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The race for European lithium supply is on

As carmakers ramp up electrical vehicle plans and plants, the race is on to get greener, closer-to-home raw material supplies
The race for European lithium supply is on

Prospective European battery makers and car companies have started playing musical chairs with very limited local lithium supplies. The new focus on the whole supply chain and its emissions is a major opportunity for local miners but also shows just how much investment is needed in the battery space for Europe to get anywhere near China, the dominant player globally. 

In the first week of December, Volkswagen (Ger:VOW) signed a deal with a German lithium mining company that could cut a hefty proportion of the carbon emissions associated with making each electric car. The opportunity to buy lithium mined (or extracted, to be more accurate) from within Germany was too much to pass up, even if Vulcan Energy (Aus:VUL) is only in the early stages of bringing its geothermal brine project into production. 

The space is evolving quickly, though. Savannah Resources (SAV) saw this in the first half of the year, after a heads of agreement deal with Galp Energia (Por:GALP) expired in May without the outlined investment and offtake deal happening. Savannah said its options had widened after the big increase in the lithium price between January and May. 

Galp has since announced plans to build a €700m (£600m) lithium processing joint venture with Swedish battery maker Northvolt in Portugal, so there will at least be plenty of local demand if not a formal sales agreement with Savannah. 

Consultancy Wood Mackenzie has forecast that the European Union (EU) has more than enough planned battery manufacturing capacity to meet estimated electric vehicle (EV) demand in the coming years, but energy storage analyst Anna Darmani said building local mines and processing would help fortify the industry’s capabilities. “Europe’s nascent battery industry is highly dependent on the import of critical raw materials... creating risk to the supply and security of this industry,” she said.  “Europe needs to import more than 75 per cent of its needs from other regions, mainly mined through ESG-challenging, carbon-heavy processes.” 

The dealmaking activity in recent months has largely focused on local raw material supply. VW has been making deals with miners for years, but was also seeking massive quantities from companies such as Glencore (GLEN). Now carmakers and companies trying to establish green credentials are looking at funding mines and processing facilities to get things moving. Billions in EU funding across the supply chain will also help. Savannah, for one, is looking to part-fund its mine with green EU funding. 

There is a long way to go until the region is self-sufficient. Still, the EU has a head start over the UK given its more advanced lithium mining and processing options. The UK standouts on the battery manufacturing front are Britishvolt and Nissan’s Sunderland operations. 

The mines are seemingly further from fruition, with private company Cornish Lithium announcing its mineral resource estimate in December. There are usually years in between this step, which is a regulated statement of how much lithium might be in the old Trelavour clay china pits, and a mine being brought into production. 

Gresham House new energy managing partner Ben Guest told Investors’ Chronicle he was “not optimistic” about the UK’s prospects in the EV race and its existing planned capacity. “We need a lot more, frankly,” he said. 

According to industry consultancy Benchmark Mineral Intelligence, Britishvolt will have around 20 gigawatt hours (GWh) of capacity by 2030 and Nissan around 25GWh. Combined, this is still less than the forecast for the Northvolt plant in Sweden and just over half the size of Chinese giant CATL’s Erfurt plant in Germany, which Benchmark estimates will have capacity of over 80GWh in 2030. 

This and other projects, largely in Eastern Europe, will increase the continent’s global share from under 7 per cent of global lithium-ion capacity (around 51GWh) in 2020 to 11.7 per cent in 2025 and 15.8 per cent in 2030, a continually growing slice of a much larger pie. 

Benchmark’s 2030 capacity forecast for Europe is equal to around 780GWh. Wood Mackenzie puts this number far higher, at 1.3GWh, although as above cautioned that not all plans would become a reality. Just under half of the projects factored into that forecast have been announced, while 42 per cent are under construction and 9 per cent are already in operation. 

The country with the biggest slice of the market will remain China. Its battery producers also buy most of the world’s EV-related raw materials: lithium from Australia and South America, cobalt from the Democratic Republic of Congo and nickel from Indonesia.  

The Northvolt/Galp deal, announced in December, showed the European drive to make as much of a car as possible on the continent. The €700m plant in Portugal will help. It should provide enough lithium hydroxide for 700,000 EVs a year when up and running, forecast for 2026. 

 

As for the UK? 

Guest, who runs the Gresham House Energy Storage Fund and is a buyer of lithium-ion, said the country should aim for other areas of green investment and innovation, be it hydrogen, carbon capture or other storage technologies such as vanadium flow batteries.