Value addition in the US$1 trillion battery value chain

Countries that produce battery raw materials are seeking to capture a greater share of the value chain for electric vehicles (EVs). While production of key battery materials like cobalt, lithium, nickel, graphite, and manganese is heavily concentrated in developing countries, mineral producers rarely participate in processing, cell production, or battery recycling. Policymakers in mineral-rich countries want to see that change.

As policymakers in mineral-rich countries race to capture more value from the energy transition, they must decide where to focus initiatives for moving further downstream. Our four key insights can guide the way.

Fill in the form at the top of the page to download our key takeaways, or read on for a brief introduction to the four main themes discussed:

1. Despite recent headwinds, the mining, processing, and battery market is expected to grow more than 3x to reach over $1 trillion by 2040

The last 12 months have been difficult for participants in the EV value chain. Rising interest rates and softening consumer demand have led EV adoption to undershoot expectations. Tesla announced it expects “significantly slower” growth in 2024 and experienced shrinking margins in Q4 2023. General Motors and Ford, reacting to similar market conditions, both rolled back their EV ambitions. In fact, Ford recorded losses of $3 billion in its EV division in 2023.

Softening EV demand has trickled down to the battery industry. New entrants to battery manufacturing and precursor (pCAM) and cathode active material (CAM) have additionally been hit by high interest rates and fierce competition.

Producers in the EV value chain however can maintain optimism. Substantial revenue growth is on the horizon as markets and policy reach a tipping point in the long-term shift from ICEs to EVs. Governments also face an imperative to prepare for the next wave of foreign direct investment. Countries will need to determine how to access downstream production while continuing to capture the significant revenue opportunity in mining and processing.

2. Mining and processing are likely to be the most diversified stage of value chains over the next two decades, while downstream industries will remain concentrated, with China poised to keep control of more than 50% of processing and 60% of pCAM/CAM/cell capacity

 Considerable effort has gone into reshaping supply chains over the last few years. Western countries have sought to reshore, nearshore, and friendshore operations to break China’s dominance in processing and battery manufacturing. Meanwhile, low- and middle-income countries have enacted a wide range of policies to promote local value addition. How much have these efforts moved the needle?

Despite evolving policies, regions’ market share for mining, taking an average across cobalt, lithium, natural graphite, nickel, and manganese, is expected to remain relatively stable over the next decades. By 2040, Africa is projected to hold an estimated average of 36% of mined production across all five minerals, slightly up from 32% in 2024. The remainder of the mined supply will be spread across different jurisdictions including China, the rest of Asia, South America, and Oceania. While certain countries will dominate individual markets, no single country will hold a dominant position across the mining of all battery raw materials.

3. Countries must understand and leverage their comparative advantages to focus policy and investment strategy in evolving value chains

In most cases, mineral-rich developing countries will find their comparative advantages aligned with production at the earlier stages of the EV value chain. This is partially shown through the current project pipeline, which is a proxy for cost competitiveness and risk-adjusted return. 

Mining is a clear area in which countries with mineral endowments have a comparative advantage and can attract meaningful investment. Mining competitiveness is largely determined by geology. If a country has favourable geology, it can solidify its competitiveness by investing in exploration, a prudent regulatory structure, and supporting infrastructure. Improving these variables requires planning, analysis, and time, but is largely feasible for most countries.

4. Granular, analytical understanding of how and where value addition occurs for different minerals and battery components is core to achieve sustainable returns

Most existing value addition policies are focused on moving from exports of ore/concentrate to intermediate/refined products. As policymakers pursue these policies, it will be important to understand the ways in which value chains are distinct across commodities.

Historically, most mineral producers have grown familiar with traditional base metals like copper and zinc which require large levels of energy to smelt. Smelting and refining minerals generally has a low value-add that is pieced together by treatment charges, refining charges, bonus recoveries, byproducts, and limited arbitrage opportunities against the benchmark price. But most of the price and margin realisation for copper comes from mining and concentration.  

The battery value chain will continue to expand as EV and ESS adoption and the energy transition accelerate. Mineral-rich countries have a key role in enabling the transition. And they also stand to benefit tremendously if they can determine the right mix of policies to convert mineral demand into sustainable economic growth.  

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