Investment strategy of automakers and auto-battery alliances

The present-day principal driver in the Li-ion industry is the large batteries required for electric vehicles. Due to the size of these batteries and the relative growth of electric vehicles it is predicted that the total Li-ion energy capacity will exceed one tera watt-hour by 2030. This anticipation for a dramatically rapidly expanding industry has stakeholders all along the value chain very motivated to be ready.

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.

This drop has been an eye opener for most advocates of what was thought to be an unstoppable exponential growth industry.

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:

  • Volkswagen spending significantly in China (1.1 billion euros) for a 26.5% stake into Gotion Hi-Tech, and a 1 billion euros in JAC Motors. A 20% stake into Swedish cell manufacturer Northvolt AB and a 50% ownership of joint venture Northvolt Zwei in Germany. They have also secured long-term supply contracts with Korean battery maker SK Innovation.

  • Honda has taken an equity stake into CATL for the purpose of joint battery development focused on reuse and recycle design efficiency.

  • Daimler owning a 3% stake in Chinese-American Li-ion producer Farasis for supply security of high nickel Li-ion.

  • BMW has a 5-year cobalt supply deal with Morocco’s Managem Group and a supply contract with Northvolt, emphasizing responsible and sustainable sourcing.

  • Tesla purchased automation equipment manufacturer HiBar and ultracapacitor and electrode manufacturer Maxwell Technologies for strategic manufacturing processes advantages.

  • Samsung SD has taken a 40% ($39 million) stake in CAM producer EcoPro EM.

  • Chinese CAM producer Ningbo Shanshan took a 15% equity investment in Australian spodumene producer Altura Mining and a separate agreement for a five-year supply contract.  

  • SAFT and PSA have formed the joint venture Automotive Cell Company, (ACC) to manufacture Li-ion in Europe and Total (SAFT’s parent company) formed a joint venture with Chinese battery manufacturer Tianneng Energy Technology (TET) to expand Li-ion cell manufacturing in China.

  • Ionity, a joint venture between BMW, Mercedes Benz, Ford, Volkswagen, Audi and Porsche, was instigated to build a high-power charging network for electric vehicles along major highways in Europe. Ionity in turn formed a partnership with French electronics hardware provider Schneider Electric.

  • Australian company Neometals has teamed up with German company SMS to form Primobius for the commercialization of recycling technology.

  • Finnish clean energy provider Fortum has joined forces with BASF and Nornickel to close the lifecycle sustainability of Li-ion batteries

  • Canadian company Standard Lithium has entered into a joint venture with German chemical company Lauxess to create commercial production of battery grade lithium compounds at a US location.

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.

Used with permission of Benchmark Market Intelligence
Used with permission of Benchmark Market Intelligence

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.

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.