Li-Cycle

If recovered, the combined stock of recyclable material is estimated to equal the production capacity of 30 lithium mines, which could support a quarter of total lithium demand.

Benchmark forecasts that $1.6 trillion for minerals, battery materials, gigafactories, and recycling will be required by 2040.

Benchmark Mineral Intelligence

As the Inflation Reduction Act (IRA) accelerates the buildout of lithium battery gigafactory capacity in the United States, battery supply chain experts at Benchmark Mineral Intelligence estimate that at least $1.6 trillion of investment into the battery supply chain is needed to meet demand by 2040 – almost triple the $571 billion estimated to meet demand by 2030.

Replacing fossil fuels and driving down emissions to meet global carbon reduction requirements is the driving force behind the heavy investment forecast, with battery demand growing from 937 gigawatt-hours in 2023 to 3.7 terawatt-hours in 2030. From 2030 to 2040, demand will double again, according to Benchmark.

This will require an estimated $590 billion investment in the upstream raw materials, including both minerals and recycling; $299 billion into midstream battery components; and $688 billion in the downstream battery gigafactories.

FTA countries lead midstream

Cathode active material production accounts for 52% of the midstream investment needed to meet 2040 demand. To de-risk battery supply chains from foreign entities of concern like China, the IRA facilitates tax credit eligibility only if certain percentages of materials contained in the battery are extracted or processed in regions where the U.S. has a free trade agreement (FTA).

South Korea has led the way in this regard, gathering over $5 billion in battery precursor and cathode investments from domestic players in 2023 for export to the U.S. EV market. South Korean battery producers have also been developing numerous partnerships and supply agreements with U.S. automakers.

Morocco, too, has received a surge in cathode-related investments owing to its FTA agreement with the U.S. and proximity to the European Union. The North African country hosts the world's largest phosphate reserves, attracting lithium iron phosphate (LFP) investments and targeting Western markets.

"In theory cathode supply from FTA jurisdictions could be sufficient to meet demand from US-based cell suppliers by the end of the decade," said Harry Tinker, cathode and anode analyst at Benchmark. "However, it is unlikely all FTA cathode supply will be re-routed to the US market, as producers will have commitments from other regions to meet."

Creating circularity

Roughly $433 billion of the forecasted investment required for the upstream of lithium battery supply chains by 2040 will need to be directed toward developing new supplies of lithium, nickel, copper, aluminum, cobalt, graphite, and manganese.

Benchmark projects that another $157 billion will need to be invested in battery recycling, which makes it the fastest-growing segment of battery supply chains between 2030 and 2040.

As more of the first generations of EVs are retired, a growing supply of battery materials will become available to recyclers. Western production alone will account for over a third of global battery scrap by 2035, which will provide a secure and domestic source of critical battery materials for many countries moving forward.

An increasing number of automakers have formed partnerships within the recycling space to improve the sustainability credentials of their batteries and prepare for further legislation.

As more spent batteries reenter the supply chain and the capacity to recycle those batteries grows, the need for heavy investments into upstream supply of mined materials for lithium-ion batteries is expected to fade.

The battery supply chain investment costs forecasted by 2040 are based on Benchmark's base case scenario. If the ambitious targets set out by policymakers and industry are all to be met, numbers will increase further.