As the world adopts the use of electric vehicles, the increasing demand for nickel, lithium, cobalt and other key ingredients needed for batteries outpaces the supply, which has been affected by a general lack of investment and pandemic-related logistical woes. This, coupled with increasing concerns over the dominance that China exhibits in the market and the slowing global economy, has led to an increase in prices and, in turn, accelerated the race to secure supply.
For instance, General Motors announced last week that it had entered into a number of supply deals for the raw materials it requires for its electric vehicle fleet. This comes less than a week after Ford disclosed a list of suppliers of inputs, which include enough nickel from Indonesia and lithium from Argentina to manufacture more than half a million electric vehicles annually.
House Mountain Partners President Chris Berry stated that these deals highlighted the importance of entering into agreements with multiple, long-term raw material sources. House Mountain Partners is an industry consultancy.
Auto manufacturers have for a while now dealt with delayed deliveries across the electric vehicle space, which has aggravated supply-surety concerns. This has prompted them to demonstrate supply chain management by entering into agreements with producers of raw materials, which may play a key role in their progression.
General Motors is now party to supply deals with three different companies: Posco Chemical Co., Livent Corp and LG Chem Ltd. Its Posco Chemical deal will involve the supply of cathode materials to GM from next year until 2025 while its Livent Corp deal is a multiyear agreement to secure lithium. On the other hand, its deal with LG Chem involves the supply of almost 970,000 metric tons of cathode material to the company until 2030.
Ford Motor Company revealed that through its suppliers, it had secured enough battery minerals to manufacture about 600,000 electric vehicles a year by late 2023. This will be quite an increase from the 27,100 battery-powered vehicles the company sold in America in 2021.
The company stated that it had entered into contracts with suppliers representing 60GWh of yearly battery capacity, noting that these suppliers had regional facilities to provide materials. This highlights the strides it has made to count less on refining and manufacturing done in China. This is because depending on China now, unlike in the past, is seen as a vulnerability amid political and trade tensions that are encouraging many to rethink international supply lines.
As the race for battery metals heats up, it is likely to have a positive effect on other metals, and companies such as Royal Gold Inc. (NASDAQ: RGLD) could be in for a bullish run over the coming years.
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