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This work is independent, reflects the views of the authors, and has not been commissioned by any business, government, or other institution.
This article is a collaborative effort by McKinsey's Battery Accelerator Team in cooperation with the Global Battery Alliance and its members. The authors include Jakob Fleischmann, Mikael Hanicke, Evan Horetsky, Dina Ibrahim, Sören Jautelat, Martin Linder, Patrick Schaufuss, Lukas Torscht, and Alexandre van de Rijt.
Although battery growth will confer multiple environmental and social benefits, many challenges lie ahead. To avoid shortages, battery manufacturers must secure a steady supply of both raw material and equipment. They must also channel their investment to the right areas and execute large-scale industrialization efficiently. And rather than just greenwashing—making half-hearted efforts to appear environmentally friendly—companies must commit to extensive decarbonization and true sustainability.
Faced with these imperatives, battery manufacturers should play offense, not defense, when it comes to green initiatives. This article describes how the industry can become sustainable, circular, and resilient along the entire value chain through a combination of collaborative actions, standardized processes and regulations, and greater data transparency. By emphasizing sustainability, leading battery players will differentiate themselves from the competition and generate value while simultaneously protecting the environment. The strategies and goals presented here are aligned with both McKinsey''s battery supply chain vision and the GBA''s principles.
Global demand for Li-ion batteries is expected to soar over the next decade, with the number of GWh required increasing from about 700 GWh in 2022 to around 4.7 TWh by 2030 (Exhibit 1). Batteries for mobility applications, such as electric vehicles (EVs), will account for the vast bulk of demand in 2030—about 4,300 GWh; an unsurprising trend seeing that mobility is growing rapidly. This is largely driven by three major drivers:
Battery energy storage systems (BESS) will have a CAGR of 30 percent, and the GWh required to power these applications in 2030 will be comparable to the GWh needed for all applications today.
China could account for 45 percent of total Li-ion demand in 2025 and 40 percent in 2030—most battery-chain segments are already mature in that country. Nevertheless, growth is expected to be highest globally in the EU and the United States, driven by recent regulatory changes, as well as a general trend toward localization of supply chains. In total, at least 120 to 150 new battery factories will need to be built between now and 2030 globally.
In line with the surging demand for Li-ion batteries across industries, we project that revenues along the entire value chain will increase 5-fold, from about $85 billion in 2022 to over $400 billion in 2030 (Exhibit 2). Active materials and cell manufacturing may have the largest revenue pools. Mining is not the only option for sourcing battery materials, since recycling is also an option. Although the recycling segment is expected to be relatively small in 2030, it is projected to grow more than three-fold in the following decade, when more batteries reach their end-of-life.
Companies in the EU and US are among those that have announced plans for new mining, refining, and cell production projects to help meet demand, such as the creation or expansion of battery factories. Many European and US companies are also exploring new business models for the recycling segment. Together, these activities could help localize battery supply chains.
The global battery value chain, like others within industrial manufacturing, faces significant environmental, social, and governance (ESG) challenges (Exhibit 3). Together with GBA members representing the entire battery value chain, McKinsey has identified 21 risks along ESG dimensions:
Here are what some battery industry leaders and experts have to say about sustainability:
"The transformation towards battery electric mobility is a gigantic challenge for industrial structures and workers. The social impact will depend on the application of a just transition concept: investment in skills, creation of new and decent jobs, social dialogue/collective bargaining and a more balanced value creation model between the Global North and the Global South."— Atle Høie, IndustriALL General Secretary
"Umicore is a proud founding member of the Global Battery Alliance and a strong supporter of its Battery Passport project, as they align with our ambition to roll out a decarbonized and responsible battery supply chain. Acceleration in EV sales will go hand in hand with unprecedented growth in the production of rechargeable batteries that are sustainably sourced, manufactured, used and recycled. By sharing our longstanding industry expertise in battery materials and battery recycling through partnerships like the GBA, we aim to raise the bar to reach true clean mobility."— Mathias Miedreich, CEO of Umicore
"The members of the Global Battery Alliance are committed to achieving sustainable, circular, and responsible battery value chains by 2030. The results of the McKinsey analysis underline both the continued relevance and highlight the sense of urgency with which we need to achieve this vision. The GBA battery passport is a key tool to enhance transparency in battery value chains and enhance sustainability impacts including the progressive reduction of greenhouse gas emissions within battery value chains."— Inga Petersen, Executive Director, Global Battery Alliance
"Three years ago McKinsey supported GBA and demonstrated the importance of a pre competitive transparent battery value chain to drive the energy transformation, today''s updated report magnifies not only the importance but also the magnitude and urgency."— Guy Éthier, Past Chairman of the Board of Directors, Global Battery Alliance
Besides the much-publicized ESG challenges, GBA members have pointed out that the battery value chain confronts massive economic barriers (Exhibit 4). Historic price peaks and extreme volatility, as well as quickly changing national regulations, can massively affect the economic viability of projects. Higher battery prices also make some green applications far less attractive than they were previously, which could delay much-needed attempts to accelerate decarbonization. Although economic viability is the most urgent issue for leaders, a more complex challenge involves the industrialization and historic scale-up of the battery industry.
Shortages of manufacturing equipment, construction material, and the skilled labor required to ramp up production are a few reasons why many battery-cell factories experience significant delays. Vertical supply-chain integration and long-term contracts, as well as greater collaboration, could mitigate some of these issues. Additionally, open dialogue and education with local communities and stakeholders are likely key to achieving more widespread acceptance and support for the battery industry.
The metals and mining sector will supply the high quality raw materials needed to transition to greener energy sources, including batteries. If companies can provide sustainable materials—those with a low CO2 footprint—they might capture a green premium, since demand is ramping up for such products. It may be difficult to provide sustainable materials in the quantities needed to meet demand, however.
Purchasers should aim for strategic-green-procurement excellence by identifying potential mines and refineries across different geographies and then assess their volume, quality, environmental impact (looking not just at greenhouses gases but all planetary boundaries). It will also be important to evaluate the societal risks involved in securing an adequate supply. Last, the entire value chain needs to step up their game in enabling true circularity with tight loops like life extension, rather than just the wide loop of recycling.
This article and the underlying data and analytics can help promote better planning by the relevant stakeholders in the private and public sectors, as well as by investors. These stakeholders require a reliable fact-base and transparency on raw-material demand and supply imbalances to de-risk their investments.
Batteries require a mix of raw materials, and various pressures currently make it difficult to procure adequate supplies. McKinsey''s MineSpans team, which rigorously tracks global mining and refining capacity projects, has created several future scenarios based on available information. The base-case scenario for raw-material availability in 2030 considers both existing capacity and new sources under development that will likely be available soon. The team''s full potential scenario considers the impact of pipeline projects that are still in the earlier stages of development, as well as the effect of technology innovation and the potential addition of new mining and refining capacity.
While some battery materials will be in short supply, others will likely experience oversupply, making it more difficult to plan. The success factors for ensuring a sufficient global supply include obtaining greater transparency on supply and demand uptake, proactively identifying the need for new mining and refining capacities to avoid bottlenecks, channeling investments into new capacity, and improving investment returns and risk management.
Approximately 75 percent of today''s mined cobalt originates from the Democratic Republic of Congo (DRC), largely as a by-product of copper production (Exhibit 7). The remainder is largely a by-product of nickel production. The share of cobalt in batteries is expected to decrease while supply is expected to increase, driven by the growth in copper mining in the DRC and of nickel mining, primarily in Southeast Asia. While shortages of cobalt are unlikely, volatility in supply and price may persist because it is generally obtained as a by-product.
Supply of manganese should remain stable through 2030 since no announcements of additional capacity are expected (Exhibit 8). Demand for manganese will likely slightly increase and, thus, our base scenario estimates a slight supply shortage. The industry should be aware that some uncertainty surrounds manganese demand projections because lithium manganese iron phosphate (LMFP) cathode chemistries could potentially gain higher market shares, especially in the commercial vehicle segment.
Battery electric vehicles (BEVs) often are criticized for their greenhouse-gas footprint throughout their life cycle. However, although results vary significantly depending on factors such as milage, production, and electricity grid emissions, our models clearly indicate that BEVs are the most effective decarbonization option for passenger cars.
In the next five to seven years, ambitious players might cut the carbon footprint of battery manufacturing by up to 90 percent, but this would call for changes throughout the whole value chain.
Different tactics can aid in abatement. In the best-case scenario, some of these would result in cost savings, while others would entail large expenditures. Under the most beneficial circumstances, companies might potentially decarbonize up to 80 percent of emissions at a minimum additional cost (Exhibit 10). The site of manufacturing and the intended market, including its carbon price, customer demand, and willingness to pay potential green premiums, will help determine how cost competitive low-carbon batteries may be.
The most effective decarbonization levers include the use of circular materials and low-carbon electricity. Their economic attractiveness may vary, however, primarily because of local issues, such as electricity feed-in-tariffs, subsidies, and available materials.
Some recent advances in battery technologies include increased cell energy density, new active material chemistries such as solid-state batteries, and cell and packaging production technologies, including electrode dry coating and cell-to-pack design (Exhibit 11).
When making investments decisions, battery manufacturers could find these rapid advances challenging. After choosing the battery technology that fits their application needs best, they should then quickly secure the required raw material upstream, acquire the capable machinery mid-stream to suit the battery chemistry and application, and recruit the indispensable talent required for those projects.
The uncertainty about cell technologies and form factors supplied by different producers also imposes significant complexity costs and risks to the after-sales, repair, and maintenance of batteries. Vehicle OEMs need to ensure that EV battery modules and packs can be replaced at a low cost long after the typical eight-year warranty period.
To manage uncertainty, battery cell manufacturers need to plan their target investments carefully and scout for external funding opportunities, such as green bonds or subsidies in relevant regions. Simultaneously, they should accomplish several other important tasks: plan their manufacturing plants, optimize short- and long-term costs to ensure agility and adaptability of production lines, and steer investments into new technologies.
The 2030 outlook for the battery value chain depends on three interdependent elements (Exhibit 12):
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