Denys Aloshyn, Chief Strategy Officer at UkrLithiumMining LLC

 

In November 2021, following the Glasgow Climate Conference, six global car manufacturers signed a declaration to phase out internal combustion engines from 2040. Today we are already seeing the first results of this agreement. The number of automakers that are ready to completely abandon gasoline and diesel fuel is constantly increasing, and the deadline for this abandonment is approaching.

This is an opportunity for Ukraine to become a part of the European space not only politically, but also as an integral element of the European "green transition." That is, to help Europe abandon fossil fuels in favor of renewable energy sources.

The global transition from internal combustion engines to lithium-ion batteries conceals another dilemma. It is thanks to the changes taking place in the world that China has been able to enter the fight for the "crown" of the main automaker not only in terms of the number of cars sold, but also in terms of the quality of technology. After all, the continued dominance of European, Japanese, and American automakers in the production of internal combustion engines gave virtually no chance to the Chinese, who entered this niche only a couple of decades ago. Now they are becoming more dangerous competitors because they are leading battery manufacturers along the entire chain: from lithium mining and enrichment to the production of anodes, cathodes, and batteries. And they are actively promoting their capabilities around the world, which cannot but worry the traditional hegemons. After all, the battery accounts for up to 40% of the cost of a modern electric vehicle.

In Europe, the construction of several dozen new gigafactories for the production of batteries for electric vehicles has been announced: in France, Italy, Hungary, Sweden, etc. The undisputed leader is Germany, where almost a third of all the announced capacities are expected to be built. This is because it is home to the headquarters and factories of many well-known automotive companies.

However, Benchmark Minerals estimates that by 2031, China and South Korea will be the largest owners of battery companies in the EU. That is, despite the desire of European automakers, Asian companies may finally cement their dominant position in this market. That's because China is already the world's largest processor of lithium-containing minerals and a producer of cathodes and anodes for batteries.

The EU, which is the second largest market for electric vehicles, has already declared a gradual reduction in the use of Chinese raw materials and semi-finished products. But public statements and business actions so far show a different trend.

This is because there is a weak link in this European strategy. Lithium-containing ores and minerals are mined on almost all continents. However, the European Union's demand today far exceeds the capacity of European mining companies that produce lithium, the main raw material for lithium-ion batteries. This deficit could increase many times over. Especially if we take into account China's aggressive policy of buying up lithium projects around the world.

At this point, it is worth mentioning Ukraine, which has large deposits of lithium ores and is actually part of Europe with the prospect of EU membership. Ukrainian mineral reserves were studied back in Soviet times. Four lithium deposits in Kirovohrad, Donetsk, and Zaporizhzhia regions are considered promising. However, for obvious reasons, active work can be carried out only in Kirovohrad region. And the process is really moving forward.

Our company has already conducted additional geological studies of the Polokhivske deposit in accordance with the JORC international standard, laboratory and metallurgical tests of the mineral and dozens of other studies that cost millions of dollars. In 2023-2024, we will carry out several more comprehensive studies, which will result in an estimate of investment needs for the construction of a mine and a processing plant. But even today we can say that these are hundreds of millions of euros that need to be raised from international investment banking groups. But in the end, an investor who chooses Ukraine will receive not only high-quality raw materials and a profitable project, but also convenient logistics and reduced dependence on Chinese raw materials. If this is not done, China's dominance in the segment of electric vehicles and components for them will only grow.

Is this realistic? The Swedish company Northvolt has already challenged Chinese battery manufacturers. This year, it plans to raise USD 5 billion to become the largest European manufacturer of batteries for electric vehicles. In the future, it plans to hold an IPO, which could result in Northvolt's capitalization of up to USD 20 billion. And this example inspires us. Because the market prospects are impressive.

At the end of 2022, the top 5 largest global car manufacturers (by gross revenue) included 3 European companies - Volkswagen, Stellantis (PSA, FIAT, Opel, Chrysler, etc.) and Mercedes. Last year, they together produced more than 16.5 million vehicles. At the same time, only Volkswagen and Stellantis are present in the top 5 electric vehicle manufacturers, which together offered the market only 1.2 million units (less than 10% of total production). For comparison, the market leader Tesla alone has produced more than 1.3 million electric cars.

But the intentions of European automakers are ambitious. VW plans to completely abandon cars with internal combustion engines by 2033. And four Stellantis brands have already announced a complete rejection of internal combustion engines in the European market from 2030. Such statements will appear more and more often. The demand for batteries and raw materials for them will grow. And at the same time, Europe's dependence on China will grow - unless something changes.

The investments in battery gigafactories that have already been announced total tens of billions of euros. At stake is not only economic gain, but also political influence. Therefore, Europeans should take these announcements seriously. Especially since quite recently, last year, they had to overcome the negative consequences of another dependence on Russian oil and gas. Perhaps it's time to reconsider partnership with Ukraine and Ukrainian lithium producers?