Cobalt, Lithium, and the Battery Supply Chain

The Battery Supply Chain

A lithium-ion battery cell contains a cathode (the positive electrode), an anode (the negative electrode), an electrolyte, and a separator. The cathode chemistry — nickel-manganese-cobalt (NMC), lithium-iron-phosphate (LFP), nickel-cobalt-aluminum (NCA) — varies by application. The supply chain from extracted raw materials to finished cells passes through multiple stages, each with its own geographic concentration and political-economy considerations.

Cobalt: The DRC Concentration

Roughly 70% of the world's cobalt is mined in the Democratic Republic of the Congo. The mining operations split between large industrial mines (operated mostly by Chinese-owned companies) and artisanal small-scale mining (ASM) where the conditions include substantial child labor and significant occupational hazard. The 2024 Cobalt Institute estimates ASM at roughly 15-20% of DRC production.

The geopolitical risk is substantial. The DRC's political stability is uncertain. The Chinese ownership of much of the industrial production creates concerns about supply security for Western battery makers. The downstream verification of working conditions has been weak — the Apple, Tesla, and BMW investigations in the 2020s revealed substantial gaps between published sourcing claims and actual practice.

The technical alternative is cobalt-free chemistries. LFP cells require no cobalt and are now substantially cheaper than NMC for many applications. The 2020s have seen rapid LFP adoption in China, slower adoption in Western markets. The trade-off is energy density — LFP cells store less energy per kilogram, which matters more for electric vehicles than for stationary storage.

Lithium: The Triangle and Australia

Lithium production is concentrated in three geographic regions:

• Australia: roughly 50% of global production, mostly from hard-rock spodumene mining.
• Chile: roughly 25%, from lithium brine evaporation in the Atacama Desert.
• Argentina: roughly 6%, also from brine. With Bolivia (smaller production but vast reserves), forms the "lithium triangle".
• China: roughly 13%, from a mix of hard-rock and brine sources.

The mining concentration is geographic; the refining concentration is even more political. China handles roughly 60% of global lithium refining capacity, regardless of where the raw material was mined. This is the chokepoint that the US and EU industrial-policy frameworks are trying to address.

Nickel: Indonesia's Rise

Nickel production has shifted substantially since 2018. Indonesia banned raw nickel ore exports in 2014 to force value-added refining domestically. The strategy worked: Indonesian nickel production has roughly tripled, and the country now produces over 50% of global battery-grade nickel. The downstream refining is largely Chinese-owned, which produces the same chokepoint pattern as lithium.

The environmental and social cost has been substantial. Indonesian nickel mining and refining has produced significant deforestation in Sulawesi and Halmahera. The Indonesian Moratorium on raw exports is the textbook case of value-capture industrial policy, but the environmental costs have been substantial enough that the EU's CBAM framework is examining whether to include nickel products in its expanded coverage.

Refining: The China Concentration

The refining stage is where the supply-chain concentration problem is most acute. Approximate 2024 shares of global refining:

• Lithium refining: China ~60%, Chile ~20%, Argentina ~8%, others ~12%.
• Cobalt refining: China ~75%, Finland ~10%, Belgium ~5%, others.
• Nickel refining (battery grade): China ~75%, Indonesia ~15% (much owned by Chinese firms), Japan ~5%.
• Graphite refining (for anodes): China ~90%.

The implication is that even if raw materials are sourced from non-Chinese mines, the refined materials needed for cell manufacturing typically pass through Chinese processing. Building non-Chinese refining capacity at scale is what the US and EU industrial-policy frameworks are trying to incentivize.

Cell Manufacturing: The China Lead

Battery cell manufacturing capacity is also concentrated. China's share of global capacity is roughly 75%. Korean firms (LG, Samsung, SK Innovation) account for another 15%. Japanese firms (Panasonic) account for another 5%. US, European, and Indian capacity together are roughly 5%.

The IRA is the largest single attempt to shift this distribution. The announced US battery manufacturing investments through 2024 would, if delivered, raise US share from roughly 1% to roughly 12% by 2030. That is substantial change but still leaves China as the dominant producer.

The IRA's Domestic-Content Requirements

The IRA's Section 30D EV credit and Section 45X manufacturing credit both include domestic-content requirements that exclude substantial Chinese content. The structure:

• Battery components: 50% must be manufactured or assembled in North America in 2024, rising to 100% by 2029.
• Critical minerals: 40% must be extracted or processed in the US or in countries with which the US has a free-trade agreement, rising to 80% by 2027.
• Foreign Entity of Concern: starting in 2024, batteries cannot contain components manufactured or assembled by "foreign entities of concern" (effectively, Chinese-controlled firms). Starting in 2025, the rule extends to critical minerals.

The rules are aggressive. Their interaction with the actual supply chain is complex. Treasury's January 2024 guidance attempted to define "Foreign Entity of Concern" in ways that would allow non-Chinese firms to operate even when they have minority Chinese investment. The interpretation is being contested.

The Transition Timing Implications

The geographic concentration of the battery supply chain has several implications for the energy-transition timing:

Cost: rapid expansion of non-Chinese capacity will be more expensive than continued reliance on Chinese sourcing. The IRA's subsidies cover much of the cost differential for US production but not all of it.

Speed: building refining and cell-manufacturing capacity takes 3-7 years per facility. The capacity that is operational by 2030 substantially determines the EV adoption trajectory through 2035.

Geopolitical risk: continued concentration in Chinese sourcing means that any major geopolitical disruption (Taiwan crisis, South China Sea conflict, US-China trade war) could disrupt the energy transition substantially.

Quality: Chinese production has improved in quality steadily. The newer non-Chinese capacity will need to match these standards to be competitive, which is not automatic.

The Honest Reading

The battery supply chain is the structural test of whether the energy transition can proceed without major geopolitical disruption. Current concentration in Chinese refining and manufacturing creates dependency that the US and EU industrial- policy frameworks are trying to reduce, but reduction takes years and the alternative capacity is not yet at scale. The next decade will determine whether the transition can be diversified before the geopolitical risks materialize. The IRA's subsidies represent the largest single bet that the diversification can happen fast enough; whether that bet pays off is the empirical question for the late 2020s.

Reading List

• BloombergNEF annual battery price and supply chain surveys
• Benchmark Mineral Intelligence's gigafactory tracking
• USGS Mineral Commodity Summaries (annual)
• IEA's Critical Minerals Outlook
• Resources for the Future on critical minerals policy