Tesla Finally Has A Battery Competitor

CATL , the world's largest battery manufacturer, has announced it will begin production of a new 500 Wh/kg battery, which vastly exceeds existing maximum battery capacities from competitors like Tesla’s 4680 cells with a leading rating of 272-296 Wh/kg.

“The launch of condensed batteries will usher in an era of universal electrification of sea, land and air transportation, open up more possibilities of the development of the industry, and promote the achieving of the global carbon neutrality goals at an earlier date,” the company said in a presentation at Auto Shanghai on Thursday.

During the presentation, CATL said its working with partners on the development of electric passenger aircraft practicing aviation-level standards and testing in accordance with aviation-grade safety and quality requirements.

In addition to aircraft, CATL says it will soon launch the automotive-grade version of condensed batteries which it says will also go into mass production within this year.

Although not ready for mass production, researchers at the Argonne National Laboratory have developed a 1200 Wh/kg battery. However, these new batteries are still lithium-based, and the effects of rising demand for this metal are in stark contrast with the environmental goals of decarbonization.

Resource Scarcity

Lithium has been dubbed “white gold” due to its significant role in producing EV batteries. A single pack typically includes ten kilograms of lithium, which means that lithium is needed to produce nearly all types of batteries powering electric vehicles (EVs).

Still, lithium prices have been dropping, with Chinese lithium carbonate (one of the two main forms of refined lithium) more than halving this year. This is likely due to the slowing Chinese EV demand and the revision of recent high-priced battery supply deals.

Lithium Carbonate prices, CNY/tonne, Source: Trading Economics

Paul Gong, head of China automotive research at UBS, expects EV sales in China to rise by 35% this year, and JPMorgan Chase believes a rebound could tip the lithium market into a deficit in 2024. Additionally, the rising demand for lithium for energy storage, supported by green policies in America, Europe, and China, could make the market even tighter in the longer run.

South America (particularly Chile, Argentina, and Bolivia) has the largest global lithium reserves. The lithium mining industry in these countries has been criticized for environmental impacts, including the consumption of water, a scarce commodity in the region. It takes 500,000 gallons of water to yield one ton of lithium in Chile.

Global lithium reserves, 2010-2022, Source: Statista

Nationalization

Chile's recent nationalization of the lithium industry and Mexico's follow-up move to do the same have raised concerns among foreign investors. The trend could prompt these investors to turn to Bolivia, which holds the world's largest lithium reserves. However, Bolivia faces numerous challenges, including climate problems, food insecurity, and a shortage of skilled labor.

Meanwhile, China dominates the global lithium production industry, leaving the United States behind. South American countries seek to follow in the footsteps of Norway, which successfully enriched itself through oil resources. But, the region currently lacks the necessary technology, infrastructure, and human capital to do so.

Chilean law has also made it difficult for companies to gain concessions from the government since the dictatorship of Augusto Pinochet declared the metal a "strategic resource" for its potential use in nuclear bombs.

In Chile lithium exports in 2020 amounted to just $748 million—representing 0.3% of GDP and 1% of total exports. More broadly, the size of the markets is not comparable. Only two companies have permits to exploit the metal - Chile's $SQM and American Albemarle ($ALB), which pay up to a 40% sales tax on lithium mined in Chile.

Given this situation, it is likely that successful lithium production in South America will require a diplomatic solution that ensures sustainability and profitability. Some leaders have floated the idea of a global battery cartel similar to OPEC.

But, the global significance of Latin American lithium has been shrinking as growing demand drives exploration and the discovery of new deposits all over the world, dominated by Chinese investment. Any move toward a lithium cartel would likely just accelerate this trend.