the insights on cobalt and then maybe on nickel.

Henry Sanderson

14:58Yeah, so I think you're right. We've seen an extraordinary rise of LFP. I think, you know, quite a few years ago people didn't really – people kept saying it was just for low-range vehicles in China. But actually – sorry, what we have actually seen is, you know, massive improvements by BYD and CATL, improving the, you know, pack level energy density, many other engineering improvements. So really improving the energy density of LFP to the point where now Western markets are adopting it, Tesla, others. So it's really become, you know, one of the key battery chemistries. And obviously without nickel and cobalt, you have a cost advantage and then you don't need these other supply chains. So I think it's got – the huge question is how much the West will adopt LFP and how much the NCM. And then you've also got chemistries like LMFP, so adding manganese to improve the energy density.

16:00Cobalt, the DRC, and the Tenke Fungurume deal

Henry Sanderson

16:00You know, how is that going to be produced? Do you need new manufacturing lines? How is that going to work out? So I think it's all to play for. And obviously if you talk about decarbonizing transport, there's lots of different – I mean, just look out the window here, right? You see trucks. You see – you know, there's lots of different vehicles, all of which will need different types of batteries. And the U.S. market as well – markets we're concerned about range will need high-range batteries. So I think when it comes to nickel and cobalt, we still definitely see a future, right? Because we need different types of batteries for different uses. And cobalt is really – you know, the Democratic Republic of Congo is the Saudi Arabia of cobalt. And what's so interesting is in my book I talk about this deal where CMOC, which is a Chinese mining company, which was partially owned by a local state-owned company, acquired a few years ago the Tenke Fungurume mine in the DRC, which is one of the best copper and cobalt mines in the world from an American company, Freeport-McMoRan. And now CMOC has overtaken Glencore to be the biggest cobalt producer in the world. And it's – obviously, copper is also critical to the energy transition. So I just think that's a fascinating example of how, you know, Chinese companies make acquisitions often in a downturn. So back then was when copper prices had fallen, and that's when they bought this asset. So anyway, cobalt, you know, the cobalt and copper are both really needed for the energy transition. So that's an example of China's sort of foresight there. And nickel as well. Chinese companies have invested billions in Indonesia to build out nickel processing, converting the country's rich nickel mines into, you know, material for batteries.

17:57Nickel in Indonesia, and what extraction costs

Henry Sanderson

17:57So, again, they've been quite far ahead in Indonesia as well. But all of these – but nickel and cobalt, you know, talk about in the book, which is some of the issues that come with extracting these minerals. So in cobalt, you have, you know, child mining, local people digging for cobalt by hand. And then nickel, you have, you know, the industrial parks they built in Indonesia. Yes, they put a lot of money in. And, you know, we wouldn't have EVs without nickel from Indonesia. But they have impacts on the environment. Indonesia is obviously coal-based economy. So, you know, now, as I said at the beginning, you know, we're trying to improve these supply chains. So these are all questions. And it's a question of, you know, we need the nickel now. We need the cobalt now. Yes, that's right. To make EVs, it's better to make EVs than not to. But also, how can we improve these supply chains? And I think, you know, it's very easy to say one thing about sustainability and et cetera and how great you are. But, you know, we still need money actually invested in the ground and people to actually build these plants and actually get nickel and cobalt produced. So, you know, credit to Chinese for doing that. And I think we need to see Western companies really build, you know, and engage and, you know, move forward with these plants.

Dr Simon Engelke

19:26I think one kind of theme there is vertical integration, right? And I think it's been interesting to see in automotive. And again, I learned from my automotive friends, you know, like essentially there was more integration in the past. Then it kind of became, you know, very supplier-based. Then Tesla kind of in the U.S. showed there's an approach again for vertical integration. And then we have companies down the battery space like, you know, CATL, but then also BYD even going from vertical integration from cells then to vehicles.

19:52Vertical integration, from BYD to General Motors

Dr Simon Engelke

19:53So maybe kind of some thoughts on that.

Henry Sanderson

19:56Yeah, I mean, BYD has shown this vertical integration strategy, right? They produce, you know, they're the only automaker, I think, that, you know, produces their own batteries. You look at the top two battery producers in the world, it's CATL and BYD. So it's extraordinary. They produce their own batteries, semiconductors, you know, many other parts. But I would say, you know, yes, they've invested in some raw materials. But I would say it seems that the automakers, often they stop at the raw materials. And we haven't seen Tesla invest in mines, you know, apart from offtakes. But we haven't seen automakers necessarily go to the mining sector with a few exceptions, such as General Motors investing in a lithium mine in the U.S. But yeah, so I think there is vertical integration. But again, we need investment in the raw material supply so that the whole supply chain works. And I think, yes, you know, China does have an advantage. Obviously, if you have these big companies like CATL, they also are vertically integrated to lithium mines, etc. So that helps the whole Chinese industry.

Dr Simon Engelke

21:08Yeah. And I think, I mean, vertical integration is fascinating, right? And I think, on the other hand, now we have seen automotives trying to more vertically integrate. Some of them you already mentioned. I'm fortunate to be involved in some of them as well. And I think, yeah, it's fascinating to see, I mean, PowerCo more on the sell side, right, from a Volkswagen group perspective. Then maybe ACC, right, more from Stellantis, etc. So there is approaches, but also it's not easy, right?

Henry Sanderson

21:29And I mean, not easy. And it wouldn't, you know, maybe we can go too far and everyone thinks they should try and do everything. I mean, obviously, it's very hard to produce batteries as well as EVs, right? So especially if you're starting out, you know, can you actually do everything? Maybe it's not so advantageous.

21:48Living with commodity price volatility

Henry Sanderson

21:48And maybe, you know, we should let those people who are good at, you know, mining or processing do that. But I do think the advantage is that the commodity cycles are so volatile. We've seen lithium prices hugely volatile, other commodity prices. So I think if you are vertically integrated, you know, you can better protect yourself from this volatility, right? So if you are a battery producer like CATL, you have a lithium asset, you know, yes, it might be uneconomic now, but you can afford to keep it going. And then it supplies you when, you know, it's good when prices are high, etc. So if you're just a company with one asset or just focused on one thing, you're incredibly vulnerable to volatility in prices, right? And you end up having to shut down the asset. And, you know, this is one of the key challenges at the moment, which is dealing with this volatility in commodity prices, right? And with low prices at the moment, with overcapacity in China, how do you make the investments now that we need? And as I said earlier, you know, Chinese companies have been good at investing, you know, when at the bottom of a cycle and when prices are low, whereas Western companies haven't been, you know, everyone gets much more cautious and money gets much more tight. And investors get much more cautious as well.

Dr Simon Engelke

23:11Maybe two final questions, right? One would be globalization, right? Like, is this kind of, in the battery world at least, are we moving towards more globalization or less? Connection you already mentioned before, there's kind of some trends. Any thoughts on that?

Henry Sanderson

23:24Yes, it's a good question. There's lots of talk of, you know, globalization being dead. I don't think so. I think there's still, you know, there's still massive advantages to have a globalized supply chain. You know, that's the way you get costs down. That's the way you, you know, encourage specialization and, you know, benefit from all the different talent around the world.

23:49Is globalisation over?

Henry Sanderson

23:50So what I see happening is, yes, you have this political drive to localize and, again, you know, I guess rewrite what's happened with globalization. But I just don't see that it will be able to harness all the sort of productive powers necessary to lower the cost and enable the energy transition. So I think more likely in my mind is that there will be some areas that, you know, will have to be prioritized, you know, such as rare earths because of military uses or other things where you have to support industries with government larges. But I do think for the rest of the industry, I think eventually we are going to come up with a model where we can benefit from from globalization while somehow reducing some of the geopolitical concerns, whether that's joint ventures or structures like that. But there's got to be, you know, some way of doing it where we don't give up all the gains we've made right in the last 20, 20, 30 years. Yeah.

Dr Simon Engelke

24:53Maybe like a final question, right, more on prices. Some lithium price went down a lot, right? So I think there's a kind of relief also, I think, for some of the industry. Of course, there's always a question, you know, what will be the future? I mean, also I think it impacted like technology such as sodium-ion, right, where I spoke to Automotive, so told me essentially, to be honest, we, you know, the price for us to make it, you know, useful for us, the price of lithium has to reach that number, 40,000 or something. So we don't really see this right now, so we're relaxed, so we focus on lithium now. Any thoughts on this, what you do in this really volatile world? Yeah, so that's right.

Henry Sanderson

25:26As I said, lithium volatility has been, you know, relief to some, problem to others, but generally just dealing with the volatility in prices, I think, is an issue. And I think with sodium-ion, you know, people say you'd need at least 150,000 ramibir ton lithium to make it economic. And what I've heard is sodium-ion, you know, costs can be, you know, double lithium-ion.

25:50Sodium-ion economics and energy security

Henry Sanderson

25:50So obviously at this moment, you know, what, you know, you could say the economic case is under question. But again, we don't know what lithium is going to be in a month, two months, a year, two years. You know, no one can forecast what prices are going to do. And I think, you know, in commodities, you do see these cycles where, as I said, now prices are low, so investments getting, you know, curtailed or withdrawn. So therefore that sets up for the next price rally and on you go, right? So I think, you know, pretty sure from China's point of view or for others, why not have sodium-ion as a, you know, you want a suite of technologies to make sure the energy transition is robust, right? And you don't have vulnerabilities, right? And it comes back to energy security, right? Look at Europe and Russian gas and look at COVID and supply chains. Like, how do you reduce these vulnerabilities? And I think, you know, China definitely thinks of electric vehicles, clean energy as energy security, right? So reducing oil imports, supporting the industrial, you know, renaissance and advanced manufacturing. But they want to reduce vulnerabilities and choke points as well, right? So how can you diversify the technologies, the supply chains? How can you mine more raw materials within China? You know, even if it's not economic, maybe that's something you'd want, again, when prices go high. So I think that's why I think other technologies are needed. And especially for energy storage, right, where you don't have the requirements of electric vehicles. But the big question is lithium-ion, we've had remarkable cost reductions because of the scale, right? And the question is what else can get you scaled up to reduce the cost? I think this is the tricky question because cost is so important.

27:45Closing thoughts

Dr Simon Engelke

27:46Absolutely. Henry, I could speak with you much, much longer. Unfortunately, we don't have the time for this today. I know we have to go. But yeah, I just really want to thank you for coming on the podcast. Funciting Insights. Again, I can highly recommend the book Volt Rush. You know, if you haven't read it yet, you probably want to read it. I, again, very much enjoyed it. And I know many of my friends did as well. Again, I want to thank you all for listening. My name is Simon Engelke, founder and chair of Battery Associates. And if you're interested, please follow us on YouTube and see more of these Battery Insiders episodes, but also on Spotify, Apple Podcasts or anywhere else where you listen to these podcasts. And again, thanks again, Henry, for coming on.

Henry Sanderson

28:17Thanks so much for having me.