Case Study: Consolidation in the Lithium Supply Chain and Battery Pack Markets

Lithium carbonate is the critical upstream raw material used in manufacturing lithium-ion battery packs, accounting for approximately 45% of total manufacturing costs. The downstream finished product is the Lithium-Ion Battery Pack (measured in kilowatt-hours, kWh), which is assembled using processed lithium cells and electronic management systems. In 2021, sales of refined lithium carbonate in the European market reached £1.5bn, while total sales of assembled battery packs reached £2.4bn. During that year, the total market output of lithium carbonate was 10.0 million tonnes, and the output of finished battery packs was 12.0 million kWh.

Over the last decade, a succession of vertical and horizontal mergers has consolidated both industries, creating several vertically integrated conglomerates. In 2021, the three largest producers in the upstream lithium carbonate market—LithiaCorp, Neomet, and Alkem—accounted for 8.2 million tonnes of total production.

These integrated conglomerates also dominate the downstream market for finished battery packs. Table 1 outlines the market shares of the largest battery pack manufacturers in 2021.

Table 1 – European market shares of finished battery pack production, 2021

These major manufacturers run highly capital-intensive operations, owning their own lithium salt flats, spodumene mines, and chemical refineries. Their refining divisions supply lithium carbonate internally to their own downstream battery pack assembly units, while selling the surplus to independent downstream assemblers.

There is minimal physical differentiation between bulk lithium carbonate and standard battery packs of identical chemical chemistry across different suppliers. In both markets, the major integrated firms possess extensive asymmetric information regarding their competitors' refining capacities and pricing strategies, aided by joint logistics agreements, recycling partnerships, and shared mining infrastructure.

Furthermore, high barriers to entry defend these incumbent firms. Establishing a modern chemical refinery for lithium carbonate requires an estimated capital outlay of up to £240m, along with significant proprietary technical knowledge and technical economies of scale.

In late 2021, the competition authority launched an investigation into the supply chain of lithium and battery assemblies following complaints of anti-competitive practices. Independent battery pack fabricators reported being subjected to escalating wholesale prices for lithium carbonate, while simultaneously having to compete against extremely low retail prices for finished battery packs set by the same integrated multinationals.

The independent firms alleged that the integrated conglomerates were executing a vertical margin squeeze, deliberately absorbing zero or negative margins in the highly competitive downstream battery pack market, subsidized by supernormal collusive profits earned in the upstream lithium carbonate market. Tables 2 and 3 provide details of average revenues and average costs in both sectors between 2019 and 2022.

Table 2 – Lithium carbonate: average revenue and average cost per tonne (£)

Table 3 – Lithium-Ion Battery Packs: average revenue and average cost per kWh (£)

Following regulatory intervention in late 2022, LithiaCorp and ChargeCell were forced to spin off several key refining plants and regional logistics hubs to an independent consortium to restore market contestability. Nonetheless, structural interdependencies remain highly entrenched.