Episode 204: Andy Leyland

Summary notes created by Deciphr AI

https://podcasts.apple.com/us/podcast/episode-204-andy-leyland/id1483677267?i=1000690344827
Abstract
Summary Notes

Abstract

In episode 204 of the Global Lithium Podcast, Joe Lowry hosts Andy Leyland, Managing Director of Supply Chain Insights, to discuss the state of the lithium-ion battery supply chain. Leyland highlights a global oversupply juxtaposed with regional undersupply, particularly emphasizing China's overinvestment and its implications for European and North American markets. The conversation covers the geopolitical tensions affecting the battery supply chain, particularly between the US and China, and the challenges in the energy storage systems market. Leyland predicts continued growth in electric vehicles and discusses the complexities of pricing and production in the lithium market, stressing the importance of strategic partnerships and investments.

Summary Notes

Lithium-Ion Battery Supply Chain Insights for 2025

  • The lithium-ion battery supply chain is experiencing a global oversupply but regional undersupply, with China having overinvested and demand not yet catching up.
  • Excess capacities in battery production, cathode, anode production, and lithium refining are leading to low margins, with many operations barely breaking even.
  • Chinese companies continue to invest outside China to maintain economies of scale, while North American and European companies rely heavily on government subsidies.

"You're in a position where almost every stage of the supply chain is in a global oversupply, but in a regional undersupply."

  • There is a market imbalance with a global oversupply and regional undersupply, complicating investment decisions.

"If you're an incumbent in China, actually your incentive is to continue to invest outside of China to make sure that you keep economies of scale."

  • Chinese companies are strategically investing outside China to sustain their market dominance and scale.

Geopolitical Dynamics in the Battery Supply Chain

  • The US-China geopolitical tension is significantly impacting the battery supply chain, with tariffs and efforts to exclude Chinese software from vehicles.
  • The US continues to subsidize its industry to compete with China, with the Inflation Reduction Act playing a crucial role.
  • The geopolitical landscape remains competitive, with China needing to export and the US aiming to catch up through subsidies and tax credits.

"The US still needs to subsidize its industry to play catch up."

  • US industry relies on subsidies to compete with China's established dominance.

"China needs to export its way out of the situation that it's in."

  • China's strategy involves exporting to mitigate its domestic oversupply issues.
  • Predicted growth for 2025 is 1.49 terawatt-hours, with electric vehicles (EVs) expected to drive more growth than energy storage systems (ESS).
  • Barriers in the ESS market include grid connection challenges and poor economics, while EVs benefit from new models and increased production.
  • European markets are recovering from the end of subsidy regimes, with strong growth observed in early 2025 figures.

"The growth's going to come back more in electric vehicles than it is in energy storage systems."

  • EVs are anticipated to be the primary growth driver in the battery market.

"There are actually a few barriers on the energy storage system market at the moment."

  • The ESS market faces significant challenges that hinder its growth potential.

Plug-in Hybrid Electric Vehicles (PHEVs) vs. EVs

  • PHEVs are seen as a transitional technology, with manufacturers favoring either internal combustion or fully electric vehicles due to supply chain complexities.
  • The average PHEV battery size is increasing, with a trend towards larger batteries in the future.
  • Despite negative narratives, battery growth continues due to increased PHEV sales and larger battery sizes.

"Plug in hybrids, you have this sort of stopgap technology."

  • PHEVs are considered a temporary solution before a full transition to electric vehicles.

"They're not going to go away, they're going to increase market share."

  • PHEVs will maintain market presence but are expected to decline as fully electric vehicles become more prevalent.

Dominance of China and the Role of Other Regions

  • China continues to dominate the battery supply chain, with increasing percentages of global involvement.
  • European companies are partnering with Chinese incumbents to de-risk investments, while the US develops a domestic supply chain excluding China.
  • Korean companies are investing heavily in the US, benefiting from the Inflation Reduction Act.

"It's almost impossible for Europe to sort of strategically exclude China the way that the US is."

  • Europe faces challenges in reducing reliance on Chinese investments in the battery supply chain.

"Korean companies are investing far more in the US than they are in Korea."

  • Korean firms are capitalizing on US policies to expand their presence in the American market.

Affordable EVs and LFP Batteries

  • The US needs affordable EVs to boost demand, likely requiring LFP batteries, which face cost challenges outside China.
  • Automotive companies prioritize investments in profitable models like luxury vehicles and SUVs, delaying affordable model development.
  • The US market favors ternary cathodes due to expectations for longer ranges and larger vehicles.

"If you're going to produce LFP in North America, it's going to be more expensive than LFP produced in China."

  • Cost competitiveness of LFP batteries is a significant challenge for North American production.

"The US market is a sort of natural market for ternary cathode."

  • The US consumer preference for longer range and larger vehicles aligns with ternary cathode battery technology.

High-Speed Rail and Transportation in the US vs. China and Japan

  • The US rail system, particularly Amtrak, is inefficient compared to high-speed rail systems in China and Japan.
  • Freight trains in the US have priority over passenger trains, causing delays and inefficiencies in passenger rail services.

"I've taken the high-speed rail all over China. It's great. It's as good as the Shinkansen. In Japan, if you have to take Amtrak from New York to Boston, you're going to go slower than you would if you were driving a car."

  • Highlights the superior efficiency and speed of high-speed rail systems in China and Japan compared to the US.

Electric Vehicle Market Dynamics

  • Differences in electric vehicle (EV) adoption between China, Europe, and the US are influenced by varying consumer expectations and market dynamics.
  • The proportion of electric vehicles and the type of battery technology (e.g., LFP) differ across regions.

"A lot of people say, you know, we see China where we've got, you know, sort of 50% of sales now being electric, electric vehicles... That's just not the case for Europe and America."

  • Emphasizes the unique market conditions and consumer preferences in different regions affecting EV adoption.

Impact of Political Decisions on Electric Transportation

  • The US administration's policies, such as the American Energy Executive Order, support the development of critical minerals for EVs.
  • The approach is market-driven, allowing consumer choice to dictate the pace of EV adoption.

"It seemed to me that while he wasn't going to sort of push electric vehicles... it was fully supportive of developing these supply chains."

  • Indicates a supportive stance towards EV infrastructure development without direct mandates.

Market Reset and Lithium Supply Chain Challenges

  • The lithium market is undergoing a prolonged reset period, with a potential turning point expected around 2026.
  • Lithium extraction is identified as a future bottleneck in the supply chain.

"The reset's in danger of becoming the new normal... lithium extraction is where the next bottleneck will be."

  • Highlights ongoing challenges in the lithium market and the importance of addressing supply chain bottlenecks.

Lithium Pricing and Market Dynamics

  • Lithium pricing is influenced by market supply and demand, with predictions of price stabilization around $15,000 per ton.
  • The market is sensitive to supply responses, which can cap price increases.

"If prices get towards 15,000, there will be quite a quick supply response and that will cap any price increase that we see this year."

  • Describes the delicate balance between supply, demand, and pricing in the lithium market.

China's Role in the Global Lithium Market

  • China's domestic lithium production is limited, necessitating significant imports to meet refining needs.
  • The market dynamics are compared to other industries like copper and iron ore, where China is a major refiner but relies on imports.

"With 10 to 15% coming domestically and sort of 50, 60% being refined domestically, that means, you know, they're very import dependent."

  • Illustrates China's strategic position in the lithium market as a major refiner reliant on external sources.

Challenges in Chinese Overseas Projects

  • Chinese companies face similar challenges as other global players in executing overseas mining projects, such as delays and cost overruns.
  • While refining expertise is a strength, mining and extraction remain challenging outside China.

"On the mining side? And you know, probably on the, the sort of brine extraction side, you know, very similar to everybody else."

  • Acknowledges the difficulties faced by Chinese companies in international mining projects despite their refining capabilities.

Experience Gap in Lithium Production

  • Historical context of lithium production highlights the expertise developed in North Carolina during the early 1980s.
  • The current challenge lies in the experience gap outside of China, where many of the original experts have passed away.
  • The U.S. faces difficulties in replicating the success of China's lithium production due to a lack of experienced personnel.

"If you go back to the early 80s, the two hard rock producers in the world that made any difference were both in too little town or central North Carolina."

  • Highlights the historical significance of North Carolina in lithium production.

"There is an experience gap outside of China."

  • Emphasizes the current lack of experienced personnel in lithium production outside China.

Challenges in the Lithium Supply Chain

  • The global lithium supply chain is experiencing issues, such as companies like Norfolk nearing bankruptcy due to production challenges.
  • The U.S. is perceived as overconfident in its ability to match China's decade-long advancements in a few years.
  • Experience and practical knowledge are crucial for overcoming production bottlenecks and optimizing processes.

"Norfolk, which is getting obviously a lot of press because they're close to bankruptcy because they can't produce batteries as the way that they thought they would."

  • Illustrates the financial and production struggles within the lithium supply chain.

"The true narrative of China is in 2000, nobody made a decent material."

  • Provides context on China's gradual development in lithium production.

Importance of Experience and Knowledge Transfer

  • The art of lithium production involves nuanced adjustments that require experience, such as changing flow sheets or tweaking reagents.
  • The U.S. faces a challenge in replacing experienced workers with younger engineers, leading to operational setbacks.
  • Partnerships with Chinese firms are suggested as a way to mitigate risks in new lithium projects.

"This is why you're having a problem. This is how you do bottleneck. Let's change the diameter of that pipe or, you know, increase the number of filters here or there or tweak the reagents."

  • Highlights the importance of experience in making precise adjustments in lithium production.

"They went through this fire. All of 60 year olds who didn't go to college or high school who just knew how to make hydroxide and hire young engineers from some of the better engineering schools around."

  • Describes the loss of experienced workers and the impact on operations.

Investment and Risk in the Lithium Industry

  • Due diligence is crucial for investors in the lithium supply chain, with Chinese partnerships offering a way to de-risk investments.
  • Western engineering firms often lack experience in lithium projects, sometimes deploying less experienced teams.
  • The current price environment makes it difficult for junior miners to raise capital, affecting new supply development.

"The easiest way to de-risk is to actually have some kind of Chinese partnership or have, you know, a Chinese engineering firm, you know, maybe not sort of running the show, but on hand to, to help out."

  • Suggests Chinese partnerships as a strategy to mitigate investment risks.

"It's almost impossible for them to raise money at the moment given the current price environment."

  • Describes the financial challenges faced by junior miners in the lithium industry.
  • Changes in lithium contracts include shifts in pricing benchmarks and increased toll refining by Chinese refineries.
  • Price volatility has led to changes in contract structures, with more emphasis on revenue sharing.
  • The industry is moving towards hybrid pricing strategies to adapt to market fluctuations.

"A lot of the refineries, particularly in China, don't want to take on price risk at these levels because their cash flow is so poor."

  • Highlights the financial caution exercised by Chinese refineries in the current market.

"The producer will get 50% the consumer and that's what I've always advised people is to not lock into a strict anything."

  • Advises against strict pricing contracts due to market unpredictability.

Lithium Market Forecast and Cost Curves

  • The lithium cost curve forecast is limited by the lack of historical data and the speculative nature of future production.
  • Current forecasts predict significant growth in lithium supply by 2030, but accuracy is uncertain.
  • Technological advancements and new production methods may impact future cost estimations.

"What is interesting about lithium cost curves is, you know, even if we're costing, you know, that sort of 2.8 million tons, we're doing that at a time when production is 1.2 million tons."

  • Highlights the speculative nature of future lithium cost forecasts.

"The certainty from that cost curve should be taken with a very big pinch of salt."

  • Advises caution when interpreting lithium cost curve forecasts due to limited historical data.

Cost Implications of Production Levels

  • Discussion on production levels and their impact on costs, particularly focusing on the 2.7 to 3.2 million production range.
  • Emphasis on the importance of understanding where Direct Lithium Extraction (DLE) and Hard Rock projects fit into the cost curve.

"If you're far right at 2.8 is over 30, your 3.2 is probably going to be 40 something. Which says something about where price needs to be for this industry to supply what it needs to supply."

  • The quote highlights the correlation between production increases and cost implications, suggesting higher production levels will necessitate higher prices.

Challenges in DLE and Hard Rock Projects

  • Challenges in DLE projects include ramping up production and managing costs effectively.
  • Importance of refining capacity and the role of low-grade material in addressing supply issues.

"The problem with these is they're going to end up producing 10,000 tonnes a year and have all of the cost. So, you know, you're effectively then going to double the production cost."

  • This quote underscores the cost inefficiencies in DLE projects due to lower-than-expected production levels.

Future of Independent Converters Outside China

  • Discussion on the economic viability of converters outside China, with a focus on Europe and the United States.
  • Mention of potential winners in Europe like AMG and their plans for expansion.

"At the moment most of these converters are not economically viable. You know, that's why they're not moving forward."

  • The quote indicates the current economic challenges faced by independent converters outside China.

Industry Structure and Deep Pocket Investments

  • Examination of the role of major companies like Rio Tinto, Equinor, and Exxon in the lithium industry.
  • Discussion on the potential impact of DLE technologies and the long timelines for these projects.

"Neither of them have made their sort of final investment decision yet. But let's assume they do go ahead."

  • The quote reflects the cautious approach and long-term planning of major companies in the industry.

Barriers to North American Lithium Production

  • Exploration of barriers to lithium production in North America, including land ownership and exploration challenges.
  • Mention of potential players like Exxon and Oxychem in North American production.

"The way that land is packaged and sold for exploration is a real barrier."

  • This quote highlights the structural challenges in North American lithium production.

Futures Market and Pricing Mechanisms

  • Analysis of the current state of the futures market and its slow progress in gaining liquidity.
  • Discussion on the benchmark prices outside China and the influence of fast markets.

"It's actually going even slower than I thought it would in terms of getting liquidity."

  • The quote conveys the slow development of the futures market in gaining traction and liquidity.

Insights on Pricing Disputes

  • Examination of pricing mechanisms and disputes arising from different pricing strategies.
  • Mention of cases where pricing disputes have arisen due to differences in contract terms.

"These, you know, two parties are arguing about sort of changing the price."

  • This quote illustrates the complexities and conflicts that can arise in contract pricing negotiations.

Personal Insights and Hiring Practices

  • Personal insights on hiring practices and the importance of working with known individuals.
  • Mention of a unique interview question used to gauge lateral thinking.

"I only hire people I've worked with before. So take on any risk."

  • The quote emphasizes a cautious approach to hiring, prioritizing known individuals to minimize risk.

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