Green Economy Journal Issue 59

MOBILITY
Kearney Analysis
Figure 2. China provides about three-quarters of the world’s supply of both natural and synthetic graphite.
To de-risk graphite supplies, companies need to broaden their
supply base. For EV firms that sole-source their graphite from China,
the immediate priority is to look for alternatives. Many companies
have been doing this since even before the pandemic. For 2017 to
2020, all US firms (including non-EV) relied on China for only a third of
their graphite supplies; the other main suppliers were Mexico (21%),
Canada (17%) and India (9%).
The most likely short-term sources are the mines opening in
Mozambique, Madagascar and other African countries. These mines
are looking for contracts, but procurement needs to factor in the
frequent phases of political instability those countries have shown.
In the medium to long term, customers can build relationships with
suppliers in Turkey and Brazil. Existing mines there may already have
locked up their production, but the two countries hold enormous
reserves and are likely to expand production soon.
As for supplies of synthetic graphite, the challenge here is the
processing of those fossil-fuel by-products. US production is likely
to fall due to strict environmental regulations and costs. Beyond
the immediate sourcing, companies have a variety of options for
reducing risk in graphite supplies:
Long-term contracts. Tesla has extensive formal agreements with
Syrah in Australia to buy graphite from mines in Mozambique. GM has
a six-year agreement with Posco (a South Korean steel maker) to supply
synthetic graphite.
Demand reduction. BMW is pioneering technology to reduce the
graphite content in batteries (silicon is the best alternative).
Near-shoring. To reduce political risk, Tesla is evaluating mineral
resources from Canada. Hyundai is likewise evaluating localisation to
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To de-risk graphite supplies,
companies need to broaden
their supply base.
ensure a stable supply. These are mid- to long-term approaches, not
quite fixes. Building on these approaches, we recommend multiple
initiatives across both the short and long term:
Seek long-term contracts with a broad mix of suppliers. Longterm
contracts will ensure a steady supply even if the market is
squeezed tight and could work with either commodity aggregators
or with mines/processors directly. The optimum mix includes two
to three established suppliers and two to three recent entrants as
challengers. Because these are commitments over several years,
buyers will need to predict their own needs for graphite as well as
assess the supplier’s plans for expansion. They should also segment
suppliers based on their political risk profile and geography. Vertically
integrated suppliers will need extra attention because some of their
mines may be closing soon.
Form strategic partnerships across the value chain. Some large
buyers may want to go further and create formal partnerships with
suppliers, especially at nodes with constraints. Outright acquisition
and vertical integration have become popular options but bring risk
as well from greater corporate complexity and lost flexibility in a
volatile market.
Reduce internal specifications and demand. Some battery
makers have highly specific requirements for their graphite,
both types and grades. Maybe they needed these specifications
early, but now they should consider reducing these specifications
to expand the potential suppliers. (Fewer specifications also helps
to reduce internal complexity.) With recent advances in purification,
they can also evaluate using both synthetic and natural graphite.
Watch developments in graphite recycling. Researchers and
start-ups have made breakthrough innovations in recycling used
EV batteries, and graphite reuse may soon be practical. Large graphite
customers should follow these developments and consider investing
in feasible ideas to stay ahead of the curve.
Monitor sub-tier risks. The graphite value chain is complex,
and disruptions in flows to a primary supplier can upset ambitious
plans for batteries. Those depending on a steady flow of graphite
can work in advance to identify and mitigate risk in the supply base.
The Covid pandemic showed how disruptions in semiconductors
could hobble most of the automobile industry. If EV batteries, as
expected, become crucial to the future of transportation, then carmakers
will need to expand their risk management to graphite suppliers –
from natural disasters and labour unrest to geopolitical instability.
EV battery makers and their automaker customers, have long
realised the potential for supply bottlenecks for crucial battery
minerals. Yet graphite, because of its seemingly secondary role in
batteries and its large existing supply base, has attracted less attention
than its supply risks warrant. As EV production takes off in this decade,
customers in related industries will discover unexpected shortages
and price jumps. The time is now to reduce those risks with attention
to internal needs and external developments.
ESG | MINING
WATER | ENERGY
INFRASTRUCTURE