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Powering the future Commercial opportunities and legal developments across the EV batteries lifecycle linklaters.com/poweringthefuture
Linklaters 3 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
Introduction
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.
Linklaters 5
This report, which concentrates on market >> Advancements in battery power What insights are we bringing
and regulatory developments relating to density will allow for heavier cars, taller to the table?
electric vehicle batteries, is the third in cars, and so on. This would allow an
a series of Linklaters reports covering ever-widening range of products to This report is an examination of the
the future of the car. Previous reports in come onto the market, allowing more whole EV battery lifecycle: from the
this series have covered the impact of segments of the market to consider sourcing of raw materials, through to
autonomous vehicles on infrastructure purchasing an EV. their manufacture, installation in EVs,
investment opportunities, and the recharging and eventual recycling. There
implications of data laws on the use of >> Much of the discussion of demand for are significant commercial opportunities,
“shadow mode” in autonomous vehicles. 1 EVs related to the importance of cost and legal considerations, in every part
parity between EVs and ICE (internal of this lifecycle – and often the legal
combustion engine) vehicles. The developments will have a significant
Why are we focusing on EV
battery is a significant driver of total EV impact on the nature, location and size
batteries in this report? cost: analyst research suggests that “for of these commercial opportunities. This
The strategic importance of the batteries a midsize US car in 2015, the battery report therefore offers a combination of
inside electric vehicles was underscored made up more than 57 percent of the commercial and legal commentary to help
at the recent Financial Times Future total cost. This year [2019], it’s 33 dealmakers, inhouse lawyers, and other
of the Car summit, which took place percent. By 2025, the battery will be industry participants understand the risks
in London in May 2019. This summit, only 20 percent of total vehicle cost.” 4 and opportunities that they should bear in
which was co-sponsored by Linklaters, The strategic importance of EV batteries mind in relation to the EV battery lifecycle.
brought together more than 600 experts was underscored by the announcement
from the automotive and technology that Volvo made at the summit: a How is this report structured?
sectors across the world. Electrification multibillion-dollar deal to buy electric
was one of the four key trends identified The main report is an overview on the
car batteries from China’s CATL and commercial opportunities emerging in
at the summit (the others being autonomy, South Korea’s LG Chem, to supply the
connectivity and ridesharing) 2 and much the EV battery lifecycle as well as the
company until 2028. According to Hakan legal developments in the EU, US, China
of the discussion around the market Samuelsson, CEO of Volvo, the capacity
uptake of EVs revolved around batteries. and Australia that will unlock them. The
of batteries ordered by Volvo was “more Appendix to this report provides more
For example: or less the same amount of batteries detail on the legal developments that will
as the whole of the global supply last drive the EV battery value chain.
>> Advancements in battery power density
year”. 5 The announcement follows
will allow for greater ranges, which is key The report is subdivided to reflect the
significant deals entered into by several
for customer take-up. Recent research five stages of the EV battery lifecycle
other car makers including Volkswagen’s
in the UK, for example, suggests that “a shown in the diagram overleaf, which also
€40 billion of battery-purchasing
range of 320 km (200 miles) [is] needed summarises some of the key commercial
contracts announced in May 2018, 6 and
for 50% of participants to consider and legal takeaways from this report.
Daimler’s announcement that it is aiming
owning a fully electric car. Increasing the
to spend €20 billion on EV batteries in the
range to 480 km (300 miles) [means]
next 10 years. 7
90% would consider electric.” 3
1 For more details, please see here and here. 4 Source: Bloomberg, 12 April 2019
2 For a summary of the key takeaways from the summit, 5 Source: Financial Times, 15 May 2019
please see here. 6 Source: Fortune, 3 May 2018
3 Source: BBC, 21 May 2019 7 Source: Financial Times, 11 December 2018
Powering the Future
5. BATTERY RECYCLING 1. SOURCING RAW MATERIALS
Key insights from our report on commercial opportunities
ommercial opportunities
C and legal developments across the lifecycle of batteries ommercial opportunities
C
>> The significant power storage capacity of batteries used in electric vehicles (“EVs”) >> A significant amount – potentially up to US$30-45bn
will result in a secondary market potentially worth – may need to be invested in mining capacity by
US$24bn by 2030. 2025 to help satisfy demand for EVs.
>> After their in-car life, EV batteries will still have >> Mix of metals demanded will also depend on the types
substantial power storage capacity. Stage of lifecycle of batteries produced in future (e.g. the development
and take-up of solid state solutions).
>> Alternate uses include recycling for raw materials or
reuse in other contexts. >> The prices of key metals used to create EV batteries
(lithium, nickel and cobalt) have been highly volatile.
egal / regulatory developments by region
L >> There is potential for trade tensions between the US
>> EU: Policy initiatives on battery recovery, reuse and China to impact the supply of these minerals and
and recycling anticipated by Autumn 2019. Batteries others used in EVs and associated technologies.
Directive to be revised to take EV batteries into account.
>> China: Measures introduced in 2018 require
egal / regulatory developments by region
L
automobile manufacturers to establish battery recycling >> EU: Responsible sourcing is required from 2021
channels and recycling service outlets. for conflict minerals. The European Commission
is developing a common set of principles for a socially
>> US: Recent federal proposal to facilitate re-use of
and environmentally sustainable mining sector in Europe
EV batteries.
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.
4. RECHARGING OF EVs 2. BATTERY MANUFACTURING
ommercial opportunities
C ommercial opportunities
C
>> US$80bn investment potentially required to develop >> China already accounts for >60% of the
ultra-fast EV infrastructure globally by 2025. world’s battery plant capacity. Relatively
concentrated industry.
>> The length of time required to charge an EV battery
will change consumers habits on refuelling and >> European Battery Alliance established by European
could provide opportunities for new market entrants Commission in Oct 2017 to facilitate access to funding
including those offering services during charging. to develop new battery manufacturing capacity in
Europe. Potential for M&A and joint ventures.
egal / regulatory developments by region
L
3. INCORPORATION INTO, AND SALE OF, EVs egal / regulatory developments by region
L
>> EU: EU Directive 2014/94 requires Member States to
set targets for public recharging points which would >> EU: Strategic Action Plan aims to support a
allow EVs to operate in urban and suburban areas by sustainable EU battery cell manufacturing base with
end of 2020 (potential extension to 2025). ommercial opportunities
C egal / regulatory developments by region
L the lowest environmental footprint possible.
>> China: Guidance anticipates 4.3 million private >> EV sales will overtake traditional vehicle sales as early as >> EU: Proposed regulation requiring CO2 emissions from new >> China: Foreign investment restrictions on EV battery
charging points and 500k public charging points 2033, assuming: cars to fall 37.5% over 2021-2030. Varying EV subsidy levels manufacturing lifted in 2017.
by 2020. across EU. Big push to improve air quality. Ban on new internal
– the price of EVs continues to fall; >> US: Adopted safety-related amendments to existing
>> US: No federal incentives for installation of EV combustion engine vehicles in many cities falling between standards for batteries for electric vehicles.
charging systems (state level incentives vary by state). – charging infrastructure increases significantly; and 2030 – 2040.
– the mileage range of EVs increases. >> China: EV subsidies scheduled to end in 2020. However, “China
VI” emissions standards (seen as building on comparable
>> Government subsidies, incentives and new regulations will drive
European and US requirements) to be implemented in 2023.
manufacturers to increase EV sales as a percentage of their total,
particularly in the EU. >> US: Up to $7,500 federal tax credit per EV under threat of
elimination in 2020 budget.
8 Powering the future
Section 01
Sourcing raw materials
Linklaters 9
Lithium, nickel and cobalt This shortfall may arise due to Any increase in mining capacity will need to
factors including: be accompanied by a comprehensive risk
are the key metals used to management programme that considers
>> Price volatility (for example, lithium
make EV batteries. Analysts rose from $182 per tonne in May 2016
issues such as conflict minerals, child
labour, human rights and supply chain due
believe there is a potential to $296 in May 2018, before falling to diligence and management.
shortfall in the global mining $200 as at May 2019); 8
To date there is very little specific
capacity required to extract >> Uncertainty over future battery legislation governing the sourcing of
compositions: for example, while raw materials, but we expect this to
the minerals needed to lithium-ion batteries are at present change as the market grows. Indeed,
manufacture sufficient “the reigning replacement for the the EU has already started to develop a
internal combustion engine”, 9 the next
batteries to meet projected generation of solid state batteries may
common set of principles for a socially
and environmentally sustainable mining
EV demand. result in a relative decrease in nickel sector in Europe and the Conflict Minerals
and cobalt demand and a relative Regulation will require responsible
increase in lithium demand; 10 and sourcing of certain minerals from 2021.
>> The potential for trade tensions between The OECD Guidelines for Multinational
the US and China to impact the supply Enterprises and the OECD Due Diligence
of these minerals and others used in Guidance for Responsible Mineral Supply
EVs and associated technologies (such Chains are currently the main sources
as rare earths). of reference for EU companies or those
Analyst estimates suggest that a selling into the EU. The UK, Germany,
significant amount – potentially up to Belgium and the Netherlands encourage
US$30-45 billion – may need to be companies to implement the OECD Due
invested in mining capacity by 2025 in Diligence Guidance for Responsible
order to meet the demand for EVs and Supply Chains of Minerals from Conflict-
their batteries. Affected and High Risk Areas, with the
UK London Metal Exchange currently
One of the success factors for the consulting on its new responsible sourcing
significant commercial opportunity provided proposals. The French devoir de vigilance
by this increase in mining capacity will relate requires companies to source raw
to risk management and legal compliance. materials in a socially and environmentally
National and international sanction regimes sustainable way. The US and Australia
will be influential in the development of have their own specific rules, but the
sourcing strategies, with certain automotive broad principle is that these too relate to
sector manufacturers facing pressure for conflict minerals and modern slavery.
imports from sanctioned territories.
The American Mineral Security Act
Another success factor for such projects (S.1317) was introduced in the Senate
is arranging appropriate financing. last month, for the purpose of fostering
Projects supporting “new energy” such domestic production of minerals
as EV batteries face challenges such as considered critical to the US. The act
funder concerns on price volatility, and would require an inventory of metal
the infancy of this sector meaning that
US$30-45 BN
reserves in the US and seek to streamline
funders are working out what sort of permitting for the Electric Vehicle sector.
offtake commitments they need and want The US currently has limited mining
from particular projects. There will also be capacity for minerals crucial to lithium-ion
structuring risks – for example, in relation batteries, including lithium, cobalt, graphite
to “project on project risk” where mining and nickel. S.1317 is still in the process of
projects link to manufacturing projects. consideration by the Senate Committee on
There is also currently a lack of contract Energy and Natural Resources.
UP TO US$30-45BN standardisation for the supply of these
raw materials. It is anticipated that this
ADDITIONAL MINING will come in due course; however, at the
CAPACITY REQUIRED moment, negotiations on key terms can be
BY 2025 time consuming.
8 Source: Bloomberg
9 Source: Bloomberg, 6 January 2019
10 Source: Materials Risk, 15 January 2019
10 Powering the future
Section 02
Battery manufacturing
Linklaters 11
In order to meet projected
demand for EVs, batteries There is significant opportunity for corporates and financial investors
to invest in the development of EV battery plants all over the world,
will need to be manufactured supported not just by projected demand, but also by policy and
in much larger quantities. regulatory activity to support such investment.
Higher production levels will
help economies of scale to be
realised, ultimately reducing At present, China accounts for over Investment in battery manufacturing
60% of the world’s battery capacity. 11 capacity will be catalysed by legal and
the price and hence driving Chinese companies such as CATL, Funeng regulatory developments across key
the take-up of EVs. Technology, BYD and Tianjin Lishen jurisdictions: for example, the EU has
have invested heavily in “megafactories” recognised that battery manufacturing
(i.e., battery manufacturing plants with is of strategic importance and it, along
outputs of at least 20 GWh) – and Korean with several Member States such the
companies LG Chem and Samsung have UK, France, Germany, Belgium and the
also opened megafactories in China. Netherlands, have all declared initiatives
to promote the manufacture of batteries.
Moreover, analysts predict that China
The EU is currently running a consultation,
will continue to host the greater
due to close on 8 August 2019, to
proportion of battery manufacturing
encourage stakeholders to provide evidence
over the next 10 years. Analysts also
and views on the support for a regulatory
predict that Europe will overtake the US
intervention, the primary aim of which is
in battery manufacturing capacity over
to foster the production and placing on
the next 10 years, due to the activities of
the EU market of high-performing, safe,
companies such as Sweden’s Northvolt
sustainable and durable battery cells, packs
(whose first factory in Northern Sweden
and modules, produced with the lowest
aims at full capacity to produce 32 GWh of
environmental footprint possible and in a
capacity per year). 12 By 2028, worldwide
cost-effective manner.
production capacity is expected to grow
by 400%. 13
>60%
CHINA ACCOUNTS FOR >60% OF WORLD’S
BATTERY MANUFACTURING CAPACITY
11 Source: Benchmark Mineral Intelligence, cited on
Visualcapitalist.com, 19 October 2018
12 Source: Northvolt website, as at 25 June 2019
13 Source: Benchmark Mineral Intelligence, cited on
Visualcapitalist.com, 19 October 201812 Powering the future
The European Commission set up a More broadly, we expect to see more joint
European Battery Alliance in late 2017 ventures and other combinations and forms
to encourage cooperation between key of collaboration in this space as mining
industrial stakeholders, interested Member enterprises, battery manufacturers and car
States and the European Investment Bank. manufacturers that seek to source batteries
Its aims are to facilitate access to various come together. This opens a whole host of
types of funding for battery manufacturers, new opportunities and challenges.
including allowing EU Member States
The key challenge for such JVs relates
to give state-aid to cross-border battery
to conflicts around decision-making and
research projects considered to be
governance, especially if members have
Important Projects of Common European
differing expectations about roles, strategies
Interest. Pursuant to that Alliance, a battery-
and responsibilities (see pages 14–15 for
making consortium backed by France and
more discussion of the pros and cons of
Germany has announced a project with an
JVs and other forms of combination). Legal
investment requirement of €5bn to €6bn,
advice is particularly useful in helping
“including €4 billion from the private sector
to anticipate these complexities and
and up to €1.2 billion of state subsidies that
ensure that they are reflected in the JV’s
will have to be approved by Brussels”. 14
governance and contractual arrangements.
Participants in this project that have been
announced so far “include carmakers In terms of law and regulation, to date this
PSA of France, Opel of Germany, and has focussed, as one would expect, on
Saft, a battery subsidiary of the French oil product standards to ensure compatibility
major Total”. 15 and safety, with China, the EU and the
US issuing new standards in addition
There are no longer foreign investment
to the ISO standards. Future regulatory
restrictions on EV battery manufacturing in
requirements and standards, certainly at
the PRC, with such restrictions being lifted
an EU level, are likely to address safety,
in July 2017. Accordingly, non-Chinese
connectivity, performance, durability,
companies can now establish a presence
bi-directionality, re-usability, recyclability,
in the PRC to manufacture EV batteries
resource efficiency and the lowering of the
without having to enter into a JV with a
carbon footprint.
Chinese entity.
What will be interesting to monitor
is the potential for clashes between
standardisation of battery production, eg
for safety, sustainability or interoperability
purposes and IP rights providing exclusive
rights on new technology (the so-called
“standard essential patents”). We have
seen similar challenges arise in relation
to telecommunication technologies.
The Court of Justice of the EU issued
a decision on a negotiation scheme for
licences between the patent holders
and those implementing standardised
technology. Many questions will remain
unanswered for a little while, however,
such as the appropriate royalty rates
and the availability of licences along
the manufacturing chain. In Australia,
changes to antitrust law due to commence
in September 2019 will mean that patent
HINA HAS RELAXED RULES ON FOREIGN
C licensing arrangements will no longer be
exempt from scrutiny.
COMPANIES ESTABLISHING A PRESENCE IN
ITS JURISDICTION BY REMOVING FOREIGN
INVESTMENT RESTRICTIONS ON EV
BATTERY MANUFACTURING.
14 Source: Financial Times, 2 May 2019
15 Source: Financial Times, ibidLinklaters 13
14 Powering the future
Joint ventures and other forms of technology
partnerships for corporates
There are many models From a legal perspective, there are Other regulatory issues
several key issues that may become
for engaging in innovation particularly important when JVs or other Consortia, JVs and other forms of
partnership and combination may well
and entering into new tech forms of partnership or combination
transcend any one particular industry
are considered:
ventures for large corporates. sub-sector. For example, a JV in the
field of electric vehicles may comprise
Companies may go down the Antitrust issues
automotive companies, tech companies,
JV route for several reasons, Antitrust regulators can be cautious about energy businesses, and so on. This
joint ventures, particularly because of multi-sector participation may be a risk
including risk-sharing, limiting given that across the arrangement there
the information-sharing that takes place
their financial exposure, within them and because of the potential will be varying levels of understanding
enabling knowledge exchange for such arrangements to dictate industry of the regulatory risks and requirements
behaviour and standards (and hence that relate to the product(s) being
in a safe environment, competition) where they involve a large developed, manufactured and sold. It is
and creating industry-wide number of major participants. GCs and imperative that these risks are understood
legal counsel can add significant value to across all the participating businesses
buy-in to new, disruptive consortia by mitigating against this risk – to minimise the risk of any member
technologies and solutions for example, ensuring adequate barriers breaching these regulations.
and firewalls are implemented in order
such as those relating to EVs to block or channel information flows, or
and their batteries. preventing breaches of cartel regulations.
Data issues (especially GDPR)
Privacy is an increasingly important issue
from a political, regulatory and customer
perspective. The importance of managing
this issue can be seen from the recent
introduction of the GDPR in Europe, under
which fines can go up to 4% of global
turnover. This may be a particular risk if
the partnership includes large companies
(with the resources to have implemented
appropriate measures to ensure GDPR
compliance) working with young or start-
up tech companies (who may not have the
institutional knowledge, or the resources,
to have adequately prepared for the GDPR
implications of the arrangement).Linklaters 15
A comparison of the major routes, including JVs, is given in the table below.
Incubation Acceleration Commercial JVs Acquisition
co-operation
What is it? >> Ideas generated >> A group of start-ups >> An established >> A group of peer >> Corporation acquires
inside the business are selected to company and a corporates/ a majority (or
are developed by an participate in a time- start-up cooperate investors work minority) interest in a
internal entity that limited programme on the basis of a together through an venture
enjoys autonomy run by the company commercial contract unincorporated or
from the rest of the and then returned to incorporated entity
business the outside economy
(or are acquired by
the company)
When would >> The technology >> The instigating >> The company wishes >> Benefits of risk- >> The technology
under development company is not to access technology sharing, limiting already exists and
you consider
is not mature enough ready to invest and without making financial exposure, is mature enough
this? to be integrated into wishes to explore an investment or enabling knowledge to be incorporated
the business as a different options exposing itself to the exchange in a into the business,
whole – an incubator before a potential risk that the start-up safe environment, allowing access to a
allows the ideas to future investment fails and developing technology, service
be developed on a buy-in across JV or product that has
standalone basis, partners and their not been developed
even while the entity stakeholders for new internally
itself remains part of technologies and
the corporate group solutions
Pros >> Autonomy from >> Access to new talent >> Limited financial >> Sharing knowledge >> More control over
internal processes investment or risk innovation
>> Limited financial >> Risk sharing and
>> Full control of assets investment >> Getting to know the cost savings >> More due diligence,
of innovation team, product and/or so more certainty on
>> Limited duration service >> Limiting financial what the company
>> Safe way to exposure is getting and
introduce new >> Broad focus on
different ideas >> Developing buy-in understanding the
modes of thinking risks
inside a business for new technologies
while maintaining and solutions across >> Technology may be
stability of wider JV partners and their ready to integrate
operations stakeholders into business
>> Potentially easier to >> Potentially easier to
finance than other finance than other
routes routes
Cons >> Similar to R&D >> Limited control over >> No route to control >> Potential complexity >> Costs and
expense if not assets of innovation through equity of establishment and uncertainties of
ultimately integrated and direction of ownership decision making participating in an
or sold travel of start-up auction process
>> Needs a certain level >> Delicate
>> Potentially culturally >> Start-up can of organisational implementation (e.g. >> Potentially complex
difficult to implement eventually sell out to maturity at the potentially competing valuation and pricing
in large firms competitors start-up visions, determining structure
exit strategies)
>> Long-term timeline >> Potential for >> Governance of
to ROI contracted products >> Potential antitrust ongoing relationship
and services considerations to with founders
>> No access to external being offered to be tackled before
talent or knowhow competitors, too implementation16 Powering the future
Section 03
Incorporation into,
and sale of, EVsLinklaters 17
Comparison of EV and ICE sales
Our analysis suggests that Comparison of EV and ICE sales
EV sales may overtake 120,000,000
ICE sales globally as early
as 2033, though this will 100,000,000
depend on EV battery costs,
Number of sales
80,000,000
battery power density,
the provision of sufficient 60,000,000
charging infrastructure, and
40,000,000
the legal requirements and
incentives that will drive 20,000,000
investment, manufacturer and 0
customer decisions.
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Car sales (m) EV sales (m) ICE sales (m)
Source: Linklaters projections
The development of EV sales in Secondly, battery power density needs to
comparison to ICE sales is dependent be improved. Improving the power levels
on an enormous number of factors. At of EV batteries will also mean longer
the recent Financial Times Future of the journeys, which is a vital component of
Car Summit (which took place in May driving demand: recent research in the
2019 in London and was sponsored by UK, for example, suggests that “a range
Linklaters), four key drivers for EV sales of 320 km (200 miles) was needed for
were highlighted. 50% of participants to consider owning a
fully electric car. Increasing the range to
Firstly, the price of EVs needs to fall so
480 km (300 miles) meant 90% would
that parity is achieved with ICE vehicles.
consider electric.” 17 Advancements in
In particular, the scaling up of EV battery
battery power density will also allow
production will be key to achieving the
for heavier cars, taller cars, and so on.
economies of scale necessary to reduce
This would allow an ever-widening range
the price of batteries. The battery is a
of products to come onto the market,
significant driver of total EV cost: analyst
allowing more segments of the market to
research suggests that “for a midsize US
consider purchasing an EV.
car in 2015, the battery made up more
than 57 percent of the total cost. This Thirdly, sufficient charging infrastructure
year [2019], it’s 33 percent. By 2025, needs to be built in order to mitigate
the battery will be only 20 percent of total customer anxiety about their ability to
vehicle cost.” 16 recharge their cars wherever required –
primarily at home and within cities. The
visual presence of charging infrastructure
will also help to drive demand by improving
customer familiarity with EVs and
their usage.
Finally, laws and regulations such as
LAWS AND REGULATIONS SUCH AS SUBSIDIES, subsidies, incentives, emissions targets
INCENTIVES, EMISSIONS TARGETS AND and performance requirements will
be key catalysts for driving EV sales.
PERFORMANCE REQUIREMENTS WILL BE KEY Many countries are introducing new
CATALYSTS FOR DRIVING EV SALES. regulatory measures tightening emissions
performance requirements, enhancing air
quality and offering subsidies to incentivise
the purchase of EVs. The role of subsidies
in incentivising the purchase of EVs may
diminish in the medium to long term.
16 Source: Bloomberg, 12 April 2019 17 Source: BBC, 21 May 201918 Powering the future
The EU leads on stringency of global Comparison of emissions standards and targets in selected regions
emissions performance standards. However,
China is set to implement its China VI
Standards which will both combine and Fleet wide CO2
Region Regulation
add to best practice from both European
emissions limit
and US regulatory requirements. The US
China >> China VI Standards (due >> China VI Standards
Corporate Average Fuel Economy (or CAFÉ) to be fully implemented by provide emission
standards are in the process of being July 2023. While China VI standards for a variety
challenged by the Trump Administration, (a) standards have been of pollutants (e.g. CO,
and litigation has begun with respect to the implemented for certain N2O), but no standard
ability of the State of California to set its own vehicles from July 2019) for CO2 in the current
emission performance limits. The Trump regulation (CO2 emission
administration’s proposed “Safer Affordable limits for certain types of
Fuel-Efficient Vehicles Rule” would freeze vehicles will be released
at a later stage).
fuel economy standards at 2020 levels
through 2026, and reverse the increases Europe >> Regulation 2019/631 >> 95g/km
scheduled in 2012 under President Obama. (by 2030)
Across EU Member States, targets for US >> CAFE >> 222g/mile
the reduction of carbon emissions are (CO2 equivalent)
underpinned by policy initiatives seeking
to reduce those emissions associated with Australia >> Euro 5 >> No standard
the use of vehicles including the creation
of aspirational longstop dates for the sale
Maximum
Maximum subsidy
subsidy available
available forpurchase
for EV EV purchase in selected
in selected jurisdictions
jurisdictions (along
(along with with
(and eventually use) of only those vehicles comparison of subsidy to average income and price of a higher-end EV)16
which emit low or zero emissions. Various comparison of subsidy to average income and price of a higher-end EV) 18
countries are deploying low emission zones
in their cities to enhance air quality (London, 12,000 45%
Paris, Amsterdam, Brussels) and we expect
40%
to see the expansion of such zones in the
10,000
years to come. Some countries, like France, 35%
have set targets for electric vehicle volumes.
There are significant financial incentives to 8,000 30%
Maximum subsidy (€)
meet the emission reduction targets, as car
Subsidy as %
25%
manufacturers failing to meet CO2 targets 6,000
from 2020 will be faced with a fine of €95 20%
per gram of CO2 they are above the limit,
4,000 15%
multiplied by the number of cars they have
registered in the EU in the given year. 10%
2,000
On subsidies, whilst China has poured 5%
billions of dollars into the EV industry
since 2012 as part of its efforts to combat 0 0%
US France Germany UK China
air pollution, it has begun to phase out (federal tax (ecological
subsidies and expects subsidies to be credit plus state bonus plus
tax credit) conversion
completely phased out by 2020. Subsidies premium)
are available across the EU and in certain
states of the US, and can vary significantly Subsidy (basic) – left-hand axis Subsidy (additional) – left-hand axis
from one country to another both in
Subsidy as % of average income (right-hand axis) Subsidy as % of price of Tesla 3 (right-hand axis)
absolute terms and in relative terms, as
shown in the chart on the right:
18 France subsidy comprises “ecological bonus” of up to €6,000 plus a “conversion premium” of up to €5,000 when an old
diesel vehicle is removed from the road.
US subsidy is federal tax credit granted to manufacturers is $7,500 per new battery electric vehicle plus state tax credit of
$5,000 in Colorado and Connecticut, converted at exchange rate of $1=€0.89.
Germany subsidy of €4,000 applies to “plug-in hybrid” and electric vehicles, and is available until 2019 or until funds run out.
UK subsidy offsets 35% of the purchase price (up to a maximum of £3,500) for cars that have CO2 emissions below 50g/km
and can travel at least 112km (70 miles) without any emissions, converted at exchange rate of £1=€1.13.
China maximum subsidy of up to RMB 25k is available for pure EVs with range above 400km, converted at exchange rate of
RMB1=€0.128.
The magenta circles show the level of maximum subsidy as a % of average income in US$, taken from www.worlddata.info as
at 6 June 2019, and using an exchange rate of $1 = €0.89.
The indigo circles show the level of maximum subsidy as a % of the price of a Tesla 3 (used for consistency of comparison
purposes), with prices taken from Tesla website as at 7 June 2019.Linklaters 19
20 Powering the future
Section 04
Recharging of EVsLinklaters 21
$80 billion of investment is The International Energy Agency has >> Charging standards or “interoperability”:
projected that between 14 million and at present, these can vary significantly.
required in order to support 30 million public chargers need to For example, Tesla’s proprietary
demand for charging be deployed globally to serve regular network of “Superchargers” does not
passenger vehicles. 20 This compares to work with other car models. Even if a
infrastructure by 2025. 19 This about 632,000 public EV charging points car can be recharged at a particular
is a significant commercial today: 21 clearly a significant commercial point, charging processes at different
opportunity. Solving the recharging
opportunity: not just for problem for EVs will require not only a
points may require a different set of
adaptors, plugs, apps and subscriptions.
providers to provide a “petrol large amount of investment, but will also Getting to scale quickly – or forming
station”-like experience, but require the consideration of a wide variety alliances – will be vital to simplifying the
of issues and opportunities, including: customer experience.
also more premium retail and
>> Charging speed: while a normal wall >> Density and location: while China has
leisure experiences depending socket can replenish an EV battery the most public charging points, the
on location and charging time. overnight, this is not a universal solution figure only represents 2 charging points
for EV owners and users. While rapid- per 10,000 people: this is on par with
This range of commercial charging stations can allow 100 miles the per-capita penetration level in the
opportunity is reflected by of range to be added in 35 minutes of US, and is significantly below the per-
recharging, this is still a much longer capita penetration in several European
the range of businesses time to recharge cars than the time countries, as shown on the chart
currently involved in providing taken to refuel an ICE vehicle in a petrol below. 24 Achieving density – especially
charging infrastructure. station. However, this is changing: in metropolitan areas to start with – will
for example, Tesla recently unveiled be key to driving EV demand.
its “V3 Supercharger”, which aims to
add 75 miles of range in 5 minutes. 22
Similarly, BMW and Porsche have
unveiled a charging station which can
provide 100km of range in 3 minutes,
or a full charge in 15 minutes. 23 Rapid
recharging will be key to increasing the
perceived convenience of using EVs and
hence driving demand.
EV public charging points by location and population density
Number of public charging points per 10,000 people
350,000 25
Number of public charging points
300,000
20
250,000
15
200,000
150,000
10
100,000
5
50,000
0 0
a
S
y
s
n
ce
K
ria
y
nd
an
nd
wa
in
U
pa
U
an
st
la
Ch
rm
rla
Ja
or
Au
er
Fr
N
he
Ge
itz
Sw
et
N
Standard Mid-accelerated Accelerated Fast
Charging points per 10,000 people (right-hand axis)
20 Source: Bloomberg, 14 February 2019
21 Source: Bloomberg, 14 February 2019
22 Source: Tesla, 6 March 2019 24 Source: Bloomberg, 14 February 2019 and World Bank
19 Source: Navigant Research, 2017 23 Source: autoblog.com, 13 December 2018 population statistics22 Powering the future
>> Customer experience: differences in the The variety of potential approaches to Various EU Member States have
location and charging speed of charging recharging is also reflected in the variety (i) legislated in different ways to meet
points will lend themselves to different of operators involved in recharging, which their obligations under the AIFD, (ii) set
customer experiences, and hence varies significantly by region, 27 as shown targets for the construction of charging
different forms of marketing, pricing and on the chart below. stations and (iii) rolled out different
ancillary products. For example, fast- types of incentive schemes to enable
As ever, legal requirements will be a
charging points offered by traditional the installation of charging infrastructure
significant driver of the size and growth of
fuel providers in existing petrol stations (public/private funds, reduced
commercial opportunities. For example, in
may (once charging speeds improve) administrative burdens, mandatorily
Europe, the EU’s Directive 2014/94 (the
allow for a 10 minute “petrol station- reduced grid connection pricing). Whilst
“Alternative Fuel Infrastructure Directive”
like” experience. By contrast, charging EU and Member State regulators look to
or “AIFD”) requires Member States to set
points in alternative locations – such as industry to take the lead on developing
targets for public recharging points which
shopping centres or areas with leisure infrastructure, “back-up” provisions
would allow EVs to operate in urban and
and entertainment opportunities – may have been (or in some cases, will be)
suburban areas by the end of 2020. In
allow for, and encourage, a longer enacted to ensure access to charging
China, it is anticipated that 4.3 million
experience away from the car and stations should the market not respond
private charging points and 500,000
correspondingly increased footfall appropriately. Guidance of legislation
public charging points will be built by
and ancillary revenue. The advent of from a number of EU Member States
2020. In the US, there are no federal
autonomous vehicles and associated underlines the importance of “smart”
targets for the installation of EV charging
infrastructure may also change and “interoperable” technology.
stations and state level incentives vary.
customer experiences significantly: for This legislation is helping to drive activity
example, charging may become part at a national level. For example, in
of the package offered by car parking Germany, political leaders and industry
operators for self-parking EVs. 25 representatives met on 24 June to agree a
>> Power grid management: there are “master plan” for charging infrastructure
concerns that the recharging of EVs at for electric vehicles in order to “expand
unpredictable times – particularly peak Germany’s charging station network
times – may create levels of demand to enable up to ten and a half million
for electricity that might, in the worst electric vehicles to be on German roads
case, lead to power shortages. Updating by 2030”. 28
power transmission and distribution
systems to cope with this new demand 100%
pattern will require investment by
utilities companies, as well as potentially
new pricing models. Developments
80%
such as smart charging (whereby EVs’
systems direct them to recharge at off-
peak times when prices and demand
are low), or even EV batteries which 60%
discharge power back into the grid at
times of high demand when the EV is
not in use, will also help. 26
40%
20%
0%
US Europe China
Pureplay operators Oil and gas utilities OEMs Others
CHINA IS TARGETING 4.3 MILLION PRIVATE
CHARGING POINTS AND 500,000 PUBLIC
CHARGING POINTS BY 2020.
25 For more on this subject, see our recent report here
26 Source: Wired, 3 February 2018 27 Source: Bloomberg, 14 February 2019 28 Source: Xinhua, 25 June 201923 Powering the future Linklaters 23
Section 05 Recycling and reuse of EV batteries
Linklaters 25
Depending on the At this point, it would no longer be suitable The EU has already identified that the
for powering an EV but the battery would Batteries Directive will need to be revised
manufacturer and the still be suitable for being recycled into a to include:
battery’s usage, after 7-10 plethora of “secondary” uses – broadly,
(i) criteria to identify harmful substances
either being re-used in a different context
years an EV battery will have (such as for energy storage, powering fixed which are not currently regulated
around 70% of its original infrastructure such as street lights or lifts), (cobalt; organic electrolytes such as
or the materials within the batteries being lithium hexafluorophosphate) and
capacity remaining. recycled. As EV batteries become more management measures prescribed;
powerful, their secondary uses will expand (ii) targets for battery collection or
and likely include grid management, home provisions for national schemes,
power storage, and so on. EPR, financing, labelling or reporting
This represents a significant residual obligations with respect to industrial
value opportunity and, coupled with batteries (which include EV batteries);
new regulatory developments on the (iii) a mechanism to integrate new
reuse and recycling of EV batteries, has battery chemistries into the directive
led to the development of an emerging (e.g. solid state);
secondary lithium-ion battery recycling
market, estimated to be worth $24 (iv) targets for the recovery of materials
billion by 2030. 29 that constitute lithium batteries such
as cobalt or lithium;
Given the significant and increasing
energy storage opportunities available as (v) specific provision around those
the number of EV batteries retiring from holding responsibility at the end
“in-car” use increases, and as the power of the “second life” of batteries
of these batteries increases, the ideas (producers currently remain
above are only the start of a potential responsible until the battery is
fundamental transformation in the way eventually scrapped or recycled,
batteries are used. independently of the number of
intermediate lives it may have had).
Many companies in China are
concentrating more on the material In the EU, policy initiatives on battery
recycling opportunity rather than the recovery, reuse and recycling are
re-use opportunity. This is driven by anticipated by Autumn 2019. The
factors including a desire to reduce Batteries Directive is also expected to be
dependence on imported lithium (lithium revised to take EV batteries into account.
imports being recently estimated to Measures introduced in China in 2018
supply 85% of China’s total demand), as require automobile manufacturers to
well as regulatory developments driving establish battery recycling channels and
recycling activity. Research suggests that recycling service outlets.
the volume of used batteries in China will
“total between 120,000 tons and 200,000 There are ongoing efforts at a federal
tons in 2018-2020” and will “increase level in the US to facilitate the reuse of
to 350,000 tons in 2025”: a significant EV batteries. Certain states regulate the
commercial growth opportunity. 30 disposal and recycling of EV batteries
while others have placed the responsibility
Legislation in this area is principally of waste management on battery
focussed on the ‘extended producer producers. Several states, including
responsibility’ or “EPR” concept: i.e., California, Texas and Wisconsin, have
making the producer responsible for battery disposal and recycling laws on the
the management of waste generated books, and others, including New York,
by batteries until they are scrapped. Florida, New Jersey, and Minnesota, have
Whilst the development of legislation enacted laws requiring extended producer
around disposal or recycling will be of key responsibility shifting the cost of waste
importance, we anticipate amendments management and recycling back to the
to such legislation to cater for the ‘second battery producers.
life’ of EV batteries.
There is no overarching framework
regulating the end of life of lithium-ion
batteries in Australia, although various
environmental and OH&S measures do
apply to their storage, transfer, transport
and recycling.
29 Source: Marketsandmarkets.com, December 2017
30 Source: Nikkei Asian Review, 4 April 201926 Powering the future
Consumers/ Qualified Service EV/battery Battery/Energy Other Governments Battery
Households Providers Manufacturers Tech Firms Businesses Recyclers
Start
Bring used
Recover raw
EV to qualified Remove used Ship used battery
materials from
service battery from EV to battery recycler
used battery
provider Recycle only
Upon battery depletion
Upon battery depletion
Ship used battery Pay fees to
to EV/battery external battery
manufacturer recycler
Repurpose before recycling
Upon battery depletion
Provide EV Purchase
owner credit for Collaborate to repurposed EV
returned battery dismantle, test, battery for power
and refabricate transmission,
used battery storage, charging,
etc
Purchase
repurposed
EV battery for Repurpose for households Repurpose for corporate
home backup
energy storage
Purchase
repurposed
EV battery for
building charging
Repurpose for infrastructure stations, powering
street lights,
and supplying
electricity in
remote areas
End
Establish and
enforce regulation
Sell to an EV whilst providing
manufacturer incentives to
or produce a parties involved
new EV
Produce new Sell raw materials
battery using to EV/Battery
recovered materials Manufacturer
Typical Activity Optional Activity Options Flow of used EV battery (materials) Start/End
Note: The diagram is a typical used EV battery ecosystem inferred from information gathered from the following sources as of April 2019:
Bloomberg; The Guardian: The Telegraph; Yole Développment; Green Car Journal; MediumLinklaters 27
28 Powering the future
Appendix: further detail on
developments in policy, law
and regulation across the EV
battery lifecycleLinklaters 29
Stage 1: Sourcing raw materials
Key insights:
>> In the EU, responsible sourcing will be 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. The Commission is also exploring
sustainable mining benchmarks.
>> The US has few specific regulations pertaining to the sourcing of raw materials for
battery production. Some public companies may be required to make “conflict
materials” disclosures.
>> In China there are no compulsory laws or regulations on responsible sourcing for
conflict minerals, although there are rules put forward by industry institutions and
the chamber of commerce which are self-regulated.
EU As part of the SAP, the EU has Reference has also been made to a
established that there is EU-based “sustainability code of governance” for
Responsible sourcing of the elements processing capacity for cobalt and European battery manufacturers which
mined for lithium-ion batteries is not nickel but not for lithium compounds or commits to compliance with the OECD
currently regulated by EU law. The graphite, 2 despite there being reserves of Guidelines for Multinational Enterprises
European Commission’s “Strategic lithium in Portugal, the Czech Republic and the OECD Due Diligence Guidance
Action Plan” (or “SAP”), adopted in May and in the Nordic countries. 3 for Responsible Mineral Supply Chains,
2018, 1 has various aims to strengthen in partnership with the OECD. Work may
The Commission states it will:
the battery manufacturing base in Europe also include “a model contract clause”
which includes securing access to raw i. “work to develop a common set for suppliers in clean battery value chains
materials. In its communication, “Europe of principles for a socially and which promotes similar commitments
on the Move – Sustainable Mobility for environmentally sustainable mining along the battery value chain. The
Europe: safe, connected and clean”, the sector in Europe”; and Commission will also look at options for
Commission commits to, amongst other including sustainable sourcing elements in
ii. “also explore options for including
things, building on the EU List of Critical the Non-Financing Reporting Directive.
existing sustainable mining
Raw Materials by mapping the availability
benchmarks in the Sustainable Finance
of current and future primary raw materials
taxonomy to guide investors towards
for batteries, assessing the potential
mining projects which comply with high
within the EU for sourcing further primary
sustainability standards”. 4
and secondary raw materials and putting
forward recommendations aimed at
achieving this.
2 Report from the Commission on the Implementation
of the Strategic Action Plan on Batteries: Building a
Strategic Battery Value Chain in Europe, 9 April 2019,
COM(2019) 176 final.
3 https://www.euractiv.com/section/circular-economy/
news/race-for-lithium-illustrates-eu-drive-for-strategic-
raw-materials/.
4 At page 12 of the aforementioned Report from the
Commission on the Implementation of the Strategic Action
Plan on Batteries: Building a Strategic Battery Value Chain
1 COM(2018) 293 final of 17 May 2018. in Europe.30 Powering the future
UK, Germany, Belgium and France Australia
the Netherlands There is no specific provision in France in The lithium-ion battery value chain
relation to the sourcing of raw materials for has been identified as a strategic
Similarly, responsible sourcing of the
the manufacturing of batteries. However, growth industry by the Australian
elements mined for lithium-ion batteries
the French law on the corporate duty of government. 6 Australia has access to all
is not currently regulated by UK,
care, 5 which is applicable to organisations of the essential mineral element inputs
German, Belgian or Dutch law. However,
with more than 5,000 employees in required in the lithium-ion battery supply
these jurisdictions encourage companies
France or 10,000 employees in France chain. 7 It is the largest producer of lithium
to implement the OECD Due Diligence
and abroad, requires businesses to in the world and has the world’s third
Guidance for Responsible Supply Chains
source those raw materials away from largest reserves of lithium, and is ranked
of Minerals from Conflict-Affected
zones of conflicts and without human in the top five for reserves and production
and High Risk Areas. The guidance is
rights violations or serious environmental of cobalt and manganese. 8
primarily focused on 3TG (tin, tantalum,
damage whether resulting directly or
tungsten and gold) minerals but is broad Responsible sourcing of the elements
indirectly from the operations of the
enough to encompass, for example, mined for lithium-ion batteries is not
company, the companies it controls,
the mining of cobalt. The London Metal currently regulated by Australian law,
subcontractors or suppliers.
Exchange is currently consulting on although Australian entities, or entities
its proposals for responsible sourcing, carrying on business in Australia, with
which include requiring audits and risk US at least $100 million global consolidated
assessments and have the potential to revenue are required to submit a
impact market access for important raw There are few specific regulations or statement on risks of modern slavery in
materials, with the consultation due to restrictions in the United States pertaining their operations and supply chains under
close at the end of June 2019. to the sourcing of raw materials for battery the Modern Slavery Act 2018 (Cth),
production. Depending on which raw reflecting similar obligations in other
Furthermore, the UK Modern Slavery Act materials are sourced and their country jurisdictions such as the UK.
2015 requires commercial organisations of origin, public companies in the US
carrying on business, or part of a may be required to make certain “conflict
business, in the UK, which have an annual materials” disclosures. In addition, the
turnover exceeding £36 million to publish trade policies of the United States are in
an annual statement on the steps they flux and consideration of all applicable
are taking to combat the risk of modern tariff requirements and import/export laws
slavery and human trafficking in their needs to be undertaken with respect to
business and supply chain. A similar any imported raw materials.
regime in Germany requires companies
with over 500 employees and an annual The American Mineral Security Act
turnover over €40 million or annual (S.1317) was introduced in the Senate in
balance sheet total above €20 million to May 2019, for the purpose of fostering
disclose the impact of their business on domestic production of minerals
the environment. considered critical to the US. The act
would require an inventory of metal
reserves in the US and seek to streamline
permitting for the electric vehicles
sector. The US currently has limited
mining capacity for minerals crucial to
lithium-ion batteries, including lithium,
cobalt, graphite and nickel. S.1317 is
still in the process of consideration by
the Senate Committee on Energy and
Natural Resources.
6 Commonwealth of Australia. 2019. Australia’s Critical
Minerals Strategy 2019. Viewed 24 April 2019: https://
www.industry.gov.au/sites/default/files/2019-03/
australias-critical-minerals-strategy-2019.pdf.
7 Commonwealth of Australia, Australian Trade and
Investment Commission. 2018. The Lithium-Ion Battery
Value Chain: New Economic Opportunities for Australia.
Viewed 24 April 2019: https://www.austrade.gov.au/
local-sites/singapore/news/investment-opportunities-in-
australias-lithium-ion-battery-value-chain.
8 Geoscience Australia. 2019. Australia’s Identified Mineral
5 Law no. 2017-399 dated 27 March 2017 Resources 2018. Australian Government, Canberra.Linklaters 31
Stage 2: Battery Manufacturing
Key insights:
>> The EU’s Strategic Action Plan aims to support a sustainable EU battery cell
manufacturing base with the lowest environmental footprint possible.
>> Various EU Member States have developed policy initiatives highlighting the
importance of developing intra-country battery manufacturing capacity.
>> In China, foreign investment restrictions on EV battery manufacturing were lifted
in July 2017. It also plans to implement mandatory national safety standards for
battery development.
>> The US has adopted safety-related amendments to existing standards for
batteries for EVs.
China EU Product standards
The SAP is a key outcome of the work
Establishing a presence in China Strategic importance
of the Alliance and has various aims to
There are no longer foreign investment Batteries have been identified by the strengthen the battery manufacturing
restrictions on EV battery manufacturing Commission as a strategic value chain base by supporting the sustainability
in the PRC, with the requirement to enter where the “EU must step up investment of the EU battery cell manufacturing
into a JV with a Chinese entity for the and innovation in the context of a industry with the lowest environmental
manufacturing of EV batteries being lifted strengthened industrial policy strategy footprint possible. Work on a proposal
in July 2017. aimed at building a globally integrated, for a new Eco-Design Regulation is
sustainable and competitive industrial underway which seeks to ensure that
Product standards
base”. 9 This is the aim of the European the design of batteries promotes their
Currently, there are eight (non-binding) Battery Alliance (the “Alliance”), which recyclability and sustainability. Future
recommended national standards with was established by the European regulatory requirements are likely to
respect to EV battery manufacturing in Commission in October 2017 as a address safety, connectivity, performance,
China, including standards relating to platform for cooperation between key durability, bi-directionality, re-usability,
safety, electrical performance and test industrial stakeholders, interested Member recyclability, resource efficiency and the
methods for lithium-ion EV battery packs. States and the European Investment carbon footprint. 10
The Ministry of Industry and Information Bank to facilitate access to various types
The Commission has also started
Technology (“MIIT”) plans to implement of funding for battery manufacturers
work on minimum performance and
mandatory national safety standards for by, amongst other things, allowing EU
sustainability requirements which will
lithium-ion batteries for EVs within the Member States to give state-aid to
be science-based and developed by the
next 2 to 3 years and released a draft cross-border battery research projects
Commission and European standardisation
of the Safety Requirements for Lithium- considered to be Important Projects of
bodies (CEN/CENELEC).
ion Traction Batteries for EVs for public Common European Interest.
consultation on 24 January 2018.
10 Bobba S. et al, Sustainability Assessment of Second
Life Application of Automotive Batteries, Final technical
9 European Council Conclusions, 21-22 March 2019. report, 2018, JRC112543.You can also read
