McKinsey: Is the 2030 Battery Supply Sustainable?

The electrification of vehicles and the expansion of renewable energy technologies are mounting significant pressures on the supply chains of important raw materials.

This brings concerns about the sustainability and reliability of batteries.

Analysis from McKinsey shows that the demand for raw materials to crate batteries may soon surpass base-case supply, potentially requiring heavy investments.

Key raw materials under stress

Lithium, crucial for battery production, sees over 80% of its global reserves consumed by battery manufacturers. By 2030, this figure is projected to increase to 95%.

Innovations such as direct lithium extraction are progressing, yet demand continues to outpace supply, underscoring the need for accelerated technological advancements.

The soaring need for nickel, driven by its use in Li-NMC batteries for EVs, demands significant expansion in mining activities, especially in Southeast Asia.

Currently, 65% of class 1 nickel is utilised in stainless steel production, a competition that might exacerbate shortages as sectors vie for this essential resource.

In the Democratic Republic of Congo, which produces 64% of the global cobalt supply, demand is expected to grow by 7.5% annually until 2030, despite it playing a decreasing role in battery chemistry.

Challenges associated with cobalt include ethical sourcing and price instability, intensifying the need for enhanced transparency and sustainability practices.

Despite being plentiful, the refinement of high-purity manganese into manganese sulphate monohydrate (HPMSM) for battery usage is complex and demands stringent control to eliminate impurities.

McKinsey's production growth projections remain conservative with only a small fraction of demand anticipated to be met by 2030.

Supply risks and geographic concentration

McKinsey's report pinpoints geographical concentrations of raw materials: Indonesia is a key player in nickel, the DRC in cobalt and Argentina, Bolivia and Chile in lithium.

Additionally, refining these materials is predominantly undertaken in China, accentuating dependency risks for significant consumers like the EU and the US, who rely heavily on imports.

Various international trade restrictions, including China’s graphite controls and Indonesia's nickel ore export ban, further complicate supply stability.

To counteract these vulnerabilities, Western countries are promoting policies to enhance domestic production and reduce reliance on imported materials.

ESG concerns in battery raw materials

Environmental, social, and governance (ESG) considerations are increasingly integrated into supply chain management, driven by regulatory measures like the EU Batteries Regulation which aims to ensure sustainable life cycles for batteries—from material sourcing and production to recycling and reuse.

High concentrations of production in regions like China, which dominates the high-purity manganese and anode supply, pose transparency and sustainability challenges.

Additionally, around 40% of the emissions related to batteries originate from the extraction and refining stages, urging improvements in these areas to reduce overall environmental impacts.

Improving resilience in supply chains

Global events have highlighted the fragility of global supply chains with disruptions from natural events like hurricanes exacerbating shortages in critical materials such as magnesium, silicon and semiconductors.

In response, businesses are increasingly seeking strategies to diversify sourcing, boost domestic capacities and establish partnerships aligned with robust ESG standards.

Policymakers play a pivotal role by introducing incentives aimed at bolstering domestic production capabilities and reinforcing supply chain resilience.

As global efforts continue to shift towards sustainable energy, the balance between meeting supply demands and addressing environmental concerns represents a challenging yet vital endeavour.

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