[US-China Economic War Series] III. Reorganization of the EV Battery Supply Chain and Measures to Secure Critical Minerals

I. Introduction

The global EV battery supply chain is undergoing rapid changes. The global supply chain for electric vehicles, with electric cars as the final product, is also referred to as the "EV battery supply chain" as battery component manufacturing is recognized as its core stage, and it can be described as a complex global supply chain involving many countries worldwide at various stages.

As analyzed in the US Inflation Reduction Act (IRA), the EV battery supply chain can be broadly divided into stages concerning critical minerals and constituent materials, battery components, cell manufacturing and pack assembly, EV production, and end-of-life battery recycling.

The most significant recent change surrounding the global EV battery supply chain is that supply chain powerhouses aiming to dominate the future plans of traditional automotive industries and the global EV battery supply chain, such as the United States, Europe, and Japan, are expected to face considerable challenges and disruptions. In terms of the global EV battery supply chain, the area where the United States, Europe, Japan, and South Korea exhibit the most strength and can generate the most added value is likely EV production. However, China's pursuit in EV production and exports is intensifying. China surpassed Germany in total automobile exports, including internal combustion engine vehicles and electric vehicles, in 2022, and in 2023, it became the world's largest automobile exporter, overtaking Japan.

China's remarkable progress in EV production is attributed to its low-cost EV battery manufacturing. Typically, the cost of building a battery factory in China is reported to be $50 billion per gigawatt-hour (GWh), while outside China, it ranges from $70 to $80 billion, and in the US and Europe, it exceeds $120 billion, more than double the cost in China. Numerically, it is virtually impossible for countries outside China to achieve production competitiveness comparable to China's EV battery prices.

Battery cell manufacturers are dominated by four companies from China, three from South Korea, and three from Japan, accounting for 90% of the global market. The United States and the European Union (EU) lag significantly in battery technology and production capacity. US Tesla and European EV manufacturers are focusing solely on battery pack assembly, the final stage of the battery supply chain, while battery raw material mining, processing, material production, and battery cell manufacturing are primarily conducted in South Korea and China. US and European battery cell manufacturing plants may be able to catch up to China at a relatively fast pace. The most significant factors influencing the entire EV battery lifecycle are securing and processing critical minerals and constituent materials.

This chapter aims to focus on analyzing the critical minerals and constituent materials supply chain stage within the global EV battery supply chain, comparing it with other supply chain stages. The most prominent vulnerability in the EV battery supply chains of the United States, Europe, and Japan, and South Korea is the securing of critical minerals and the processing of constituent materials, which are reportedly dominated by China with a 70-80% share. The current supply chain involves Chinese companies investing in mines located primarily in developing countries in Latin America, Southeast Asia, and Africa, mining the resources, bringing them to China, processing them into critical mineral compounds just before they are used in battery components, and then exporting them.

Significant changes are already occurring and will continue to diversify in the critical minerals and constituent materials supply chain stages due to the recent enactment and enforcement of the US IRA and the EU's Critical Raw Materials Act (CRMA). The first change is that the US and Europe are establishing various legal and institutional frameworks to restrict the indiscriminate use of Chinese minerals by EV battery companies, which has been a common practice. The differentiation of products using Chinese materials through a battery mineral and component origin certification system is driving changes in the battery supply chain via the subsidy incentives of the IRA. Since the passage of the IRA, there have been significant investment changes globally. Companies that left the US due to high taxes and labor costs are considering investments in North America to meet component ratio requirements and are investing in mining development in countries like Canada, Australia, and Africa, excluding China, to secure primary raw materials. The most important critical minerals referred to here are rare earth elements and the five key battery minerals: lithium, nickel, cobalt, manganese, and graphite.

The second change is that critical mineral mining and processing in developed countries such as Australia, Canada, and the United States are emerging as a new trend, moving away from the developing country mining practices that have been characteristic of global resource development. Developed country companies, which previously only engaged in resource development overseas with capital and technology, are now turning their focus inward, emphasizing environmentally friendly development.

The third change is that resource-rich developing countries, such as those in Latin America, Southeast Asia, and Africa, which are traditional development regions, are exhibiting tendencies toward industrialization and resource nationalism, aiming not only to supply raw materials but also to simultaneously develop processing capabilities and manufacturing of final products like electric vehicles.

II. Reorganization of the Global EV Battery Supply Chain

1. Global EV Production and Exports

The adoption of electric vehicles is rapidly increasing. In 2022, the total number of electric vehicles registered worldwide reached 10.83 million, a 61.3% increase from the previous year. According to a report by SNE Research, global EV deliveries were projected to be around 14.78 million units in 2023 (Kim Sung-eun, 2021/10/13).

<Figure 1> Global EV Adoption Scale

Source: Kim Sung-eun, 2021.

Furthermore, the EV penetration rate (the proportion of EVs in total vehicle sales), which was only around 1% from 2015 to 2017, reached 13% in 2022. The demand for secondary batteries for electric vehicles increased from 28 GWh (gigawatt-hours) in 2015 to 492 GWh. SNE Research projects that by 2035, annual global new EV sales will reach approximately 80 million units, with a penetration rate of about 90%. Consequently, the demand for secondary batteries for electric vehicles is expected to grow from 687 GWh in 2023 to 5.3 TWh (terawatt-hours; 1 TWh equals 1,000 GWh) by 2035.

<Figure 2> Global EV Battery Demand and Supply Outlook

Source: Kim Sung-eun, 2021.

McKinsey & Company recently presented an optimistic forecast in its "2030 Global EV Battery Outlook," projecting battery supply to reach 4.6 TWh by 2030 (McKinsey & Company, 2023). The most intriguing aspect of the McKinsey report is its projection of the total value creation from upstream to downstream in the EV battery industry by 2030 to be $400 billion, with a breakdown by value chain (<Figures 3> and <4>).

China's rise is the most significant change in the global EV ecosystem. The transition from internal combustion engines to electric vehicles required new battery technologies, motors, permanent magnet components for motors, critical mineral mining and processing, and new value chains and supply chains, including battery components. Excluding Tesla, the world's largest EV manufacturer, most major EV manufacturers are Chinese. General Motors (GM), Ford Motor Company, and Volkswagen are rapidly transitioning to EV manufacturing, but none have made a significant impact in the Chinese EV market except for Tesla (Chang and Bradsher, 2023).

<Figure 3> McKinsey 2030 Global EV Demand Outlook

Source: McKinsey & Company, 2023.

<Figure 4> McKinsey 2030 EV Value Chain Outlook

Source: McKinsey & Company, 2023, p. 3.

As of the end of 2022, global EV sales surpassed 10 million units for the first time. The proportion of EVs in the overall automotive market also increased to 14%, a tenfold increase in just five years since exceeding 1 million units in 2017. China is the world's largest EV market, with approximately 6 million units sold. Following China, Europe recorded 3.2 million units in new sales as of the end of 2022, the US recorded about 700,000 units, and North America, including the US, recorded 1.3 million units.

When the market share of electric vehicles in new car sales exceeds 5%, it is considered the tipping point where mass adoption occurs without external assistance such as subsidies. Norway, a leader in EV adoption, surpassed the tipping point in 2013 and has now achieved an EV market share of over 80%. Developed countries like China, France, and Germany have subsequently reached the tipping point. The global tipping point for EV adoption is expected around 2025, signaling an imminent full-scale transition to e-mobility.

On July 5, 2023, the Financial Times reported extensively that BYD sold 641,000 units in the first half of 2022, surpassing Tesla's sales of 564,000 units. The remarkable development of Chinese EV manufacturers is not limited to the domestic Chinese market but is extending to the global market.[1]Led by BYD, Chinese EV manufacturers have already signed dealer agreements to establish local sales networks in various countries, exporting not only to the European automotive market but also to Australia, the Middle East, Latin America, and Southeast Asia. 40% of China's automobile exports go to Europe. While it was common for European automakers to produce in China and sell in the Chinese market, this is the first time that automobiles manufactured in China are being exported to Europe.

A significant reason for the export of Chinese-made EVs to Europe is the gradual reduction of subsidies in the Chinese EV market. The European automotive market still has a tariff of only 10%, contrasting with the 27.5% import tariff on Chinese imports imposed since the Trump administration, and subsidies for EVs remain in place.

As exports of EVs manufactured in China, including those produced locally by companies like Tesla and those manufactured in China and Europe by Chinese EV companies, gradually expand, the EV transition will lead to China's dominance in the global automotive market. This signifies a seismic shift in the traditional global manufacturing structure where the US, Europe, and Japan imported consumer goods from China and exported high-end automobiles to China.

The rise of Chinese EVs bears similarities to the emergence of Japanese automakers like Nissan, Honda, and Toyota in the 1980s. On July 10, 2023, Reuters reported on rapid changes occurring in Thailand. Since 2020, China has invested $1.44 billion in Thailand, including investments from BYD and Great Wall Motor, initiating a new automotive industry history in a market historically dominated by Japan. Thailand is the largest automobile producer and exporter in Southeast Asia and the second-largest market after Indonesia. Japanese automakers have held dominant influence here for decades, treating it as an extension of the Japanese market. However, the changes in the Thai automotive market have been triggered by Chinese automakers' strategy to increase exports and establish overseas production hubs in response to the highly competitive Chinese EV market (Ghoshal and Kongkunakornkul, 2023).

Thailand aims to convert approximately 30% of its annual vehicle production to EVs by 2030, aspiring to become an EV production hub in the Southeast Asian region, and is aggressively pursuing investments to achieve this goal. In 2022, 850,000 new electric vehicles were registered in Thailand. From January to April 2023, BYD of China was the market leader, recording 7,300 units out of a total of 18,481 EVs sold, followed by China's SAIC, EV startup Hozon, and Tesla. In contrast, Toyota Motor's EV sales are negligible.

In February 2023, MIT Technology Review published a two-part series on how China has come to dominate the global EV market (Yang, 2023). The author of this article, Zeyi Yang, emphasizes that for the first time, Chinese EV companies have the opportunity to expand their business beyond China and become global brands. Despite legislative measures such as the IRA and CRMA, the entry of Chinese EVs and batteries into the European market will continue, and it is projected that entry into the US market, currently blocked, will eventually occur.

According to a recently published report by the Center for Strategic and International Studies (CSIS) in the US, from the American perspective, the strategic threat posed by the rapid advancement and exports of Chinese EVs lies in China overcoming its long-standing strategic vulnerability of importing automobiles from the US and Europe and relying on US supply chains even for oil. It is becoming increasingly likely that the opposite will occur in the future, with the US and Europe importing Chinese EVs and becoming dependent on China's dominance in EV components and raw materials such as critical mineral mining and processing.

In the future, the two major powers in the global automotive market centered on EVs will be the United States and China. The Chinese domestic automotive market appears to be somewhat saturated due to excessive competition, and the US EV market, which is just beginning, will soon inevitably become saturated. Chinese and US EV companies will clash in large markets such as India, Brazil, and Indonesia. Indonesia is already attracting Chinese investment for EV factory construction. The reason why the US, Europe, and Japan must integrate and build cooperation platforms in the Indo-Pacific region is that this area will be where EVs, batteries, digital technologies, AI, and semiconductors will be integrated into the market in the future (Mehdi and Moerenhout, 2023).

The US government has set a target of 50% EV share in new sales by 2030 and announced an enhanced EV target of 67% by 2032 on April 12, 2023. The California state government already has a ban on internal combustion engine vehicle sales by 2035, and the Biden administration's future actions are expected to align federal policy with the California government's 2035 ban. The industry projects the US EV penetration rate to be approximately 17% by 2026. If the Biden administration's plan is followed, it will surge to 50% by 2030 and then jump again to 67% by 2032.

This EV proliferation landscape holds significant implications for the US-China hegemony competition. The competition for technological supremacy between the US and China will reach its peak between 2026 and 2030, with EVs and secondary batteries, not just semiconductors, leading the charge in advanced industries. The US, recognizing that it is difficult to close the gap with China through conventional commercial methods, is pursuing EV battery catch-up through national security measures and other means. It can be seen as a plan to catch up from a game where they are currently losing 8-1 in the first inning to a score of 8-5 in the fifth inning. To continue the baseball game analogy, they are envisioning a scenario where they win 11-10 in 2040.

2. Battery Components

The most critical component in an electric vehicle is the battery cell, which accounts for about 40% of the vehicle's cost. China produces most of the components used in batteries. China produces 74% of separators, 82% of electrolytes, 92% of cathode materials, and 77% of anode materials. Lithium-ion batteries generate electricity through an electrochemical reaction where lithium ions move between the cathode and anode. In an assembled battery, lithium resides in the cathode, and during charging, lithium from the cathode moves to the anode through the electrolyte, which acts as a medium for lithium ion movement. During discharge, lithium from the anode returns to the cathode, and the resulting electron flow through an electric circuit supplies electrical energy. To prevent a short circuit caused by the cathode and anode directly touching, a separator is placed between them.

The capacity and voltage of a battery are determined by the cathode and anode, which directly participate in the reaction; these two materials are called active materials. The most important and expensive battery component is the cathode material. Among battery components, cathode material is the most difficult and energy-intensive to produce. Cathode materials serve as the source of lithium supply for the battery. To store unstable lithium, they are in the form of lithium transition metal (Co, Ni, Mn, etc., elements from periods 4-7 and groups 3-12 of the periodic table) oxides, which can stabilize lithium by combining it with oxygen. LiCoO2 (LCO), the first commercially successful and most representative cathode material, was proposed by Nobel laureate Professor John Bannister Goodenough.

Although LCO is one of the ideal cathode materials due to its high theoretical capacity, density, and voltage, and stable structure, it faces challenges in achieving high energy density. Furthermore, due to the high cost of cobalt, the material is expensive, making it difficult to apply in large-format batteries for electric vehicles that demand lower prices. Consequently, the proposed cathode material is the ternary cathode material Li[NiCoMn]O2 (NCM). However, an increase in nickel content within ternary materials degrades both the safety and stability of the battery. Nickel ions, which change to a tetravalent state during charging, react with the electrolyte, generating gas, and continuous gas generation can lead to battery explosions.

China has led in LFP cathode materials. LFP batteries have lower energy density but are cheaper and safer from fire hazards compared to NCM (nickel, cobalt, manganese) ternary batteries. Domestic battery manufacturers have focused on NCM batteries because they can travel longer distances on a single charge. LFP batteries do not contain expensive raw materials like nickel or cobalt, making them 30% cheaper than ternary batteries like NCM and reducing the risk of explosion. However, they have drawbacks such as lower energy density due to their heavier weight, resulting in shorter driving ranges (Kim, 2023).

When producing a 50 kWh battery pack, the cost of cathode material for NCM811 batteries is $1,570, while the cost for LFP is $1,087. Due to supply chain instability and soaring raw material prices caused by COVID-19 and Russia's invasion of Ukraine, EV manufacturers are turning their attention to 'LFP batteries.' This is because advancements in design technology can somewhat compensate for their perceived weakness in energy density.

As the development of cathode active materials reaches its limits, anode materials have begun to gain attention. Since the anode must receive lithium from the cathode, the battery must be constructed with an anode electrode that has a capacity equal to or greater than the cathode electrode. Therefore, even anodes that do not contain lithium can improve the battery's energy density when developing high-capacity materials. Generally, graphite is used as the anode material. Graphite materials are divided into natural graphite, obtained from nature, and artificial graphite, made by processing coke, a byproduct of fossil fuels, at high temperatures. Natural graphite is inexpensive and has high capacity, but its output characteristics and lifespan are disadvantageous. Furthermore, it expands significantly during charging, causing a swelling phenomenon that can lead to safety issues. In contrast, artificial graphite has advantageous output characteristics and lifespan but is expensive and has lower capacity. For this reason, batteries for electric vehicles have used either natural or artificial graphite depending on the purpose, and recently, a combination of both materials has been used to construct the anode, leveraging their respective advantages (Benchmark Source, 2023).

<Figure 5> BYD South America Battery Supply Chain

Source: Benchmark Source, 2023.

3. Critical Minerals and Constituent Materials

According to the research firm SNE Research, South Korean battery manufacturers, led by LG Energy Solution, SK Innovation, and Samsung SDI, hold a 44% share of the global EV battery market. China ranks second with a 33% market share, followed by Japan with 17%. The problem is South Korea's excessive dependence on Chinese raw materials. According to government data recently cited by domestic political circles, domestic battery manufacturers rely on Chinese products for over 60% of key battery materials such as cathode materials, anode materials, separators, and electrolytes.

Domestic cathode material manufacturers do not import 'nickel, cobalt, and manganese' (NCM), which are key battery minerals, separately. Instead, they import compounds pre-mixed and processed by Chinese companies at specific ratios. From January to July 2022, South Korea's dependence on China for its total precursor imports was confirmed to be 94%. Precursors are combined with lithium hydroxide to form cathode materials, and 84% of the lithium hydroxide used is also imported from China.

In 2022, South Korea's trade balance with China turned to a deficit for the first time in 20 years. This is significantly related to the surge in imports of EV battery-related items. As South Korea's EV industry grows, the structure of increasing dependence on China is solidifying, leading to a worsening trade balance with China. According to statistics from the Korea International Trade Association, the item with the largest trade deficit with China from January to July 2022 was precursors (nickel, cobalt, manganese compounds). During the same period, the total deficit for battery-related items exceeded $6.3 billion (8.5 trillion won), surpassing last year's deficit of $5.7 billion.

This is the first time that the trade deficit with China in lithium-ion batteries has ranked first. As both domestic EV sales and exports increased, imports of Chinese batteries also surged. Hyundai Motor primarily sources batteries produced by LG Energy Solution and SK On from its Chinese plants, while Kia used CATL batteries from China for its new Niro EV launched in June 2022. Hyundai Motor Group's EV sales (180,000 units) increased by 72% compared to the same period last year, with the full-scale export of the Ioniq 5 and EV6 launched in 2021.

Domestic companies have begun investing in chemical materials and components required for EV batteries to reduce their dependence on Chinese mineral resources. LG Energy Solution has announced an investment of $5.2 billion (approximately 6.2 trillion won) in battery material production, and steelmaker POSCO is building a domestic plant to extract lithium hydroxide, a key battery material. They are also constructing battery plants overseas, in countries like the United States and Hungary, to diversify geopolitical risks.

Efforts are also being made to produce lithium, a key battery material, domestically. POSCO Holdings aims to become one of the top three global lithium producers by 2030, with an annual lithium production of 300,000 tons. This is expected to secure a significant portion of the lithium required by domestic battery manufacturers.

LG Chem, the second-largest cathode material manufacturer in South Korea, plans to secure 65% of its lithium and 50% of its nickel requirements domestically by 2028. To this end, it will receive 50,000 tons of lithium ore from North America annually for four years starting in 2023. This volume is sufficient to produce 500,000 EVs.

LG Energy Solution and the LX/POSCO/Huayou Cobalt consortium are constructing a nickel smelter with an annual capacity of 150,000 tons in Indonesia, which has the world's largest nickel reserves. This capacity is sufficient to produce 3 million EVs. Separately, POSCO Holdings began constructing a nickel smelter in Indonesia with a capacity for 1 million EVs early last month and plans to complete a 500,000-unit capacity nickel smelter in Gwangyang in the second half of the year.

On June 29, 2023, POSCO International signed a contract with a subsidiary of Australia's Black Rock Mining to supply a total of 750,000 tons of natural graphite from Tanzania over 25 years. Last year, South Korea imported 48,000 tons of natural graphite, the primary raw material for battery anode materials, of which 96% was imported from China. Supplying an average of 30,000 tons per year from Tanzania, which has the world's second-largest natural graphite reserves, could somewhat alleviate dependence on China.

On February 27, 2023, the Ministry of Trade, Industry and Energy announced the 'Measures for Responding to Critical Mineral Supply and Demand Crises and Stabilizing Supply Chains.' Under these measures, the government designated 10 major strategic critical minerals: lithium, nickel, cobalt, manganese, graphite, and five types of rare earth elements (cerium, lanthanum, neodymium, dysprosium, terbium). In addition to these 10, 33 other items, including copper, aluminum, and niobium, were selected for intensive management as critical mineral items (Lee Yoon-ju 2023). While the origins of strategic critical minerals are diverse, including Chile, Australia, Turkey, and Vietnam, their processing and refining are concentrated in China, with the exception of nickel. As of 2021, South Korea imported 84% of its lithium hydroxide for secondary batteries, 97% of cobalt sulfate and manganese sulfate (raw materials for cathode active materials), and 54% of rare earth elements for electric vehicles from China. The government aims to reduce the import dependency on specific countries for strategic critical minerals to below 50% by 2030 and increase the mineral recycling rate from the current 2% to over 20%.

4. Battery Recycling

Among the value chain segments, the battery reuse/recycling industry is experiencing the fastest growth. In March 2023, McKinsey Consulting released a new report on the battery recycling industry. Currently, waste batteries are generated from defective products during battery manufacturing, but in the future, they are expected to be generated in large quantities from electric vehicles.

<Figure 6> McKinsey 2030 Electric Vehicle Battery Recycling Industry Outlook

Source: McKinsey & Company 2023, 2.

According to SNE Research, the global market size for recycling electric vehicle waste batteries, which was only KRW 400 billion in 2020, is projected to expand to KRW 21 trillion by 2030 and KRW 87 trillion by 2040. Furthermore, the battery recycling market size, which was 14 GWh in 2020, is expected to grow at an average annual rate of 40% to 92 GWh by 2025 (9% of battery demand) and 415 GWh by 2030 (approximately 14% of demand). This figure surpasses the average annual expected growth rate of the global electric vehicle battery market, which is 34% during the same period.

<Figure 7> Global Electric Vehicle Waste Battery Generation Outlook

Source: Park Sang-wook 2022

Various institutions have presented different forecasts for the domestic generation of electric vehicle waste batteries. According to data from the Korea Energy Economics Institute, approximately 80,000 waste batteries are expected to be generated in 2029. The potential residual value of resources recovered from domestic electric vehicle waste batteries is estimated to reach approximately KRW 200 billion in 2029. The Korea Institute of Geoscience and Mineral Resources predicts that after 2035, when waste battery recycling increases due to the expansion of electric vehicle adoption in Korea, the self-sufficiency in core raw materials required for battery production will surge. Based on the Ministry of Environment's '2030 Electric Vehicle Adoption Target,' domestic electric vehicle adoption was set, and by applying trend lines, the estimated generation of waste batteries is projected to be 18,000 tons (40,000 units) in 2030, 90,000 tons (184,000 units) in 2035, and 225,000 tons (406,000 units) in 2040. Specifically, it is projected that by 2045, approximately 20,000 tons of lithium hydroxide (LiOH), 21,000 tons of manganese sulfate (MnSO4), 22,000 tons of cobalt sulfate (CoSO4), and 98,000 tons of nickel sulfate (NiSO4) can be recovered through the recycling of electric vehicle waste batteries. These figures represent 28%, 41 times, 25 times, and 13 times the import volume of these raw materials in 2022, respectively.

The 20,000 tons of lithium hydroxide recoverable from waste battery recycling in 2045 is analyzed to be sufficient for manufacturing approximately 630,000 new NCM811 batteries. Assuming a battery capacity of 100 kWh, which is expected to be predominantly used after 2030, the capacity of 630,000 batteries would be 63 GWh, double the current domestic secondary battery production capacity of 32 GWh. For the NCM622 model, 560,000 units can be produced. Based on cobalt sulfate, 430,000 NCM622 units or 970,000 NCM811 units can be manufactured.[2]

Overall, through global battery recycling, the total annual demand for cobalt, lithium, manganese, and nickel could decrease by 3% in 2030, 11% in 2040, and 28% in 2050. Assuming a transition to LFP and high-nickel NMC cathode materials, the total demand for cobalt and manganese will increase at a slower rate than lithium and nickel. Therefore, recycling will be able to meet a larger portion of future demand for cobalt and manganese compared to lithium and nickel. The annual demand for cobalt and manganese mining due to recycling will decrease by 10% and 7% in 2030, 19% and 16% in 2040, and 34% and 31% in 2050, respectively. The demand for lithium and nickel will only decrease by 1% and 2% in 2030. This difference is because recovering lithium from battery recycling is more challenging than recovering cobalt, manganese, and nickel. The cumulative demand for battery minerals from 2020 to 2040 will be 11 to 12 million tons for lithium, 48 to 55 million tons for nickel, 3 to 4 million tons for cobalt, and 5 to 6 million tons for manganese.

In waste battery recycling, the economic viability may be insufficient depending on the battery type and metal value due to the high cost of the pre-treatment stage. However, it has been confirmed that economic feasibility can be improved through secondary recycling after primary reuse. To date, there is no evaluation data on the economic feasibility of reuse, but some experts state that economic feasibility is insufficient due to excessive safety assurance costs and the lack of economies of scale.

Regarding recycling costs, for a 50 kWh battery pack, approximately $18/kWh is incurred for dismantling/discharging ($3.2), transportation ($1.4), disassembly ($3.3), recycling pre-treatment ($2.5), and post-treatment ($7.6). The recycling pre-treatment refers to the process of creating black powder, and this cost excludes the purchase and diagnostic evaluation costs. Currently, the Korea Environment Corporation is offering a policy with a 50% discounted price to promote the sale of used batteries.

Recycling batteries can reduce refining costs compared to mining natural minerals, and diverse profitability can be generated depending on the battery type. For NCM811, the material cost accounts for 71% of the total cell manufacturing cost as of 2020. Among electric vehicle batteries (LFP/NCM811/NCM622/NCM111), recycling NCM111 generates the highest profitability at $42 per kWh (approximately KRW 53,000), while the profitability of LFP batteries is expected to be the lowest at approximately $15 (approximately KRW 19,000). Recycling a 24 kWh ternary battery can generate sales of $600-$900 per pack (approximately KRW 760,000-1,140,000). The highest lithium concentration found in mines is 2-2.5%, whereas the concentration of lithium extracted through recycling is 4-5 times higher, allowing for the acquisition of high-concentration raw materials.

III. South Korea's Strategy for Securing Critical Minerals

To diversify import sources for critical minerals and establish a supply chain independent of China, it is essential to actively expand supply chains to 'Altasia' (Alternative Asian Supply Chains), including Southeast Asia and Central Asia. Furthermore, cooperation in mineral supply chains should be strengthened with countries participating in the Indo-Pacific Economic Framework (IPEF), led by the United States, which includes 14 nations.

Indeed, trade volumes in minerals and other goods with these countries are gradually increasing. According to the Korea International Trade Association, Vietnam is the sixth-largest country in terms of domestic imports, followed by Malaysia (10th) and Indonesia (12th) among the top-ranking countries. Moreover, Indonesia ranks first in nickel reserves, and Uzbekistan ranks seventh in tungsten reserves, indicating high potential. The government has also been actively securing supply chains by recently signing Memoranda of Understanding (MOUs) or Trade and Investment Promotion Frameworks (TIPFs) for cooperation in critical mineral supply chains with countries such as Mongolia, Uzbekistan, and Indonesia.

On June 15, 2022, the United States launched the Minerals Security Partnership (MSP), a multilateral forum aimed at stabilizing and diversifying critical mineral supply chains. The MSP includes 11 countries: the United States, the United Kingdom, Germany, France, Canada, Japan, South Korea, Australia, Finland, Sweden, and the European Union (EU). The first ministerial meeting of the MSP was held in New York on September 22, chaired by Secretary of State Antony Blinken. In addition to the 11 MSP partner countries, eight critical mineral producing countries also attended: Argentina, Brazil, the Democratic Republic of Congo, Mongolia, Mozambique, Namibia, Tanzania, and Zambia (Jeong Jong-hoon and Lee Woo-rim 2023).

In terms of securing critical minerals, South Korea should leverage the IPEF and MSP to strengthen cooperation in battery minerals with North American countries like Canada or FTA partners like Australia. Simultaneously, to diversify supply sources currently dependent on China, cooperation with countries in Africa, Latin America, and Southeast Asia must be enhanced. In the short term, strategic stockpiles should be expanded, and domestic critical mineral production bases should be established. Private companies should be encouraged to secure stable critical mineral supply lines through long-term off-take agreements, and in the medium to long term, the network with resource-rich countries should be restored within the framework of overseas resource development. The mineral provisions of the US Inflation Reduction Act (IRA) may be based on the location of mineral refining rather than mining, in which case, technologies for refining rare earths, lithium, and nickel must be strengthened.

In November 2022, Bloomberg New Energy Finance (BNEF) announced its global battery supply chain assessment, where China ranked first for the third consecutive year, followed by Canada in second place. BNEF annually ranks the top 30 countries based on 45 measurement metrics across five themes related to the lithium-ion battery supply chain. Each ranking is determined by five categories: raw material supply and availability; battery cell and component manufacturing; environmental, social, and governance (ESG); industry, innovation, and infrastructure; downstream mineral-related activities including exploration, mining, smelting, and manufacturing; and local demand. The final ranking is then determined.

In the rankings, South Korea placed second in battery manufacturing, following China, but ranked 17th in raw materials, tying with Germany for sixth place overall. Canada's ranking saw a consistent improvement of 2 to 9 places across four categories compared to 2021, securing top positions in all areas and ultimately ranking second. Canada's rise to second place is noteworthy, especially given the increasing risk of dependency on Chinese raw materials.

On December 9, 2022, the Canadian federal government released its first Critical Minerals Strategy. Canada ranks fifth globally in graphite and nickel production and plans to expand lithium supply by building infrastructure to meet the growing demand for critical minerals.

The Canadian Critical Minerals Strategy highlights the entry of South Korean companies POSCO and LG Energy Solution into Canada. In May 2022, POSCO Chemical signed a final agreement with GM of the United States to establish Ultium CAM, a North American cathode active material joint venture worth CAD 500 million in Quebec. The two companies are expected to build a stable supply chain for the North American battery market through this strategic collaboration model between an automotive company and a battery materials company. In September 2022, LG Energy Solution signed MOUs with Canadian junior mining companies Avalon Advanced Materials Inc. and Snow Lake Resources Ltd. to secure lithium hydroxide, a key battery material, starting in 2025. Additionally, LG Energy Solution entered into a three-year agreement with Electrica Battery, which owns the only cobalt sulfate refining facility in North America, to receive 7,000 tons of cobalt sulfate annually starting in 2023.

Australia's mining industry, which possesses abundant critical minerals, is a major national industry accounting for 10% of its Gross Domestic Product (GDP). Australia ranks second globally in lithium, nickel, and cobalt reserves and sixth in rare earth element reserves, while also continuing development in graphite and platinum group metals. Recently, many Australian lithium companies have focused on processing and producing lithium hydroxide, which is approximately 20 times more valuable than regular lithium. This indicates that the Australian economy is expanding its vision to the entire lithium value chain, worth AUD 231 billion annually. Australia is currently in the early stages of lithium hydroxide production, with full-scale production expected to commence from 2022 through refineries such as Kwinana and Kemerton. Notably, Australia is the world's largest lithium producer, accounting for 55% of global production.

As of 2020, South Korea's annual nickel import volume was $1.3 billion, the largest among all mineral types, followed by palladium, platinum, and silicon. The import sources are New Caledonia (18%), Australia (17%), Japan (16%), Finland (8%), and China (6%). There are two main types of nickel ore: sulfide ore and oxide ore (laterite). Sulfide ore is traditionally processed for batteries, while nickel mined in Indonesia is oxide ore. However, using the recently developed High Pressure Acid Leaching (HPAL) method, some laterite ores, such as limonite, can also be processed for electric vehicle batteries. Most sulfide ores are found in Australia, Russia, South Africa, and Canada. Since Australia possesses both oxide and sulfide ores, Australian production is predicted to surpass that of Indonesia.

For Class-1 nickel production, laterite ore undergoes additional refining processes such as HPAL or NPI-to-Nickel Matte. In March 2021, China's Tsingshan Holding Group announced the success of the NPI-to-Nickel matte process at its refinery in the Morowali Industrial Park, Indonesia. Indonesia has recently garnered significant attention in the nickel supply chain due to the estimated potential production of 800,000 tons of Class-1 nickel through HPAL refining facilities.

In 2018, Indonesia became the world's largest nickel producer, mining 560,000 tons. Previously, in 2017, with a production of 345,000 tons, it was the second-largest producer after the Philippines, but through extensive facility expansion, it rose to first place. While nickel demand is rapidly increasing, supply is concentrated in a few countries, making the supply chain unstable. In 2021, Indonesia accounted for 37% of global nickel production, ranking first. Notably, most of the recent nickel development projects are being carried out in Indonesia with Chinese capital. The combined share of nickel production by China and Indonesia reaches 65%.

Nickel is more evenly distributed globally compared to other battery minerals, and its production volume is not insufficient. The primary reason for the nickel supply chain being centered around Indonesia and China is the differentiation of nickel ore into sulfide and laterite based on its application and quality. Sulfide ore is used as raw material for Class-1 nickel, which is used in battery materials, whereas laterite ore, the raw material for Class-2 nickel with lower nickel content, has been primarily used in stainless steel production.

According to a survey by the United States Geological Survey (USGS), Vietnam's rare earth element reserves amount to 22 million tons out of a global total of 120 million tons, ranking second after China's 44 million tons. Vietnam is currently pursuing the development of the world's largest rare earth element mine, making it a potential new supplier for South Korea's rare earth element supply chain.

IV. Conclusion

The United States and China assert that the country that dominates the electric vehicle and battery market will dominate the world, defining the expansion of battery factories and technological development as a '21st-century arms race.' The US and Europe are pursuing a strategy to expand cell manufacturing, prioritizing it through cooperation with South Korean and Chinese battery manufacturers. While cell manufacturing capacity can be expanded relatively quickly, the biggest obstacle to supply chain reorganization is securing critical raw materials for batteries.

At a broad level, the global electric vehicle battery supply chain is a microcosm of the world economy and the power dynamics between nations. Developed countries generally dominate the downstream stages of the supply chain with their capital and technological advantages, focusing on design, final products, and in this case, electric vehicle production. The value-added is also greater in downstream final product assembly and production than in upstream and midstream stages. A significant reason why developed countries primarily focus on downstream final product production and R&D is that as one moves upstream, they face environmental damage from resource development, resulting cost increases, and social opposition.

Developing countries are incorporated into the global economy primarily through resource endowment and supply, lacking capital and technology. The main countries possessing rare earth elements and critical battery minerals, which are raw materials for electric vehicles and battery manufacturing, are spread across Latin America, Africa, and Southeast Asia.

The US, Europe, and Japan, which dominated the global automotive industry and its raw material, petroleum, in the 20th century, are attempting to continue their dominance in the 21st-century electric vehicle industry and its raw materials, critical minerals. This is because the greatest value creation and technological prowess will be realized in the production and export of electric vehicles. Therefore, global internal combustion engine vehicle manufacturers in the US, Europe, and Japan are accelerating their transition to electric vehicle production lines, albeit slowly. While traditional automakers like GM and Ford are experiencing difficulties in transitioning their production infrastructure and workforce, Tesla, which started as a startup, is leading electric vehicle production.

The global supply chain for the automotive industry and its raw material, petroleum, in the 20th century offers many insights into understanding today's global electric vehicle battery supply chain. Despite having abundant domestic oil resources, the United States relied on oil development in the Middle East, Latin America, and Africa. The US, Europe, and Japan dominated the downstream stages of the global oil supply chain and accumulated immense wealth through the automotive industry, making significant efforts to stabilize oil prices as a raw material.

The global electric vehicle (EV) battery supply chain, which begins with the mining and processing of critical minerals, moves to the manufacturing of battery components, then to EV production, and finally to the recycling of used batteries, has only just begun to form. However, the market size is expanding exponentially, and nations are mobilizing their full capabilities to strengthen control over the entire supply chain.

References

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[1]In 2021, China exported 555,041 EVs globally, and in 2022, it exported 679,000 units, a 120% increase from the previous year (Smith et al. 2022).

[2]NCM811 can be used to manufacture more batteries than NCM622 due to its lower cobalt content.

■ Kim, Yeon-kyu_Dean, Graduate School of International Studies, Hanyang University.

■ Manager and Editor: Lee, Ju-yeon_EAI Research Fellow

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