Can Tesla and the world produce enough batteries to meet EV ‘frenzy’?

A global electric vehicle “frenzy” is coming, and lithium ion battery production capacity needs to increase tenfold over the next decade to meet the emerging demand, a new report by Rystad Energy finds.

Rystad estimates an additional $US560 billion of investment in battery production will be needed by 2030 – and it says  nearly half of that will go into Tesla’s huge expansion plans.

Chinese battery giant Contemporary Amperex Technology Limited (CATL), already the biggest spender on battery production in the world, and German car maker Volkswagen, the second biggest, will also be major drivers of growth towards 7 terawatt hours of production capacity by 2030.

Current global production capacity is just a tenth of that figure.

In September last year, Tesla announced an ambitious plan to boost battery production capacity 3TWh by 2030. To meet that, Rystad estimates it  will need to spend an extra $US230 billion on so-called battery “gigafactories” all over the world over the next 9 years.

That’s 13 times the $US18 billion the electric car maker has so far committed to invest in battery production between 2015 and 2030, and would account for nearly half the world’s investment in battery production between now and 2030 if Rystad’s figures are correct.

Tesla’s total current production capacity is just 50GWh, so the 3TWh (or 3,000GWh) target is 60 times its current production capacity.

Part of the extra capacity will come from its flagship gigafactory in Nevada (pictured) – which currently can produce 20GWh a year but is operating at just 30 per cent of its eventual capacity. Still, even when at full capacity that factory, it won’t get it anywhere near the 3TWh goal.

Tesla also has gigafactories in New York State and Shanghai, China, and is building one in Austin, Texas, and Berlin, Germany. It plans to build more around the world, with rumoured sites including Japan, South Korea, the UK and India.

The grey area in the chart below represents the unspecified production capacity, much of it Tesla’s, that Rystad says will be needed by 2030. Most existing and committed production capacity is in Asia, but more than half of the necessary new capacity is yet to be assigned a geographic location.

CATL  is planning to build its first European gigafactory in Germany, and to expand existing plants in Fujian, Jiangsu and Sichuan. Its committed investment accounts for 16 per cent of total battery investment. Rystad estimates it will need to invest an additional $US71 billion to ramp up annual production capacity to 1.5TWh by 2025.

Volkswagen has announced plans to build six European gigafactories, accounting for 16 per cent of global investment, while SVOLT, LG Chem, Farasis, and BYD have all committed to spending more than $US10 billion over the period.

If the Paris Agreement target of limiting global warming to well under 2 degrees is to be met, the next decade must see rapid electrification of transport. Countries and jurisdictions that are serious about meeting that goal are introducing ever more aggressive rules and incentives to push consumers and businesses away from petrol and diesel vehicles towards EVs.

Rystad says this trend will lead to a “global frenzy” to “beef up” the world’s  lithium ion battery manufacturing capacity to 7TWh by 2030, up from just 0.76 TWh today. It says this will require approximately $US560 billion of new investment to produce enough batteries to meet the demand. To date, $128 billion has been spent globally on battery production – an amount Rystad described as “relatively modest”.

“Our research shows that $80 billion of battery sales are lined up for 2021, a 26 oer cent increase on 2020 levels. Given the surge in demand for batteries, we expect annual sales will reach $130 billion in 2025 and almost $160 billion in 2030,”says Matthew Wilks, senior analyst at Rystad Energy.

“This growth rate is lower than that of global capacities, but due to the expected changes in battery chemistries and learning curve savings, battery costs are expected to drop this decade, increasing profit margins.”