A primer on the importance of critical minerals for electric vehicles and concerns about their availability and cost.
Why are critical minerals important for electric vehicles?
Replacing gasoline- and diesel-powered vehicles with electric vehicles is a major part of the effort to reduce greenhouse gas emissions from the transportation sector. Current designs for electric vehicle batteries require several different critical minerals: cobalt, natural graphite, lithium, manganese, and nickel.
What concerns have been raised about the availability and cost of critical minerals?
Large percentages of critical minerals come from politically unstable countries and geopolitical rivals. Dominant suppliers of extracted or processed critical minerals might use their market power to charge excessive prices or pursue political goals. A high concentration of critical mineral supplies among a small number of suppliers can increase the risk of supply disruption and price volatility due to conflict within source countries or acts of nature.
Shortages and substantial price jumps for critical minerals could slow the transition to electric vehicles, complicating US efforts to reduce national emissions of greenhouse gases and delaying growth in an important manufacturing sector. This risk has prompted calls for identifying new domestic sources of critical minerals.
Where are critical minerals available, extracted, and processed?
Extraction is highly concentrated geographically for cobalt and natural graphite, with a single country supplying over 70 percent of global supplies in each case (Figure 1). The leading supplier of cobalt is the Democratic Republic of the Congo, which has a long record of internal unrest, international conflict, human rights violations, and environmental pollution. Concerns about imports from the Democratic Republic of the Congo have increased interest in electric vehicle battery designs that reduce or eliminate the need for cobalt. China, the leading supplier of natural graphite, has recently imposed more stringent licensing requirements on exports of natural graphite. So far, however, no major effects on the availability or price of this mineral have been noted.
Figure 1: Critical Mineral Extraction: Global Market Shares in 2022
Lithium, manganese, and nickel extraction are less concentrated in a single country, compared to cobalt and natural graphite (Figure 1). Most of the source countries for those minerals tend to be market-oriented economies, and more than one firm is involved in extracting them. Nonetheless, markets for lithium, manganese, and nickel remain small, so price volatility could result from relatively small disruptions. Diversifying the geographic origin of the minerals could dampen volatility.
An important caveat is that China has made significant capital investments in companies that extract critical minerals in other countries (Table 1), both in terms of existing facilities and companies that are expected to begin production soon. As of 2020, Chinese-backed companies owned or had a financial stake in 15 of the 19 cobalt-producing mines in the Democratic Republic of the Congo. China also has been investing in foreign capacity for processing nickel.
Table 1. Examples of Chinese-Owned Lithium and Cobalt-Mining Facilities outside China
Table source: Spiller, Kannan, and Toman (2023). Data sources: Sociedad Química y Minera de Chile (2022), Tianqi Lithium (2023), Ganfeng Lithium, Tang and Chen (2023).
Mineral reserves are known physical quantities of minerals in the earth that can be extracted cost-effectively, given current market conditions and technologies. The quantities of critical mineral reserves in different countries provide insight on the potential extraction rates of the minerals by those countries over the medium term if prevailing market conditions continue or improve. Reserves of critical minerals are significantly less concentrated geographically (Figure 2) than current extraction. The more diverse geographic distribution of reserves lessens concerns over potential fluctuations in availability or price volatility for extracted critical minerals.
Figure 2. Critical Mineral Reserves: Geographic Distribution in 2022
Extracted critical minerals must undergo processing to become useful for electric vehicle battery production. Cobalt, lithium, and manganese processing are highly concentrated in China, whereas China’s share of nickel processing is relatively lower than other countries (Figure 3). However, in the wake of Indonesia’s various bans on exports of nickel ore between 2009 and 2020, Chinese companies have invested $14.2 billion to construct industrial parks in the country, including nickel smelters on two Indonesian islands that have some of the largest known nickel reserves in the world. Although data are not available for natural graphite processing, China is the major source of extracted natural graphite (Figure 1).
Figure 3. Critical Mineral Processing: Global Market Share in 2021
How might the global distribution of critical minerals and their processing capacity affect US policy?
Reserves of the critical minerals used for electric vehicle batteries are quite small in the United States. Even if the United States did discover significant new domestic reserves of critical minerals, US extraction would start way behind the major suppliers, particularly given the long timelines required to scope out, develop, and operate a new mine.
Available data indicate that critical mineral reserves are less geographically concentrated than current sources of critical mineral extraction. Concerns about the future availability and price of extracted minerals could be mitigated by increasing and diversifying the supplies of critical minerals from all reliable sources. Accomplishing this diversified access requires cultivating and maintaining trade agreements with source countries that offer stability, competitive prices, and environmental and social sustainability.
The data above also provide cause for concern about market concentration for critical mineral processing. China has had a substantial head start due to its long-term industrial strategy. This head start also grants China a competitive advantage in building and operating new processing capacity for critical minerals.
Processing capacity will need to grow globally to meet the anticipated growth in demand for critical minerals due to large-scale vehicle electrification. The United States and other major buyers of critical minerals will need to weigh the benefits and risks of making their own competing investments in expanded processing capacity, which may require significant financial support until mineral processing becomes as mature as it is in China. An alternative option to expanding domestic processing capacity would involve investment in middle-income developing countries that are strong technologically and have solid governance, but where production costs would be lower than in more advanced economies.
What types of public policy and private-sector action with critical minerals can help support a clean energy transition?
Given the uncertainties around the future availability and cost of critical minerals, careful policy development will be key to supporting a clean energy transition. A crucial policy component for helping address those unknowns is supporting new battery technologies through research and development, including the pursuit of designs that substitute other materials for the critical minerals that have fewer stable supplies. Further research and development also may help electric vehicle manufacturers develop vehicle and battery designs that facilitate greater flexibility in their demand for critical minerals.
Credit: Grzegorz Czapski / Shutterstock
While public policies are needed to help address concerns about volatility and risk in critical mineral supply chains, actions by the private sector also can help overcome these challenges. For example, the shift within critical mineral markets toward more transparency and flexible pricing can reduce the economic uncertainty faced in critical mineral extraction and processing. Other potential market developments include an increase in critical mineral inventories held by private entities, to hedge against shortages and price volatility. For critical mineral users in the vehicles sector, private-sector inventories can offer more flexible opportunities to buffer price shocks and maintain supply-chain stability in case of interruptions in the availability of minerals. As pricing in critical mineral markets becomes more transparent, private-sector users of critical minerals will more easily be able to assess the economic benefits and costs of acquiring, holding, and managing those inventories.
What open questions should be addressed in critical minerals policy research?
As demonstrated in this blog post, many concerns and uncertainties revolve around critical mineral supply, geographic concentration, and market power. Further research can help address these issues. For example, how will price volatility in critical mineral markets affect the cost of electric vehicles and their adoption pathways? To what extent can holding inventories reduce the ability or incentive of dominant countries to restrict supplies? What levels of funding are needed for research and development to achieve sufficient battery innovations that allow vehicle manufacturers to hedge against price uncertainty for critical minerals? New research along these lines can help inform policies and decisionmaking, with the goal of achieving sustainable and reliable markets for critical minerals and, in turn, a cost-effective transition to electric vehicles.
