Adding to problems with computer chip shortages, car manufacturers are expected to face a growing shortage of electric vehicle (EV) battery cells in 2022, according to UBS.
Battery cell shortages, raw materials inflation and iron-versus-nickel-cobalt choices are seen as the "pivotal" 2022 industry debates, the investment bank said in a note entitled "year of the battery" ahead of the Chinese new year next week to reflect the ever growing influence of that country's EV penetration and production.
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Global EV demand is forecast to rise 59% to 10.4mn vehicles, with global penetration of 11.7%, UBS said, which is driven by shifting consumer attitudes, new model launches, and a pulling forward of demand prior to subsidy cuts
This increase in demand "further stresses cell supply", reducing China's spare capacity and pushing the market outside of China market into a wider deficit through to the end of the decade, analyst Tim Bush said.
The analyst said he believes cost inflation related to battery cells is "manageable" for car makers, who can simply raise their prices 4% for mass market standard range vehicles.
It is also expected to lead to an acceleration in car manufacturers scrambling to secure cell supply.
"2021 was a year of JVs in North America with Ford Motor Company (NYSE:F), Stellantis NV (NYSE:STLA, EPA:STLA) and General Motors Company (NYSE:GM) all entering new relationships or upsizing existing ones with Korean battery makers.
"In 2022 we expect European OEMs to follow US peers in securing cell supply via JVs with incumbents."
Iron ore versus nickel-cobalt choices
Bush predicted that demand for iron ore in batteries will fade, amid limited adoption outside of China and the introduction of next-generation nickel cells and structural battery packs.
However, he estimates iron battery systems have a 19% cost advantage over mainstream eight series nickel systems, mainly due to the absence of costly nickel/cobalt in iron cells.
But with iron cells lacking a clear path to raising energy density and the introduction of higher energy density next gen nickel cells, "iron should lose cell level cost advantage".
Additionally, as carmakers move to structural battery packs, cost "will level" across chemistries, Bush predicted, forecasting next-generation nickel structural battery systems will have an 60% energy density advantage over iron.