Africa to localise vehicle battery manufacturing

From the newsletter

For years, the demand for Africa's critical minerals has been driven from outside the continent, primarily by China and USA. Now, African countries are participating. This week, Morocco, DR Congo, & Zambia partnered to develop a regional EV value chain. This follows a recent agreement between South Africa & Nigeria with similar aims.

• The DRC and Zambia are rich in minerals. Cobalt, copper, and lithium are some of the critical minerals found in these countries. Morocco has some reserves, but not in large proportions. The DRC accounted for over 70% of cobalt mined in 2021.

• The partnership between the countries seeks to utilise the mineral resources and the experience of Morocco in the automotive industry to build a strong supply chain for the production of batteries and battery precursors.

More details

• Africa's automotive industry is expected to reach $42 billion by 2027. The demand for cars—both passenger and utility—is rising. Likewise, the demand for motorcycles for last-mile delivery services keeps growing. Urbanisation will only push this further. As EVs enter the market, they will likely take a share of this market and will need batteries. With 30% of the world's reserves of cobalt, lithium, and copper, African countries are uniquely positioned to capture a share of the EV sector.

• Most of Africa's mineral resources are mined and exported for refining before returning as finished products. In the process, African nations lose significant revenue, and the products become more expensive due to added costs like transport. African countries are now looking inward to control the supply chain.

• South Africa has partnered with Nigeria for lithium minerals, and the DRC, Morocco, and Zambia have partnered to explore the value chain of EV-relevant minerals. One key observation is that these countries seeking partnerships are established automotive manufacturers. Morocco and South Africa are leading vehicle manufacturers in Africa and, in total, produce over 1 million vehicles annually.

• South Africa has already launched a battery manufacturing plant for EVs and energy storage, and Morocco is building an EV battery gigafactory with Chinese support. The scale of mineral resources will be crucial, especially in ensuring economies of scale are met, and Morocco seems to have partnered with countries that control a large share of these minerals.

• The African EV space is still nascent, and these countries might target the export market more than the local market. However, one segment they can readily explore within the African market is electric two- and three-wheelers, which are likely to take off faster than other segments. The total projected electric two- and three-wheeler annual sales for the top five countries (Nigeria, Kenya, Egypt, Uganda, and Ethiopia) by 2030 is 1,179,000.

• Regional economic blocs and trade agreements can be a valuable avenue for countries manufacturing EVs and batteries. For example, the African Continental Free Trade Area (AfCFTA) is central to this initiative, as it offers a platform for policy harmonisation and regional integration, creating markets for locally made products.

Our take

• Regional partnerships for countries with mineral resources will be important. This allows for the combination of resources to achieve economies of scale, as opposed to each country pursuing its own manufacturing independently. Batteries are the most expensive component of an electric vehicle, and lowering their cost through local production will increase electric vehices affordability.

• Local EV manufacturers can seek partnerships with African countries engaged in battery manufacturing. This approach reduces import costs and minimises transportation distances. Since many African countries belong to regional economic blocs and enjoy certain tax exemptions, they can utilise these advantages to import EVs and batteries at lower costs, making them more affordable to their consumers.