The commercial use of batteries first began in 1991 and the rapid development since then has now led to the advent of electric vehicles and more. Transport and energy sectors account for around 27% and 11%, respectively, of global carbon dioxide emissions, making batteries a key to tackling climate change, as per Aviva Investors.

“It (McKinsey & Co) predicted the battery value chain would increase by as much as ten times between 2020 and 2030, increasing annual revenue by as much as $410 billion. While set to remain a far smaller market, utility-scale energy storage is growing exponentially too. It attracted record investment of $5.2 billion in 2021, a fivefold increase in the space of just four years,” writes Aviva.

However, there are certain challenges as well, such as sourcing vital raw materials. The growth in the demand for batteries is putting pressure on supply chains and that’s why manufacturers are facing stiff competition for sourcing raw materials. Aviva talks about the various resources needed for battery production and the current state of supply chains in its report.

On the other hand, China has been dominating the market, which is raising concern for the West as Beijing could corner the market for the metals needed for battery manufacturing.

Since carmakers want a high level of performance at a certain price point, the demand for certain types of batteries keeps swinging.

“As with all technology stocks, there’s always a danger prospects change through new discoveries. However, that risk is more of a concern for a start-up with all its eggs in one basket. Bigger companies have very good visibility into all the different chemistries, which allows them to respond to changing circumstances,” says Will Malcolm, Portfolio Manager, Aviva Investors.

The advent of solid-state batteries is a clear example, but it is still a work in progress. However, the market is already trying to price in the new technology and there is an obsolescence risk for companies which manufacture batteries with older technologies.

Additionally, another aspect is the role of government in the battery supply chains and their function in the transport and energy sectors. While governments in Asia are providing ample support, the West seems to be lagging.

“There’s absolutely a political and strategic rationale to ensure you’ve got local capacity. The problem is, the Koreans and Chinese have an enormous head start, having been developing the technologies for decades,” as per Malcolm.

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