As European EV sales hit historic highs, the future of green energy relies on the development of a competitive, sustainable and resilient battery value chain.
Last year, European governments unveiled the most ambitious climate change plan to date, with more than 500 billion euros slotted toward everything from electric vehicles (EVs) to renewable energy sources. According to the European Green Deal, the EU aims to be officially climate neutral by 2050. Under the Green Deal, climate action initiatives will focus heavily on the development of clean energy resources, market stimulation for emissions-free vehicles and investment in emerging technologies. The EV sector in particular is poised for explosive growth.
In fact, Europe is now the epicenter of growing demand for EVs. Last December saw an unprecedented spike in EV sales, bringing the total volume of EVs sold in Europe in 2020 to over 1.36 million — a 254 percent increase in comparison to the year before. Notably, the COVID-19 pandemic barely affected the sales of European car makers. Even China couldn’t beat it despite setting a monthly record of EV sales by exceeding 200,000 for the first time. Bolstered by government support and worldwide attention, the European EV market shows no signs of slowing down.
In 2019, EU negotiators agreed to endorse new CO2 emissions standards requiring a 37.5 percent reduction for electric passenger vehicles and a 31 percent reduction for vans by 2030. In Germany, a country where car manufacturing has long represented a key economic driver, subsidies for EVs are so generous that some Renault models can be acquired at zero cost. By 2025, it is estimated that the EU should have a fleet of more than 13 million EVs, a milestone which will require at least one million public charging stations. As the green energy movement gains momentum, the key to a more sustainable world rests on accessibility and supply chain considerations, especially when it comes to critical metals such as lithium.
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Keeping up with the European Green Deal
Over the past year, the EV market at large has made great strides, with original equipment manufacturers (OEMs) pouring billions of dollars into the development of new electrified models, including Ford’s (NYSE:F) all-electric version of its iconic Mustang as well as the first-ever electric Hummer scheduled for release by General Motors (NYSE:GM) in the third quarter of 2022. Among the most popular EV models at the moment are the Volkswagen (ETR:VOW3) I.D.3 and Tesla’s (NASDAQ:TSLA) Model 3. Tesla itself saw a 600 percent increase in its stock in 2020, making it one of the most valuable companies in the world with a US$800-billion market cap. Explosive growth in the EV sector has led to rising concerns about sustainability. To meet the accelerating pace of e-mobility, European policymakers are focused on developing and maintaining a secure battery value chain.
Volkswagen Group recently announced during its Power Day event that it is committed to building six battery factories, totaling 240 GWh of production by 2030. This figure is “12 percent more than the 215 GWh of global lithium ion demand in 2020.” The company intends to build several gigafactories within Europe, two of which have already been established through partnerships with Northvolt in Sweden and Germany. An initiative this large would require a significant investment in lithium hydroxide converters to satisfy increasing demand.
According to recent estimates, the EV surge is only beginning, and is expected to reach between seven and eight million EV registrations by 2025, propelled by progressive emissions legislation and the announcement on behalf of several European countries and major OEMs to push the combustion engine out of the primary vehicles market within the next two decades. According to industry experts, one of the keys to meeting this goal will be lithium security. While Europe’s 30 newly announced lithium battery cell projects are expected to cover up to 90 percent of domestic needs, the effort to establish a steady, domestic supply of the required lithium is still in its early stages.
While supply may be low, European lithium demand has never been higher. To put things in perspective, Volkswagen alone will produce 12 percent more lithium batteries in 2030 than the entire world consumed last year. Currently, the continent’s largest lithium deposit is located in the Czech Republic and is owned by European Metals Holdings (LSE:EMH). The company’s Cinovec lithium and tin project was fully funded in April of last year. A recently completed pre-feasibility study indicates that Cinovec has the potential to become the lowest-cost hard rock lithium producer in the world, and has hopes of producing 15,000 tonnes of lithium hydroxide a year once operations begin. By 2029, Europe could be producing more than 500 gigawatt hours worth of lithium ion battery cells, which would require 500,000 tonnes of battery-quality lithium hydroxide.
In the race toward a more modern, forward-thinking and resource-efficient economy, companies like Rock Tech Lithium (TSXV:RCK) are focused on driving the most value out of a constrained resource. The company plans to bridge the gap between clean Canadian lithium and European process efficiency by drawing from its wholly-owned Georgia Lake spodumene project in Ontario, Canada, while simultaneously helping to unlock other Canadian sources. It is currently in the process of building the first-ever lithium hydroxide converter on European soil, with a planned capacity of 24,000 tonnes per year, and is on its way to becoming one of the first movers for lithium hydroxide supply on the continent.
Other companies, such as Vulcan Energy Resources (ASX:VUL) are aiming to extract lithium hydroxide from brine produced in southern Germany. The company’s yet-to-be-tested process could be ready for operation as early as 2024.
In March of this year, a high-level meeting took place with industrial actors across the European battery value chain, calling for ramped-up battery recycling capacities and an urgent roll-out for skilling programmes to address the emerging skills gap in the industry. By 2025, the battery value chain is expected to reach approximately 800,000 direct jobs. With a nearly 69 percent year-on-year increase in passenger EV registration, the industry shows no signs of slowing down, especially in the wake of the European Green Deal.
Europe is now on its way to becoming the first climate-neutral continent by 2050, racing ahead of other emissions giants such as the US, China and India in a global fight against climate change. As European EV sales hit historic highs, the future of green energy relies on the development of a competitive, sustainable and resilient battery value chain. Investors should pay close attention to companies that are focused on innovation that aims to strengthen local supplies of raw materials and processing capacities for all battery materials.
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