Powering the future - Foley & Lardner 4 Powering the future The advent of electric vehicles...

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  • Powering the future Commercial opportunities and legal developments across the EV batteries lifecycle

    linklaters.com/poweringthefuture

  • 3Linklaters

    Contents

    Introduction 4

    Section 1: Sourcing raw materials 8

    Section 2: Battery manufacturing 10

    Section 3: Incorporation into, and sale of, EVs 16

    Section 4: Recharging of EVs 20

    Section 5: Recycling and reuse of EV batteries 24

    Appendix 28

    Contacts 44

  • 4 Powering the future

    The advent of electric vehicles (EVs) is one of the most revolutionary changes to take place in the history of transport. The take-up of electric vehicles will transform not only driving habits and energy usage, but also supply chains, industries and physical infrastructure across the world.

    Introduction

  • This report, which concentrates on market and regulatory developments relating to electric vehicle batteries, is the third in a series of Linklaters reports covering the future of the car. Previous reports in this series have covered the impact of autonomous vehicles on infrastructure investment opportunities, and the implications of data laws on the use of “shadow mode” in autonomous vehicles. 1

    Why are we focusing on EV batteries in this report?

    The strategic importance of the batteries inside electric vehicles was underscored at the recent Financial Times Future of the Car summit, which took place in London in May 2019. This summit, which was co-sponsored by Linklaters, brought together more than 600 experts from the automotive and technology sectors across the world. Electrification was one of the four key trends identified at the summit (the others being autonomy, connectivity and ridesharing) 2 and much of the discussion around the market uptake of EVs revolved around batteries. For example:

    > Advancements in battery power density will allow for greater ranges, which is key for customer take-up. Recent research in the UK, for example, suggests that “a range of 320 km (200 miles) [is] needed for 50% of participants to consider owning a fully electric car. Increasing the range to 480 km (300 miles) [means] 90% would consider electric.” 3

    1 For more details, please see here and here. 2 For a summary of the key takeaways from the summit,

    please see here. 3 Source: BBC, 21 May 2019

    > Advancements in battery power density will allow for heavier cars, taller cars, and so on. This would allow an ever-widening range of products to come onto the market, allowing more segments of the market to consider purchasing an EV.

    > Much of the discussion of demand for EVs related to the importance of cost parity between EVs and ICE (internal combustion engine) vehicles. The battery is a significant driver of total EV cost: analyst research suggests that “for a midsize US car in 2015, the battery made up more than 57 percent of the total cost. This year [2019], it’s 33 percent. By 2025, the battery will be only 20 percent of total vehicle cost.” 4

    The strategic importance of EV batteries was underscored by the announcement that Volvo made at the summit: a multibillion-dollar deal to buy electric car batteries from China’s CATL and South Korea’s LG Chem, to supply the company until 2028. According to Hakan Samuelsson, CEO of Volvo, the capacity of batteries ordered by Volvo was “more or less the same amount of batteries as the whole of the global supply last year”. 5 The announcement follows significant deals entered into by several other car makers including Volkswagen’s €40 billion of battery-purchasing contracts announced in May 2018, 6 and Daimler’s announcement that it is aiming to spend €20 billion on EV batteries in the next 10 years. 7

    4 Source: Bloomberg, 12 April 2019 5 Source: Financial Times, 15 May 2019 6 Source: Fortune, 3 May 2018 7 Source: Financial Times, 11 December 2018

    What insights are we bringing to the table?

    This report is an examination of the whole EV battery lifecycle: from the sourcing of raw materials, through to their manufacture, installation in EVs, recharging and eventual recycling. There are significant commercial opportunities, and legal considerations, in every part of this lifecycle – and often the legal developments will have a significant impact on the nature, location and size of these commercial opportunities. This report therefore offers a combination of commercial and legal commentary to help dealmakers, inhouse lawyers, and other industry participants understand the risks and opportunities that they should bear in mind in relation to the EV battery lifecycle.

    How is this report structured?

    The main report is an overview on the commercial opportunities emerging in the EV battery lifecycle as well as the legal developments in the EU, US, China and Australia that will unlock them. The Appendix to this report provides more detail on the legal developments that will drive the EV battery value chain.

    The report is subdivided to reflect the five stages of the EV battery lifecycle shown in the diagram overleaf, which also summarises some of the key commercial and legal takeaways from this report.

    5Linklaters

    https://www.linklaters.com/en/insights/thought-leadership/driverless-cars-developments-and-opportunities-for-infrastructure-players/driverless-cars-developments-and-opportunities-for-infrastructure-players https://www.linklaters.com/en/insights/blogs/digilinks/2019/may/shadow-mode-as-the-next-step-towards-driverless-cars https://www.linklaters.com/en/insights/events/2019/may/ft-future-of-the-car-summit-2019

  • Powering the Future

    Stage of lifecycle

    4. RECHARGING OF EVs

    Commercial opportunities > US$80bn investment potentially required to develop

    ultra-fast EV infrastructure globally by 2025.

    > The length of time required to charge an EV battery will change consumers habits on refuelling and could provide opportunities for new market entrants including those offering services during charging.

    Legal / regulatory developments by region > EU: EU Directive 2014/94 requires Member States to

    set targets for public recharging points which would allow EVs to operate in urban and suburban areas by end of 2020 (potential extension to 2025).

    > China: Guidance anticipates 4.3 million private charging points and 500k public charging points by 2020.

    > US: No federal incentives for installation of EV charging systems (state level incentives vary by state).

    5. BATTERY RECYCLING

    Commercial opportunities > The significant power storage capacity of batteries

    will result in a secondary market potentially worth US$24bn by 2030.

    > After their in-car life, EV batteries will still have substantial power storage capacity.

    > Alternate uses include recycling for raw materials or reuse in other contexts.

    Legal / regulatory developments by region > EU: Policy initiatives on battery recovery, reuse

    and recycling anticipated by Autumn 2019. Batteries Directive to be revised to take EV batteries into account.

    > China: Measures introduced in 2018 require automobile manufacturers to establish battery recycling channels and recycling service outlets.

    > US: Recent federal proposal to facilitate re-use of EV batteries.

    3. INCORPORATION INTO, AND SALE OF, EVs

    Commercial opportunities > EV sales will overtake traditional vehicle sales as early as

    2033, assuming:

    – the price of EVs continues to fall;

    – charging infrastructure increases significantly; and

    – the mileage range of EVs increases.

    > Government subsidies, incentives and new regulations will drive manufacturers to increase EV sales as a percentage of their total, particularly in the EU.

    Key insights from our report on commercial opportunities and legal developments across the lifecycle of batteries

    used in electric vehicles (“EVs”)

  • Powering the Future

    Stage of lifecycle

    1. SOURCING RAW MATERIALS

    Commercial opportunities > A significant amount – potentially up to US$30-45bn

    – may need to be invested in mining capacity by 2025 to help satisfy demand for EVs.

    > Mix of metals demanded will also depend on the types of batteries produced in future (e.g. the development and take-up of solid state solutions).

    > The prices of key metals used to create EV batteries (lithium, nickel and cobalt) have been highly volatile.

    > There is potential for trade tensions between the US and China to impact the supply of these minerals and others used in EVs and associated technologies.

    Legal / regulatory developments by region > EU: Responsible sourcing is required from 2021

    for conflict minerals. The European Commission is developing a common set of principles for a socially and environmentally sustainable mining sector in Europe and will map the availability of raw materials within the EU. It is also exploring sustainable mining benchmarks.

    > China: No relevant provisions.

    > US: Few specific regulations pertaining to sourcing of raw materials for battery production; certain disclosure requirements. American Mineral Security Act – which aims to foster domestic production of minerals considered critical to US – under consideration.

    3. INCORPORATION INTO, AND SALE OF, EVs

    Legal / regulatory develop