McKinsey: How Sustainable is the 2030 Battery Supply?

The rapid rise of electric vehicles (EVs) and renewable energy technologies has placed unprecedented strain on the supply chains of critical raw materials.

As the latest analysis from McKinsey shows, the demand for these materials may soon outstrip base-case supply, posing significant challenges such as shortages, price volatility and the need for heavy investments.

Here, Scope 3 Magazine takes a closer look at key materials including lithium, nickel, cobalt and manganese as McKinsey reveals the complexities of ensuring a sustainable supply chain.

Which raw materials are under threat?

Lithium plays a central role in the production of batteries, with in excess of 80% of global lithium already used by battery producers.

By 2030, this share could climb to 95% according to McKinsey. While technological advancements, such as direct lithium extraction, are unlocking previously untapped reserves, the demand for lithium is set to surge. These innovations must ramp up significantly to meet future needs, especially as lithium-heavy batteries remain a dominant technology.

Nickel demand is skyrocketing due to its use in lithium nickel manganese cobalt oxide (Li-NMC) batteries for EVs. Despite substantial investments in new mining operations, particularly in Southeast Asia, supply will need to grow further.

Today, about 65% of class 1 nickel—a high-purity type essential for batteries—is used in stainless steel production. By 2030, the competition between the battery and steel sectors could lead to shortages.

The Democratic Republic of Congo (DRC) accounts for 64% of the world's cobalt production, much of which is a by-product of copper and nickel mining.

Despite its diminishing role in battery chemistry, McKinsey says absolute demand for cobalt could increase by 7.5% annually until 2030. The cobalt supply chain faces challenges related to price volatility and the ethical sourcing of materials, prompting a push for greater transparency and sustainability.

Although manganese ore is abundant, its use in batteries requires refining into high-purity manganese sulphate monohydrate (HPMSM). The production of HPMSM is technically complex, demanding precise control to eliminate impurities.

McKinsey projects current supply growth to be modest, whilst only a fraction of the projected demand for battery-grade manganese is expected to be met by 2030.

Geographic concentration and supply risks

McKinsey's report explains that raw material supply chains are highly concentrated in a few countries. It outlines how Indonesia leads in nickel, the DRC dominates cobalt and lithium is mainly sourced from Argentina, Bolivia and Chile.

Refining is also concentrated, with China playing a central role for cobalt, lithium and graphite. This dependence on a handful of regions raises supply risks for key players such as the European Union and the US, which heavily rely on imports.

For instance, the EU sources 68% of its cobalt from the DRC, 24% of its nickel from Canada and 79% of its refined lithium from Chile. Trade restrictions, such as China’s controls on graphite and Indonesia’s ban on nickel ore exports, amplify these risks.

In response, Western nations are enacting policies to boost domestic production, including tax incentives and local manufacturing mandates, to reduce reliance on foreign suppliers.

Addressing ESG and emissions concerns

ESG considerations are also becoming integral to supply chain management, according to McKinsey, with regulatory pressures such as the EU Batteries Regulation aiming to create a sustainable battery life cycle, encompassing material sourcing, production, recycling and repurposing.

Transparency challenges persist, particularly for materials like high-purity manganese, where more than 95% of production occurs in China. Similar concerns apply to graphite and anodes, where China has a near monopoly.

Decarbonisation of the transport sector is also linked to reducing emissions across the battery supply chain. About 40% of battery-related emissions stem from mining and refining processes.

Battery designs further influence emissions, with cathodes in Li-NMC batteries producing more emissions than those in lithium iron phosphate (LFP) batteries.

Improving practices in extraction and refining and optimising sourcing strategies are critical to reducing the overall environmental impact.

Building resilient and sustainable supply chains

Previous years of disruption, including shortages of magnesium, silicon and semiconductors, highlight the fragility of global supply chains.

Just last year, a hurricane vastly limited quartz supplies, at a time when buyers were increasingly seeking resilience. Strategies include diversifying sources, boosting domestic production and fostering partnerships that align with ESG standards.

Policymakers are also stepping in, introducing measures to incentivise domestic production and strengthen supply chains. 

As the world transitions to sustainable energy, balancing demand, supply and environmental concerns is a complex but necessary endeavour.

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