West could end reliance on Chinese batteries by 2030, says Goldman Sachs

The US and Europe can cut their dependence on China for electric vehicle batteries through more than $160bn in new capital expenditure by 2030, Goldman Sachs has forecast.

EV batteries are one of the core technologies giving rise to concern across western capitals over dependence on China. Following years of deep state support and a desire by Beijing to cut its own reliance on oil imports, China produces three quarters of the world’s batteries and also dominates production of their materials and components.

However, according to a report to clients, seen by the Financial Times, the investment bank’s analysts believe a stark pivot to protectionism in Washington and Brussels, combined with an unprecedented spending spree by non-Chinese companies, have the potential to extricate the west from its reliance on Beijing over the next seven years.

To obtain a self-sufficient supply chain, countries competing with China would need to spend $78.2bn for batteries, $60.4bn in components and $13.5bn in mining of lithium, nickel and cobalt, as well as $12.1bn in refining of those materials, the report calculated.

The bank’s analysts believe demand for finished batteries could be met without China within the next three to five years, largely thanks to big investments in the US by South Korean conglomerates LG and SK, who have been attracted by massive subsidies from US taxpayers.

Goldman forecasts that the market share of the Korean battery makers in the US will soar to around 55 per cent in three years, from 11 per cent in 2021.

The passage of the Inflation Reduction Act in August means huge tax benefits and other subsidies for localising battery supply chains and fuelling the uptake of EVs. Goldman expects the “average eligible EV in the US” will receive more than $10,000 in benefits from the IRA.

Ross Gregory, partner of electric vehicle consultancy New Electric Partners, said despite the passage of the IRA and the recent surge in gigafactory investment, the Goldman costs estimate appeared far too low, the timeframe was optimistic and the expectations for the impact of battery recycling was unrealistic.

“There’s some momentum forming, but there still isn’t a strong preparedness to invest upstream by anyone apart from Chinese players. As an example, there hasn’t been a notable Australian greenfield battery mining project developed with any foreign major investment at all,” he said, adding: “The likely growth of EV infrastructure in China over that period is going to be so massive that it will still outstrip Europe and the US.”

Reducing China’s dominance in battery materials and components is also seen as a challenge. Chinese groups’ global market share of capacity for production of anodes is 87 per cent, precursors 85 per cent and cathodes 77 per cent.

Goldman analysts said that dominance could be unwound by protectionist policies in Europe and the US, coupled with alternative battery chemistries that require fewer critical minerals from China, as well as the rise of battery recycling that would cut demand for lithium and nickel.

More companies outside China are developing sodium-ion batteries — an alternative to lithium-based batteries — as well as LFP, a type of cathode that does not use nickel and cobalt, Goldman said.

Still, the underlying economics of EV battery production in the west stands as a fundamental barrier in decoupling from China.

“We note capex per unit implied from recent company announcements in the US is 78 per cent higher than China . . . recent labour shortages and wage inflation would also make it more costly to produce batteries in the US,” the analysts noted.

Environmental risk also stands as an unresolved challenge for the EV supply chain outside China. Until now, the world has been happy to rely on China not only for the extraction of minerals, but also for materials processing that involves highly toxic chemicals and their waste.