The COVID-19 effect
Over the last nine months the Li-ion industry has not been alone in battling the effects of COVID-19 along with serious global trade wars. According to the China Association of Automotive Manufacturers (CAAM), new electric vehicle production decreased 36.5% year-over-year between January and June. This drop has been an eye opener for most advocates of what was thought to be an unstoppable exponential growth industry. Governments and industry have been shocked into re-thinking issues around globalization, the intricacies and consequences of building a huge new industry and the need for national security and self-sufficiency.
New relationships to mitigate complexities
A great flurry of intricate weaving of memorandums of understanding, joint ventures, partnerships, equity investments, mergers and acquisitions are all happening now and will continue into the near future. These new relationships can serve to mitigate complexities particularly in logistics, reduce risks and leverage individual companies’ strengths. They can also give access to larger markets, increase manufacturing capacity, improve knowledge and broaden technology but most importantly create new avenues for strategic financing.
In recent years and months we have seen:
Billions invested in the Li-ion value chain
Not all joint ventures are successful as the challenges faced by AESC, a li-ion battery manufacturing joint venture between Nissan, NEC and Tokin, can attest to. But the apparent necessity for integration through the battery value chain is undeniable and the proof is in the billions of dollars that have been invested.
While eye-watering sums have already been invested in the Li-ion value chain, hundreds of billions more are still needed to build the industry that would be capable of producing the batteries and electric vehicles to meet decarbonization and electric vehicle sales goals.
Benchmark Mineral Intelligence suggests that over $550 billion must be invested into the supply chain.
Electric vehicle value chain is different
OEMs increasingly understand how the electric vehicle paradigm and its value chain is different than that of traditional ICE manufacturing. They are required to have more control up through the value chain, relying less on Tier1 and Tier2 companies to do the heavy lifting and especially concerning the financial success and growth of the supply chain.
A resilient supply chain depends upon successful capital accumulation and capital allocation. With recent stresses on the automotive industry due to COVID-19, the liquidity of capital is not obvious. The question of where the money will come from has never been so profound.
The answer lies in an unprecedented collaboration of governments, banks, venture capital, equity and wealth funds, existing players and new entry industries such as oil and gas. But it won’t be easy. Impatience on the part of investors for stability and expected returns in a low-margin industry will bring challenges.