In a previous blog, I wrote about the global rise in export restrictions on critical raw materials.  In the modern world of greatly increased geopolitical tensions, securing reliable access to critical minerals is becoming a key economic security consideration, vital to the success of the energy transition. However, currently, more than half of energy-related minerals are subject to some form of export controls and those restrictions are increasing in number and expanding in scope to cover not just raw and refined materials but also processing technologies, with implications for the smooth functioning of global supply chains.

The Role of Electric Vehicles in the Energy Transition

Electric vehicles play a vital role in reducing oil demand – and hence carbon emissions.  According to the IEA, in 2024, EVs displaced over 1.3 mb/d of oil in 2024 (equivalent to Japan’s entire transport sector oil demand today) – a 30% year-on-year increase. By 2030, EVs are projected to displace over 5 mb/d of diesel and gasoline.  Their impact on electricity demand is equally remarkable.  According to the same IEA report, in 2024, EVs globally consumed around 180 TWh of electricity (more than the annual electricity consumption of Argentina), representing a 60% increase on 2023.   

So Electric vehicles are key to the success of the energy transition.  And key to the success of the EV revolution is creating and maintaining access to reliable supplies of those rare earth metals and minerals on which EVs and their batteries depend (as well as the power lines, transformers, transmission cables and wind turbines that will create and transport the electricity). According to the IEA, EV battery deployment and storage applications, construction and the electrification of grids and industrial equipment between 2024-2040 will drive a fivefold increase in lithium demand; a doubling in demand for graphite and nickel; a 50-60% increase in demand for cobalt; and a 30% increase in demand for copper.

Mining Investment Response to Demand Signals – Perhaps too Effective?

The IEA calculates that the investment needed to meet this demand will be around USD 500 billion in new capital investment in mining between now and 2040, reflecting not only the scale of demand growth, but also the increasing capital intensity for new projects, driven partly by declining ore quality, particularly in more mature markets such as copper. 

The mining sector has already responded efficiently to this demand signal, with the production increase of battery metals at twice the typical rate seen in the late 2010s highlighting the sector’s ability to respond to demand signals more quickly than has been possible for ‘traditional’ metals (like copper and zinc). However, major supply increases in China, Indonesia and the Democratic Republic of the Congo have resulted in significant price reductions – lithium has fallen by over 80% since 2023, with graphite, cobalt and nickel prices falling by between 10 – 20% in 2024.

Whilst these price decreases are welcome in the short term, making batteries cheaper and bringing down the overall price of an electric car, they are not providing the right price signal to incentivise longer-term investment (lithium mines take an average of 16.5 years to develop).  Despite projections showing increased demand into the 2030s, mining spending only rose by 5% in 2024 (down from 14% in 2023).  And, although exploration spending continued to rise for lithium, uranium and copper, it declined for nickel, cobalt and zinc. The IEA’s projections show serious gaps between demand and supply by 2040 – depressing reading for those of us who believe that the energy transition cannot go fast enough.

Raw Materials and Processing is Overly Geographically Concentrated

And, unfortunately, the bad news does not stop there. The concentration of rare earths and metals in both mining and processing sectors has continued apace.  The average market share of the top three mining countries for key energy minerals rose from 73% in 2020 to 77% in 2024 and the average market share of the top three refining nations increased from 82% in 2020 to 86% in 2024 with 90% of supply growth coming from single suppliers – Indonesia (for nickel) and China (for cobalt, graphite and rare earths).

The geographical concentration of mining and refining poses a severe risk to global supply chains.  A few figures demonstrate this fragility.

• 93% of global lithium is mined in Australia, Chile, China and Argentina.
• 50% of global nickel is mined in Indonesia.
• 66% of global cobalt is mined in the DRC.
• 80% of global graphite is mined in China.

• 65% of global lithium is refined in China (and another 25% in Chile).
• 60% of the world’s nickel is refined in China and Indonesia.
• 75% of all cobalt is refined in China.
• 90% of the global graphite supply is refined in China.
• 84% of the world’s nickel is refined in China.
• 90% of the world’s RRE is refined in China.
• China produces 80% of global battery cells (even if all the other giga-factories come on line, China’s market share will only decline to 70% by 2030).
• China supplies almost 85% of global cathode active materials.
• China supplies over 90% of anode active materials.
• China controls 80% of lithium hydroxide output.

Global Lithium Supply is Constrained.

Lithium is key to the continued growth of the EV sector – demand is projected to grow by 500% by 2040. In 2023 annual demand for lithium was approximately 180,000 tons (a 27% increase on 2022).  In 2024, annual demand for lithium rose to 220,000 tonnes (a 29% increase on 2023).  The rate of lithium production increase is slowing and production is only just keeping pace with demand – 204,000 tonnes in 2023 (an increase of 23% from 2022) and 240,000 tonnes in 2024 (an 18% increase from 2023). The IEA projects that lithium demand will reach 700,000 tonnes by 2035, with supply from existing and announced mining projects only meeting 60% of that projected demand.

Given the efficacity of EVs in hydrocarbon displacement, they have become central to the energy transition. Reaching Net Zero by 2050 will require the production of around 2 billion EVs, which will require 16-20 million tonnes of lithium – or 100 million tonnes of lithium carbonate equivalent (LCE).   Since estimates of total global lithium supply hover around 22 million (105 million tonnes of LCE), there will be a severe supply crunch by the middle of the next decade, a crunch compounded by the fact that over half of today’s lithium production is in areas with high water stress or in areas liable to flooding (it takes 2.2 tons of water to make a ton of lithium).

The supply outlook for cobalt and copper is similarly alarming, with existing mines and projects under construction estimated to meet only 50% of projected cobalt requirements and 80% of copper needs by 2035.

What does this mean for Electric Vehicles?

According to the IEA, a typical EV requires six times the mineral inputs of a conventional car – a battery-electric vehicle contains around 207 kg of critical minerals (copper, lithium, nickel, manganese, cobalt, graphite, rare earths), compared to around 30–40 kg for a conventional vehicle, so a reliable supply of these materials is essential to the success of the EV industry.  

And the EV market is growing fast. In 2024, globally, over 17 million EVs were sold – a year-on-year increase of 25%. To give those figures some context, the difference between EV sales in 2024 and EV sales in 2023 was 3.5 million.  This difference is greater than the total number of electric car sold in 2020.  China continues to be the main driver (pardon the pun) of this growth, with annual EV car sales up by 40% in 2024 (again, to put that figure in some sort of context, the 11 million EVs sold in China last year is greater than the entire number of EVs sold worldwide in 2022).  In 2021, China accounted for half of global electric car sales.  By 2024, that figure was almost 66%, with EVs accounting for almost 50% of new cars being sold in China. By contrast, in Europe EV sales accounted for only about 20% of new car sales as sales growth slowed due to the phase out and reduction of subsidies and the lack of change in EU CO₂ targets for cars between 2023 and 2024.  There were some notable exceptions – in the UK 30% of all new cars sold in 2024 were EVs, up from 24% in 2023. And in Norway, the figure has reached 88%. EV sales growth in the US continued, but at around only 25% of the growth in 2023.  Interestingly, outside China, the EU and the US, EV sales grew by 40% in 2024, reaching 1.3 million new cars – just shy of the 1.6 million new EVs sold in the US in 2024.  

Electric vehicle demand obviously has an impact on battery demand, with EVs accounting for around 90% of the 1 TWh of battery demand recorded in 2024 (to put that figure in context, one average week’s demand in 2024 exceeded the total demand for an entire year in 2014).  By 2030, demand is projected to triple to reach 3 TWh, but current plans for 282 new giga-factories to come online worldwide by 2031, which would add around 5.8 TWh of additional battery capacity.

Since the most major component (and therefore cost) of an EV is its battery, the impact of raw material surpluses (and the projected future shortfall) is crucial for EV manufacturers. As noted above, high lithium supply levels pushed prices down in 2024 – prices for lithium-ion battery packs fell 20% in 2024, despite lithium demand in 2024 being about six times bigger than in 2015.  The low prices not only send an unhelpful price signal for longer term investment (introducing supply shock risk), but they also disincentivise new market entrants, which increases the level of raw material production concentration among established players.  And for EV producers, the high geographical and ownership concentration of processing in their supply chain increases the geopolitical and market distortion risk.

Although there are alternatives to lithium-ion batteries in the shape of sodium-ion and solid-state batteries, the technology is not (yet) widespread enough to reduce the risk of lithium under-supply to the market in the middle of the next decade.  And, whilst battery recycling will play a role in curbing cost increases, limitations on feedstock mean that it will take at least a decade until recycling plays a major part in reducing primary mineral demand – and even then, the IEA calculates that recycling used batteries would only could cut lithium supply requirements by about 10% by 2040.

And growing political risk is already exacerbating these supply side risks. Governments increasingly identify rare earth elements (RRE) and minerals as strategic industries, crucial to national security and are accordingly devising strategies to protect their national interests.  The rise of economic nationalism will do nothing to slow this phenomenon. The Australian government  established funds to support companies breaking into the market; the UK published its Critical Minerals Strategy in July 2022; and the EU’s Critical Raw Materials Act is aimed at stimulating EU production; designating key strategic projects for accelerated permitting; creating a one-stop shop for project authorisations; and encouraging measures to speed up national legal processes.  Access to raw materials became a flashpoint in the trade dispute between the US and China.

Conclusion

Electric vehicles have a vital role to play in the energy transition as the only realistic alternative to hydrocarbon transport that can currently be deployed at scale. Their efficacity at displacing diesel and petrol is already apparent.  However, EVs face a growing number of inter-related issues which potentially threaten their ability to play that role in the longer term.

Rising geopolitical tensions that increasingly characterise modern international relations (from invasions and border disputes in Europe, the Middle East and Asia, coup d’etats and rising Russian influence in the Sahel, to US-China economic and diplomatic strains) mean that competition for access to critical raw materials will increase – an acute competition which will be exacerbated by the coming supply crunch in the critical materials necessary for producing EV batteries. The geographical concentration of both production and processing compounds the geopolitics, not least as access to critical raw materials becomes a national security issue.  On top of these inter-connected risks, as producer countries seek to move up the value chain, export of (and therefore access to) critical raw materials will be affected, with Western companies increasingly caught in the cross-fire and subject to mis-and dis-information campaigns by hostile state actors seeking to ingratiate themselves with producer state governments in order to displace Western companies with their own.

Given this daunting combination of geopolitical and supply chain risks, it would not be surprising to find that the lifespan of EV market-dominance is limited.  Indeed, the compounding of risk suggests that, by the middle of the next decade, demand for alternative zero-emission vehicles, including hydrogen-powered cars, may overtake EV demand, meaning that the hundreds of millions of dollars of investment in bringing EVs to the market may face a much shorter pay-back period than had originally been envisaged by investors.

This fearsome combination of factors has significant implications for EV producers, miners and consumers alike.  Being able to navigate these ever-more complex geopolitical waters will mean the difference between commercial success and failure.