McKinsey: EV Growth Tests Raw Material Supply Chains

The surge in electric vehicles (EVs) and renewable energy is driving a relentless demand for critical raw materials, putting immense pressure on supply chains.
A McKinsey report warns that base-case supply may fall short of demand, leading to shortages, price fluctuations and substantial investment requirements.
Here, we explore the intricate challenges in sourcing lithium, nickel, cobalt and manganese—key components in the renewable energy revolution.
Materials facing rising demand
Lithium stands out as an indispensable element in battery production, with more than 80% of global lithium already consumed by battery makers.
McKinsey predicts this could rise to 95% by 2030 as EV adoption accelerates. While innovations like direct lithium extraction are unlocking new reserves, demand for lithium-heavy batteries shows no signs of slowing. Scaling up these technologies is vital to bridge the gap.
Nickel demand is climbing sharply due to its role in lithium nickel manganese cobalt oxide (Li-NMC) batteries.
Class 1 nickel, a high-purity form critical for batteries, currently sees around 65% of its production directed towards stainless steel. By 2030, competition between battery and steel sectors may exacerbate shortages, despite new mining projects in regions like Southeast Asia.
In the cobalt market, the Democratic Republic of Congo (DRC) accounts for 64% of global production, largely as a by-product of nickel and copper mining.
Although battery chemistry is evolving to reduce cobalt reliance, McKinsey forecasts a 7.5% annual increase in absolute cobalt demand until 2030. This growth highlights issues around sourcing transparency and price volatility, with companies prioritising ethical and sustainable practices in response.
For manganese, the raw ore is plentiful, but the battery industry requires a refined version—high-purity manganese sulphate monohydrate (HPMSM)—which involves intricate processing.
Current production levels are far from meeting the projected demand and McKinsey anticipates only a fraction of battery-grade manganese needs will be fulfilled by 2030.
Geographic and strategic supply chain risks
McKinsey’s analysis highlights the geographical concentration of raw material supplies, intensifying global supply chain vulnerabilities.
Indonesia dominates nickel mining, while the DRC leads in cobalt production. Lithium, often referred to as "white gold," is mainly sourced from Argentina, Bolivia and Chile.
However, refining processes add another layer of dependency, with China handling a significant share of cobalt, lithium and graphite refinement.
For example, the European Union (EU) relies heavily on imports, sourcing 68% of its cobalt from the DRC, 24% of its nickel from Canada and 79% of refined lithium from Chile. Trade restrictions amplify these risks, with China imposing controls on graphite exports and Indonesia banning nickel ore shipments.
To mitigate these threats, Western countries are enacting policies to foster local production. Tax incentives, subsidies and mandates for domestic manufacturing aim to reduce reliance on foreign suppliers, while efforts to diversify sources and strengthen regional partnerships are gaining momentum.
ESG concerns and supply chain resilience
The transition to cleaner energy is reshaping supply chain priorities, bringing ESG considerations to the forefront.
Regulations like the EU Batteries Regulation are driving the adoption of sustainable practices, from sourcing raw materials to recycling batteries.
However, challenges persist as more than 95% of high-purity manganese production occurs in China, raising concerns about transparency and ethical sourcing.
Decarbonisation of the battery supply chain is another critical focus. Mining and refining processes contribute roughly 40% of battery-related emissions.
Battery designs also play a role, with Li-NMC cathodes producing higher emissions than lithium iron phosphate (LFP) alternatives. Addressing these issues requires cleaner extraction techniques and optimised sourcing strategies.
The fragility of supply chains has been underscored by past disruptions, such as silicon, magnesium and semiconductor shortages.
Natural disasters, like hurricanes affecting quartz availability, further illustrate the risks. Building resilience means diversifying supply sources, increasing domestic production and fostering ESG-aligned collaborations.
As nations shift towards sustainable energy, balancing soaring demand with environmental concerns presents an immense challenge.
Explore the latest edition of Supply Chain Digital and be part of the conversation at our global conference series, Procurement & Supply Chain LIVE.
Discover all our upcoming events and secure your tickets today.
Supply Chain Digital is a BizClik brand.