Battery costs with Aaron Wade (Head of Battery Costs @ CRU Group)

And now we're in a completely flipped scenario where battery prices are at the lowest they've ever been, down at fifty, sixty, seventy dollars a kilowatt hour, and the lithium price is back down at kind of fifteen dollars a kg. The improvements we've seen so far have been either more material in the same volume or just physically larger cells being able to hold more material.

When we look five years in the future, where do you think that might get to? Is there kind of a natural flaw to that where we'll kind of not get below? What what does that curve look like, and where could we get to?

If you do things like optimize the performance of the cell, get as cheap raw materials as maybe as possible, and then do things in the factory.

And then as we go on to this kind of next generation or newer technologies, I think there's definitely scope for the the cell cost at least to fall below that.

Understanding the factors driving cost reductions in battery cells is crucial for staying competitive, but material costs are not the only thing influencing prices.

Breakthroughs in cell chemistry, system efficiency, and manufacturing practices all play a role in determining the price. In this week's episode, Aaron Wade, head of battery costs at CRU Group, joins Ed Porter to explore the latest in supply chain insights and cost projections and what they mean for the future of energy storage.

If you're enjoying the podcast, please hit subscribe so you never miss an episode, and leave us a rating wherever you listen. Let's jump in. Hello, and welcome to another episode of transmission.

Today, we're joined by Aaron Wade from CIU.

Aaron, welcome. Thanks. It's great to be here.

And I'd love just to get started by getting a little bit on your background. So who are you? Who are CIU? And what do you typically do in the in the battery space?

Sure. So I am a chemical engineer. Studied at UCL just down the road. And then I did a PhD in battery degradation. So I was using x-ray imaging to look at when and why batch materials failed and how we could design both them and the x-ray machines better to optimize the imaging process and the the battery performance.

And then while I was working on my PhD, I started working part time for a company called ExoAir. So they were based up in Sheffield in the north of England, and we did techno economic analysis of batteries, solar panels, and power electronics.

So this is figuring out where the technology was going and how much it could cost.

And then about a year and a half ago, a company called CRU bought ExoWatt.

So I came over as part of that acquisition, and now I lead the battery cost modeling work that we do at CRU. So CRU has a fifty year history of forecasting metals, fertilizers, looking at the cost and emissions from mines, and forecasting out supply demand balances and that kind of thing.

Okay. And and who, like, who typically reads your reports on on battery costs?

So I'm quite fortunate to work in a space where the research I do is very interesting for a wide range of people.

So I can give you an example. So if someone's making, let's say, some new some new cathode materials with elevated performance, it's interesting to know how good that is on an isolated basis. But what's more important is to understand how it might cost or what the the cost profile of a cell that it's in might be. So we work with people designing materials or buying cells or making factories, that kind of thing, to see where the the cost to manufacture these these batteries might go. And then we also work with people investing in the space. So either investing in these companies or investing in gigafactories.

So it's really quite a broad range of people that that we work with.

Okay. And to kind of, I think, start off with the with the juiciest parts. So I'd really like to get into battery costs straight away because I think a lot of people listening to this podcast will be battery owners, financiers, people interested in the space.

So could you just talk a little bit around what's happened over battery costs in the last few years, and then let's go from there into what the future might look like.

Sure. So I think I guess the most interesting point of the last few years was back in twenty twenty two when the lithium price was really, really, really high. So twenty twenty, twenty twenty one, it was about ten dollars a kilogram, went all the way up to seventy or eighty dollars a kilogram. So this caused the cost to produce batteries, and therefore, the price that they were sold at, to be jumped up very, very quickly up to kind of a hundred and twenty, a hundred and thirty dollars a kilowatt hour. And now what we've seen is as the lithium price has come down, the cost of producers come down. And now we're in a completely flipped scenario where battery prices are at the lowest they've ever been, down at fifty, sixty, seventy dollars a kilowatt hour, and the lithium price is back down at kind of fifteen dollars a kg. So we've seen this kind of massive jump in prices and then this fall, until the present day where we are now.

Okay. And that's lithium carbonate?

So, yeah, the lithium we use is lithium carbonate or lithium hydroxide depending what chemistry we have on the cathode side of the cell.

And and that in Twin Cities two, you said jumped almost seven x to get to that kind of seventy to eighty dollar range. What were the drivers behind creating that that price hike?

So I think fears of shortages of supply was a big reason. The margins that people were making when selling this were really big, And there was just an expectation that there'd be a shortage of material when the prices kinda tumbled further and further up.

Mhmm.

And then now more supplies come online, and then we're seeing that the prices come all the way back down.

The kinda classic adage. Right? High prices cure high prices. And so those lithium prices are now back down around ten dollars, you were saying, and that has brought, battery cost down to the range of, say, fifty to seventy dollars per kilowatt hour. And by per kilowatt hour, you mean kilowatt hour of capacity in the battery cell?

Yes. We measure the the cost of battery in dollars per kilowatt hour, which is essentially how much does it cost to store one kilowatt hour of energy in the cell. Okay.

And then it feels like you've there's there's kind of highlighted there, like, quite a strong link between the lithium price and the battery cell cost.

Is that fair to say that we, you know, we should be looking as to lithium as being, like, this primary driver of what influences battery costs, or is it kind of a smaller part of a wider mix?

So material pricing and materials make up the biggest component of a cathode well, of the cell cost, actually.

So in a cell cost, the cathode might be forty to fifty percent up to sixty percent of the total cell cost. And then of that, lithium can be kind of thirty to sixty percent of the cathode cost. So as a single component, lithium and then the cathode is the the biggest cost driver. And then we have other materials like the the graphite in the anode, which is significant in the cost structure as well. But lithium is the, I would say, the single biggest cost driver in terms of likely fluctuation and biggest impact.

And so as a percentage of the total cell costs, like, what what would we allocate to lithium?

So kind of between twenty to thirty to forty percent depending on the type of cell.

Okay. I think that'd be quite useful for people because I think often people look a lot to kind of like lithium prices and say, well, if that doubles, what does that mean for my for my cell costs? And maybe that kinda highlights a little bit of the cost reduction we've seen. So coming down from twenty twenty two highs to where we see pricing today, because that's not that hasn't all come from a reduction in in lithium. So what's kind of driven that cost reduction in in in sales?

Yeah. So I guess there's there's essentially two areas that we could consider. One is, the cost reduction era and then one might be the performance improvement era.

So the cost reduction error is typified by the cost falling because economies of scale have been reached.

The lithium price may come down. So you're kind of maximizing your the amount of bang you get for your bucks of the cheapest raw material pricing.

But now we're kind of in this performance era era because prices are so low. So we can see innovations at the cell level, innovations at the the pack or system level, and then innovations within manufacturing. And all of these three can come together to reduce the amount of material we might need in the cell, but also reduce kind of the other costs of manufacturing, which is why we're still seeing the price come down even though the lithium price is somewhat more stable now.

Okay. So you're saying the same amount of lithium goes into that that that cell, but the cell can work at a hundred and ten or a hundred and twenty percent of what its predecessor could have done?

Yeah. So we're seeing so one example is cells are both getting bigger and storing more energy for the same volume. So the standard cell cell in stationary storage used to be a a two hundred something amp hour cell. We're now seeing the physical same size cell be able to store over three hundred amp hours, so three fourteen amp hours.

So this cell does have a little bit more material, but it has less wasted things like less well, the ratio of packaging to active material has gone down. So then you get kind of incremental improvements in cell costs through that. And then we're also seeing so EV announced today, they're they're starting production of their six hundred amp hour cell. So these are huge cells, again, more efficient, and then this can be one of the reasons why the cell costs may keep coming down.

Okay. And is that when you say six hundred amp hours, is that are you kind of increasing the volume of that cell and therefore it becomes a six hundred amp hour? Or are you kind of saying the cell size and material remains the same and this is purely just improvements in the performance?

So the improvements we've seen so far have been either more material in the same volume or just physically larger cells being able to hold more material. But there's also another stream of innovation, which is where you can eek more performance out of the same material.

So this can be by changing some of the chemical composition or expanding the performance of the cell. Okay.

Well, maybe let's talk about the changing chemical composition then because this has changed quite a lot. So where were we back two years ago?

So I guess the the conventional wisdom, at least in the Western market, was that NMC, so nickel, manganese, cobalt oxide Mhmm.

Was gonna be the the cell of or the chemistry of choice. This was because at the cell level, it has a greater energy density. So you can, for the same mass, store more energy. So, obviously, for a vehicle, that's that's really helpful, because your car may be able to drive further. But then for even for stationary storage applications, you might be land constrained or weight constrained, and you wanna, maximise your kind of floor floor space.

And so in in a lot of sort of consumer electronics today, NMC still is the choice?

So we mainly have something called LCO, which is just cobalt oxide, essentially. So that's the main choice for consumer electronics. But what we saw was a big shift towards LFP a couple of years ago. One of the big drivers for this was something called sell to pack innovation.

So both in vehicles and in systems, the the traditional way of packaging up a cell was you have a cell, then you have a module, and then you have a pack. And then between all the layers, you might have some safety thermal suppression, but you also had these these rigid structures that could kinda take the load.

But a company BYD in China kind of were the first to market with this cell to pack concept where you didn't need the modules and the cells could somewhat become structural components of the pack. And what this enabled the LFP cells to do was at the pack level have energy density similar to some of the the NMC varieties.

So now BYD and in fact, most of the Chinese market is LFP, and they have supercars that use LFP rather than what the conventional wisdom is on the NMC side. And LFP gives now acceptable energy density, so acceptable range, but it's cheaper materials. So therefore, the cell cost is is lower. Okay.

And I think we've seen that, or come come through a lot of the stationary storage as well in terms of in terms of the types of cell chemistries we see.

Maybe the really interesting part of this is where does it go in the future? So it's still to some degree, lithium is quite tricky because in some to some element, it's not a nascent technology. It's been around for a very long time. But as scales come through, as does innovation, and so we see even within the last two years, the move from NMC to LFP, some of the innovation around, pack design and how much more you can get into a particular cell and how much longer that can run for. It feels like in lots of ways, the tech is getting better.

Where could this get to? So if we were to put the kinda crystal ball out and say in five years, where do we think this could get to? Are we thinking LFP will be off the table in five years and there'll be something else that sits there and becomes the dominant, chemistry or composition of choice.

What do you think?

So I think the the first key is different markets are gonna have different chemistry choices, and then within that, there'll be submarkets. So if we look at the EV market, we have a whole range of of class of vehicle, from your kind of cheaper vehicles with lower range all the way up to your super high performance.

And it's likely that LFP will take a big chunk of this market, but NMC is likely to still have its place, within it.

But then we're seeing innovation both on LFP and within NMC. So on the LFP side, there's the addition of manganese to make it LMFP, which essentially enables you to go to a higher voltage, so then your cell can have more energy in it. But there's big issues with cycle life that still haven't been solved. So this is actively being researched, and actually LMFP is often now mixed with NMC to kinda get it into the real world and get some data so that the performance can improve.

And then on the NMC side, traditionally, we'd increase the nickel ratio and reduce the cobalt ratio. So we'd have something called well, I mean, we started with one one one, which was equal ratios of nickel, manganese, and cobalt. Then we moved to six two two, which was sixty percent nickel, twenty percent manganese, twenty percent cobalt. And then now we're moving towards eight one one, which is eighty percent nickel.

But interestingly, a lot of the the Korean companies are going back down to six two two, but operating the cell at a higher voltage. So this again saves a little bit of cost because cobalt is quite expensive. So if you can reduce it, you get some benefits. So it'll go to, like, six one three with one ten percent cobalt, and you get some performance boost because you get to a high voltage.

So all that to say is there's lots of innovation going on at the material level Mhmm. Which means that at the minute, LFP is dominating, but there's definitely room for kind of all chemistries to to compete in the space.

It's not like NMC are done and we'll never see NMC again. Yeah. It feels like there's kind of continuing strands of work on all of this. And maybe to add one more into the mix, so sodium ion gets talked about a lot. Is that justified conversation? Is that something that we'll see coming into stationary storage, or is it kind of too early to say?

So I guess sodium ion was really at the kind of peak of its hype in twenty twenty two, twenty twenty three when these lithium prices were so high.

We had lots of people working on it, but also lots lots of companies putting out announcements about how soon they were gonna produce these cells. And as the lithium prices come down and as the LFP prices has come down too, the the sodium ion hype has kind of faded away. The cells are still more expensive to produce than LFP cells and are worse on both an energy density and a cycle life perspective. So there's still some kind of performance improvements to be had and reduction of the the cost of the anode, which is the the limiting factor in terms of but then we also see hesitancy in the market to adopt a new technology. If you're financing an, ESS farm Yeah. And you're spending millions and millions of dollars, are you gonna go with the technology that's been around for years and has been proven and is bankable and insurable, or would you take a risk on the the new attack? So speaking to some people is we'll let other people take that risk, get some field data.

And then when the anode cost cost comes down and the cells are competitive and we see how they perform, there might be the transition. But I think it's I like Sodium mine for two real reasons, which is one, if people have the option to swap swap over, it means that lithium prices can't go super high again because people have that substitution option of going from LFP over to Sodium mine. And the second is supply chain security, which is if you wanna buy cells today, the Chinese market really dominates and the Chinese companies really dominate all the way back from mining all the way to to production.

Whereas because sodium ion is a a newer technology, there's there's more space for people to operate. And then if they want to produce kind of locally grown cells or have kind of a a footprint in the market, there's more of an option to do so on the sodium mines.

So Okay. Well, let let's come back to the supply chain and manufacturing piece in a second because I think also some interesting anecdotes from your recent trip to, Chinese manufacturers would also be would also be good to cover. And but I but I think just before we go there, let's just round off the cost piece when we go to when we say sort of when we look five years in the future, pounds per kilowatt or pounds per kilowatt hour, sorry, where do you think that might get to? Is there kind of a natural floor to that where we'll kind of not get below? Or do you think that there's kind of diminishing like, what what does that curve look like and where could we get to?

Yeah. So I did some research looking at how low could LFP cost get to realistically in the next couple of years. So if you do things like optimize the performance of the cell, get as cheap raw materials as maybe as possible, and then do things in the factory to reduce workers, increase the line speed, that kind of thing, we ended up at twenty five dollars per kilowatt hour at the cell level being maybe ambitious, but not completely unreasonable. So these are all innovations that that seemingly could happen. But then that's just with the established technology of a certain size. And then as we go into this kind of next generation or newer technologies, I think there's definitely scope for the the cell cost at least to fall below that.

Okay. And that's it's kind of like a really remarkable number. Right? So it's twenty five pounds per kilowatt hour. The actual cost of adding extra capacity to your battery, sites is incredibly low. And so when we start to say, oh, well, will it be a four hour system? Will it be a six hour system?

There is more to just batteries than just a cell cost. But if you are literally adding that at twenty five pounds per, per kilowatt hour, the ease with which lithium chemistries could go to six, eight, ten hours really does feel like it's a massive enabler. Perhaps you could just talk a little bit about the how the cost of cells, stacks up to getting to, like, a twenty foot container that we might see at one of, like, the battery sites that exist in in the UK or in the US. So how how do you get from a fifty dollar let's say, fifty dollar cell to a four hundred, four hundred k per megawatt hour battery system? Yeah.

So I I mean, I agree that which is we're in an exciting phase where our cell costs keep coming down, everything gets cheaper, and then there's more opportunities. And we're already seeing this in the market with longer and longer duration of battery storage going in. So if we think about the cell, the the first option, the cell at fifty dollars a kilowatt hour, we then put that in a pack. So then there's some additional casing, some cabling, some cooling, that kind of thing.

And then we stack those into a system with kind of a cabinet door and some more metal. And then that goes inside kind of a bigger system that might have an HVAC or have an inverter. They'll have some fire suppression, and they'll have obviously all the the the container containerized metal for the system. So typically, at the minute, a seller is about fifty percent of those costs.

But then, obviously, as the cell cost comes down, some of these may may also decrease, but it's unlikely the cost of inverter will come down alongside it, same as kind of the fire suppression and those kind of things. So I guess on one avenue, you're still gonna need all of those things. But then what we're seeing is because people are getting more confident, the energy density of these systems is going up. So we used to see kind of a one or two megawatt hour system.

Now we're seeing pretty much six as becoming the standard.

You're saying oh, sorry. One or two megawatt hour system per twenty foot shipping container. Yes.

Yeah. Okay. Yeah. And now we're seeing much greater energy density. So this is enabled somewhat by the self to pack. But then all of your fixed costs in your shipping container remain pretty much the same. But if you're putting more energy into it, your total cost is also still gonna decline.

So it The cost of the iron in the shipping container remains or steel remains the same, but because you're getting more energy into it, then that's how you decrease the cost.

Yeah. So then the the dollars may stay the same, but because the kilowatt hour or megawatt hour is increasing, your dollars per kilowatt hour can can keep decreasing. So we're likely to see decrease both at the cell and system level over the next couple of years.

Okay. Interesting. I think that's something that is really topical at the moment because certainly within the UK, we're looking at how do we start to address long duration storage.

What might the future look like? We have some old older technologies that have been around for a long time, things like pumped hydro, and we're really trying to work out, okay, how quickly will electrochemical solutions move to be competitive in the six to eight to ten hour range. And if it's a hundred pounds per additional hour of duration per per per megawatt hour, then it starts to tilt over quite quickly. But if it gets down to, say, fifty, then all of a sudden, like, that that that sort of tipping point between those techs happens much further out.

So it's really, really, really topical and not just in the UK, but also in US as well. Perhaps let's come back to China. So a lot of the manufacturing and supply chain at the moment comes through China. Why is that?

Well, the first reason is because the Chinese government twenty years ago identified batteries and electric vehicles as an area where they wanted to compete and become kind of global leaders.

And then from there, they set out a five year plan every five years, to work out where does the technology need to get to, how much capacity do they need to have, all of these things. So it's something that the Chinese government and therefore the Chinese companies have been working on for a really long time. And there was lots of state support to help this. So land was very cheap.

Buildings were very cheap, maybe free, to help companies kinda get started and establish themselves. But then this was a time when the manufacturing efficiency was pretty low, so cell cost was still very high. And what we've seen over the past twenty years is that Chinese engineers have really optimized the production process of batteries. So now they can I mean, the yield rates in the factories are ninety eight, ninety nine plus percent?

So they're really, really efficient at making these cells.

Let's pause for a second on a yield rate. Ninety eight percent, what does that mean?

So it's essentially how many cells, how much material you make that make it to the the final the final battery cell. So we see startups in Europe and America and all over the world, really, typically operate at kind of forty, fifty percent to get going. And then they ramp up and try and improve that over time. And it's really difficult to eke out even a single percent of your factory because there's so many processes that are going on and everything is is related to everything else. So making a small change at the beginning of your production process is gonna have a large change somewhere else, and then it's all kind of linked together.

So the Chinese engineers who have optimized this this solution can now fantastically make sales at really good yield rates. And then, obviously, the more material you buy that doesn't end up in your cell, the more your cell is gonna have to cost to to offset that.

Yeah. So it's almost like a two or already you get a two x hit on on your cost of your system. Just to kinda give people a flavor, so what that those numbers feel wildly apart, right, fifty percent yield to ninety eight percent yield. What are the kind of the key factors in that?

So I think a lot of it is time, which is when there was no other competition.

Even if you have a fifty percent yield loss, you can still sell at a market competitively because there's no one you're competing against. And then the more sales you build, so the the scale of manufacturing in China is huge. The more expertise you have, the more knowledge you have of the whole process. But then also, I mean, the Chinese industry is huge.

You can buy recipes for sales. You can buy parts of the cell made for you that you just put into your your system. So there's lots of kind of tricks that people can use to to get going. But we see it's really the the knowledge of people, I think, that have helped out.

There was a there was a new facility or new company that's that wanted to make cells. I saw them a couple of months ago at a conference.

And they started manufacturing in March at this kind of very low yield rate. And then by three, four, five months later, they're already up at the ninety plus percent. And when you compare that to the Western companies who are trying to do this, it's taken me years and years, and we're not even close to that level yet. And the real answer was they hired a bunch of engineers who knew what they were doing from another company, came over. But I think that in itself is tricky because other companies have tried that. But if you're not doing the same technology with the same machines, with the same everything, it's not just as simple as hire the engineers, but the people I think are are really important to the story. Okay.

And maybe on on that, so, yield and the quality of the cell, are they linked at all, or is there kind of if you're running a factory with this fifty percent yield, are you getting out the right quality of of cell as a result of that or are all of your cells sort of sub, you know, lower standard versus a ninety eight percent yield factory?

Yeah. So even the the top grades of cells. Okay. So you have a, b, c, maybe d, and they'll sell for different prices.

And that's a being the best?

A being the best.

A being the best.

But they'll also so they'll sell for different prices and they'll also go into different applications.

So a lower grade cell might not go into a vehicle, but it might go into, electric screws or something like that. So even the the top factories have this this tolerance. And I guess part of the the goal is to narrow the tolerance so you're making only a cells, especially if you're trying to sell to automotive companies. There's kind of fluctuations and variabilities on how big those gaps are and what's acceptable and what's not depending.

And and and when I buy, like, a twenty foot shipping container, not that I ever bought a twenty foot shipping container full of batteries, but if I ever did buy that, would it come on on the side, would it say, this is a b and they're all b cells? Or does it say, this is like a weighted average b and there are some a's in here and there are some c's in here? How how does that work?

So sadly, I've also never bought a shipping. Maybe we should team up and buy one so we can see. But I think what companies will try and do is match the capacities of cells rather than just the I mean, it's harder to predict the long term performance. But knowing that your cells start at the same energy storage level, then you can discharge them all equally and they won't get some that are fifty percent discharged and some that are a hundred percent discharged.

So you're looking for consistency within with with within, the overall, like, containerized best?

Yeah.

Okay. And so then when it feels like the next question logically on China versus US or Europe is with that type of difference in yield and with that type of difference in terms of supply chains and the ability to go and pick up another component from another factory and drop it into yours, it feels like almost there's no way to get back and to be comparable in terms of cost of, cost of sales. So where where do you stand on the, impacts on of the Inflation Reduction Act on bringing manufacturing into the US, but also into Europe?

It's a big question. So I think part of what we should be doing is collaborating across the world. I mean, fundamentally, everyone's aiming for the same thing, which is to enable a swap a a switch to this kind of cleaner electricity source. But naturally, countries wanna protect their own manufacturing ability or jobs and all of these things.

So at some level, subsidies and help are needed. But you're right. The difference between how the US and Europe are, playing this is very interesting, with the US looking to essentially cut out Chinese and other supply chains. So we're seeing lots of joint ventures with car manufacturers and South Korean or Japanese companies working together to to build cells versus in Europe where we have some companies going alone, so Moro or Northvolt, and then other areas where Chinese or Korean or even Japanese companies are coming over to build their factories.

I was actually looking today at how much might it cost to just take a Chinese factory and replicate it in Europe, and could you sell at the same cost? And the production cost is higher because of higher electricity prices, kind of the main driver, but labor labor cost. But it will be a challenge for kind of these homegrown companies to then start to compete and sell, at least in the short term, against the the the Chinese companies that have been doing it for so long and have so much experience on the manufacturing side.

And is one element of this on the recycling element? So by having manufacturing and production within Europe, is there an element of the recycling programs that are being looked at?

Will that influence the cost of manufacture or are those two things kind of or separate?

The need for recycling is great but I think the impact that requiring recycled content in the cell will have is probably minimal in the short term. There are really two two key elements to this. The first is how much of a premium, if any, will recycled content have? And the second is how much of that material will you put in your cell either to meet regulations or to have a a cleaner, greener product?

So on the first element, will there be a premium for recycled content? I think this I mean, fundamentally, it depends on is there more demand or is there more supply? And what what does that mean versus kind of conventional mined material? And I think that will be dictated by the the fines or punishment you might receive if you don't include recycled material.

If those fines are really significant, people will probably pay even more more so for this recycled content than not. And then if we move on to the the amount in a cell, so even with a fifty percent premium, if you meet the lithium required recycled content, it's only a few couple of percent. It's only gonna add two, three percent to the the cost of your cell. Whereas if you were gonna go all the way and do a hundred percent recycled lithium content in your in your LFP cathode, depending on the premium, you could be kind of three, four, five percent or up to fourteen percent increase in in cell production cost.

So then it comes down to will people pay more for a cell that has that recycled content in? And I think at the minute, the answer is no. But maybe with time, that'll be something that people will be interested more in. Or maybe funds will kind of require that if you're gonna invest in assets.

Do you need to be making sure that you have at least some percentage of recycled material in the cell?

Is there is there also kind of a world that we see where almost from like a security supply perspective, people look to bring more lithium recycling into European supply chains, and that is sort of, to some degree like a a way of offering much more security to that manufacturing process. Do you think that's likely to to to happen?

So I think if we look at what happened in in the Chinese industry first, which was the the initial recycling was set up around the gigafactories so that any of the scrap could be recycled and then turned back into the materials and then put back into the line.

So I think that would be a good first step, which is as these factories are set up, make sure that any of the material that comes off the line is then recycled back into the process, rather than maybe shredded and then sent to somewhere else in the world for the materials to be leached back out.

But then over time, there's no reason why you can't have a fully localized supply chain. I guess the real issue is when is there gonna be enough volume of of cells that can be recycled to actually account for that? And especially with LFP having a very long lifetime, and if more and more people are adopting LFP, that becomes ten, fifteen, twenty years down the low down the road rather than maybe five or ten with the NMC cells that that die a little bit quicker.

Is and is that one of the challenges on recycling in terms of NMC? Each of the components are quite valuable as stand alone commodities, LFP less so, and then going into sodium ion even even more kind of even less valuable. And so the the premium for doing that recycling kind of drops off, so it it is almost like a bit of a weird kind of feedback loop that as we move to these less valuable input materials, the recycling process will be less valuable for LFP. Yeah. For sure.

So we see so so recyclers will typically pay for NMC sales because they know that they can turn the nickel and the cobalt into profit. Whereas on the LFP side, they might be paid to take those cells away because they have to factor that into their their their business model revenue streams as we need to receive some money because we're gonna get less back for the recycling process because as you say, the the the material inputs for these cells are a little bit cheaper.

Okay. And it is it still the the setup effectively that the manufacturer of the cells have to take back the cells at end of life?

So if you're a manufacturer of an NMC cell, within Europe, you have to take back that cell?

Yes. I think so. I think that was I don't know how far along we are on that process, because there has not been swathes and swathes of of material coming back.

It feels like we're in the in the Accenture batteries ramping up from, like, twenty ten where we had a couple of megawatts here and a couple of megawatts there. We have kind of gone through a bit of an s curve on the amount of batteries now on the system. And so if you think recycling is kind of ten years on from there, then the recycling will go through this kind of this s curve as as yeah. And will become a much more topical part of of, like, how how the supply chain, goes full circle.

I think one interesting thing we saw from the Rocky Mountain Institute recently was a piece around the need for raw materials. And so at what point could you start to get all of the existing sales off the market, recycle them, and then through better manufacturing processes as you've just been talking about, could you almost make like a closed loop Mhmm. Of battery chemistries and not have to go and procure so much lithium from the market? Have you have you like, do do you think that the logic of that is sound?

Do you think that's possible?

I guess that's kind of the dream of why batteries and energy storage in general is kind of the future rather than than combustion because there is theoretically, at least, a world where everything comes full circle and you never need to mine. I think because EV adoption rates and also best installations are increasing, that's still quite a long way away because we're, I mean, we're so far from a hundred percent renewable penetration or EV penetration or best, adoption that it'll be quite some time before that happens and then even longer until we can go full cycle. But I think it's definitely possible and hopefully will happen because of kind of losses in the system. I assume some mining will still need to take place.

Mhmm.

But there might be a world where it's it's much reduced.

It's almost made up because the the production quality of the cells is better. Mhmm. Okay. Interesting. I've got two questions to to finish with. But perhaps before I go there, I just wanted to, just to get your take on battery costs over the next few years coming back to that topic. Now we've just talked about how cells are manufactured, what the manufacturing lines look like, how things like the Inflation Reduction Act will impact cell costs.

What do you think the kind of the the shocks might look like over the next two to three years? Should people be kind of penciling in fifty dollars per kilowatt hour on their battery cell costs in business cases, or do you think that actually it's gonna be fifty dollars, like, but maybe plus or minus, some some shocks on the horizon?

Do do do you see kind of scope for those shocks to hit, battery costs?

So we don't think raw material prices will significantly increase over the period. So, I mean, there's always some level of uncertainty with commodity markets. With those being relatively stable and kind of incremental improvements, at least on the Chinese side for reducing the number of workers, increasing the yields slightly, increasing the throughput of the machines, it's likely we'll see incremental reductions, at least for the top companies in terms of production cost. What I think could be interesting is right now we're seeing only a few companies in China making any money, with the vast majority selling at cost or below cost. So there's likely to be kind of a big consolidation period where the major manufacturers buy or buy some of the smaller ones or they go out of business and kind of die out.

So I don't know if that will have a massive shock to the pricing, but there's a world where a lot of companies go bust and then maybe CSCO buy them and then can produce even cheaper because they got all these kind of battery factories for zero pounds so they don't have to pay any depreciation on it.

But I think for the most part, the costs should continue to to kinda come down.

And there's there's also an interesting thing around the manufacturing capability and the actual demand for these.

And given year on year, the quality of the cell gets better. If I'm a manufacturer and I have an oversupply, let's say, a hundred gigawatt hours, I really do not want to be sitting on that year to year because the the stuff that is coming is gonna be better tech, but also I'm seeing degradation on those cells once I've manufactured them. So I kind of need to get rid of them. So it feels like the actual supply chain of the system is quite set up to be oversupplied and you can have quite a big drop if that manufacturing is kind of outpacing demand?

Yeah. So we're we're in a massive scenario now where there's far too much capacity kind of throughout the supply chain. So everywhere from lithium mining to cathode production to cell production.

This is part of the reason why cell prices are so low, because there's just this massive overcapacity. So factories are running at low utilization rates, so the machines aren't running at kind of max speed, at least for the smaller manufacturers. So the overcapacity is likely causing this this big drop.

Yeah.

And I think maybe the other the other way that I think is quite interesting is, like, if the overcapacity is causing the drop, then, like, you could you could foreseeably see a world where that flips the other way.

Right?

Well, there's I think the way the market, especially in the the Chinese industry which dominates is set up, it's unlikely they'll be undersupply.

Okay. Because, I mean, we're almost at double the amount of LFP manufacturing that we would need to fulfill. So there's just so much overcapacity, but still people are building facilities with that long term view of demand for these cells is gonna increase.

And if we have a brand name and we're established, we can sell both within China, but kind of to the rest of the world. So I think overcapacity is definitely here for a while. I mean, a good parallel is the solar industry, which is also in a a massive state of overcapacity and and module prices have kind of hit rock bottom. Mhmm. But we don't think that's gonna go away pretty quickly and we think maybe that will extend over the next couple of years.

So I think Until a better tech comes along to fundamentally replace the need for that thing, there is still this kind of concept that tomorrow's demand will be bigger.

And if you kind of want to get on that that boat, you kinda have to get ahead of it. Yeah. And that's kind of what's driving this kind of systemic oversupply even though, like, low prices should cure low prices.

Yeah. And I guess also depending on what the next step is, if it's a slight change in chemistry or slight form factor increase, you can probably make that with your existing line. So if you're agile enough to make new chemistries as they come up, then even having the service wire isn't gonna kill you because you can you can just kind of slightly pivot rather than completely change to a new manufacturing method.

Okay. Fascinating. I have two more questions for you. First one is, is there anything you would like to plug?

Yes. I'm I'm part of something called the Volta Foundation, which is a non profit trade organization that is for people in the battery space who want to learn, network, collaborate. So we hold online and in person events all over the world. So if you wanna join kind of the log largest battery network and largest network of battery professionals, look us up because we do events everywhere. It'd be great to have people join us.

You have one you had one in London very recently? Yeah.

I had one last week. I have one in Oxford in a few weeks as well. So we kinda travel around the UK, and we have some in Boston coming up as well. So it's global events.

Very good. A perfect thing to plug. And do you do you have a contrarian view? Do you have something that you believe that the majority of the market doesn't?

I think I have two. Okay.

Yeah. Yeah. We we have time for two.

Okay. So the first one is a lot of companies say they want to buy locally sourced batteries, but they're only gonna buy them when they're cost competitive. So for now, they'll buy from China. And some part of me thinks that by continuing to do that, it means the locally sourced cells won't have anyone to buy their batteries, won't have any revenue, will continue to struggle, and we may be in a world where we actually have none of these companies being able to produce because they start to go kind of bankrupt as we've seen Northwell's having trouble. And as soon as somebody makes another choice, your whole production is kind of in trouble.

So that's the first one.

And then the second one is that I think, especially the western industry should really focus on the manufacturability and just getting production of cells out there. I think there's a lot of interest on kind of next gen technologies, whether it's lithium sulfur or solid state or even recycling. But without focusing on manufacturing kind of the the basics as it were, so kind of LFP or standard NMC cells, we're gonna struggle to to produce anything. And then the Chinese companies who already are and are innovating will will dominate, and then the Western companies will really struggle.

It's almost like if you want something done, you should ask a ask a busy person.

I've not heard that. But yeah. Yeah. Okay.

Aaron, thank you very much for coming on the the podcast. You've been a brilliant guest highlighting some of the, intricacies of the supply chain, where it might all go in the future. And, yeah, thank you very much.

Thanks for having me. It's been great.

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