The European Green Deal – step forward with a dose of ambiguity

Hardly any industry benefits so much from The European Green Deal as lithium mining and processing. Companies in this industry will be considerable indirect recipients of €1 trillion Green Deal funds for sustainable investment. The money will flow to the lithium producers through two of the main elements of The European Green Deal:

No one will argue that it creates lucrative business opportunities for countries with vast lithium reserves, but at the same time, it puzzles the international community in terms of its dependence on few key players in the market.

Chinese dominance in a Lithium Supply Chain

At present, 2 of the top 3 lithium producers in terms of market capitalization are headquartered in China. Chinese companies are rushing to develop lithium projects in different parts of the world, most recently in South America. Additionally, multiple foreign lithium extraction ventures are de facto controlled by the Chinese government. All of this makes it obvious that The People’s Republic of China almost owns the industry (it is believed that China controlled 65% of the world’s lithium processing and refining capacity in 2021). The Chinese share in the lithium-ion batteries market can be even more astonishing, with estimates as high as 80% (this is partially driven by a large domestic demand).

How does Europe plan to solve its Lithium vulnerability?

This situation imposes an obvious parallel with European dependence on Russian gas and induces EU governments to take bold action. European progress in building a regional lithium supply chain is sending conflicting signals – on one hand, there are planned 35 more gigafactories in Europe by 2035 (totaling 65), on the other hand, according to the Fraser Institute Annual Survey of Mining Companies 2021, Europe is losing to competition in mining investment attractiveness.

Is Western world behind in battery production capacity? And why does it matter?

To make a lasting impact on the current lithium supply chain, Western democracies should approach the industry comprehensively, by contributing to the development of human capital, infrastructure, and other methods of increasing investment attractiveness for the business. So far, Europe and North America combined, have firmed plans for 48 new gigafactories. It gives 101 gigafactories in total, which is fairly little when compared to Chinese plans of having 226 operational gigafactories by the end of a decade with a total capacity of 4,500 GWh. According to World Bank estimates, to meet growing demand, the production of minerals, such as graphite, lithium, and cobalt, will need to increase by nearly 500% by 2050. With that in mind, there is a high probability that in case of escalation of geopolitical tensions in the future, tremendous domination of certain countries in the lithium supply chain can be weaponized similarly to weaponization of gas by the Russian Federation.

Final thoughts

In the end, we need to be clear – lithium is here to stay. Even the most promising battery technology of the future – solid-state batteries – include this material. The dominance of Western democracies in battery R&D is a great competitive advantage, but as the last 2 years have shown: Globalization in certain fields should go hand in hand with supply chain diversification and continuous risk analysis. Therefore, companies that are operating in the industry should examine the following:

• What should we learn from European gas dependence on Russia?
• What is the probability of geopolitical tensions in countries that are supplying lithium to the world?
• How severe will be the impact of hypothetical geopolitical tensions for the lithium supply chain?

Are we moving fast enough to diversify the lithium supply chain?

About the author

Vladyslav is an enthusiastic member of Council of Supply Chain Management Professionals organization, and is fulfilling a role of Board Member & Marketing Chair at CSCMP Poland.

Vladyslav’s professional career is focused on information technology used in SCM, especially Integrated Business Planning tools, advanced analytics, forecasting, and distribution network development. He is currently concentrated on the coordination of Supply Planning activities for the EMEA region in the FMCG industry (household batteries), overseeing various New Product Introductions and supply chain technology implementation projects.