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Electric vehicles and Li-ion batteries: risk management considerations

Increased use of lithium ion (Li-ion) batteries are creating risks and opportunities that must be managed accordingly.

A record 6.6 million electric vehicles (EVs) were sold globally in 2021, double the number in 2020, bringing the total number of EVs on roads worldwide close to 16.5 million. This pace has continued in 2022, with 2 million EVs sold in the first quarter, up 75% from a similar period in 2021.

As the automotive industry moves rapidly towards exclusively manufacturing zero-emission vehicles, the lithium ion (Li-ion) batteries powering EVs are an essential part of this transition, and their risks and opportunities must be managed accordingly. 

EV and Li-ion battery surge in the UK propelled by government initiatives

The rising EV trend in the UK reflects the global one. According to the Society of Motor Manufacturers and Traders (SMMT), battery EV registrations continue to grow with 12,243 of the latest zero-emission cars joining UK roads in July 2022 — up 9.9% from the same month last year, and taking a 10.9% market share — up 9% from last year.  EVs overall comprised 28.9% of all new car registrations in July.

Source: July 2022, Society of Motor Manufacturers and Traders (SMMT)

To further advance the zero-emission revolution in the UK, the British government has banned sales of new petrol and diesel cars starting in 2030, with hybrids banned beginning in 2035. This has caused some friction with car manufacturers, whose battery-powered cars are in different stages of development and who are dependent on a still developing EV supply chain strained by the Ukraine-Russia conflict, global demand, and inflationary pressures.  

To assist these manufacturers, the UK Government has set up the Automotive Transformation Fund, a capital-focused investment project to help industrialise the EV supply chain at scale in the UK. This fund will support, for example, projects focused on the production of batteries, electric machines, and power electronics.

Risk management considerations for Li-ion manufacturers

Many organizations are already involved in the manufacturing and storage of the Li-ion batteries essential to the continued growth of the UK’s EV sector. And the construction of production sites currently underway will help ensure a steady supply of these batteries.

Given the known and emerging fire and other property risks[i] related to such facilities, in order to secure the necessary insurance coverage and financing for projects, Li-ion battery manufacturers need to anticipate insurer and investor concerns and proactively demonstrate their risk management approach and processes.

There are multiple actions you can take to reduce your exposures and prepare for potential losses. These include:

  1. Planning and design. When undertaking facility construction projects, engage risk engineering specialists to help you identify potential risks and establish robust mitigation strategies, such as the use of resilient construction materials, separation of storage facilities from other major equipment, and use of firewalls or enclosures to restrict the ability of fire to spread. It is also important to connect with your insurer, and insurance advisor or broker, early in the process to gain a better understanding of coverage requirements and agreement on proposed mitigation strategies.
  2. Material selection. Where possible, select materials that are non-combustible in nature. Share datasheets with potential insurers prior to purchasing materials to determine whether these would pose insurability challenges. It is also beneficial if you can demonstrate the credentials and experience of your project partners and other individuals in the construction and/or operation of similar manufacturing or storage sites.
  3. Fire detection and protection. Demonstrate to your insurers that you can quickly recognise any faults in a battery and how you will respond. Early stage detection provides the opportunity to identify a problematic cell and isolate it from all others. Use the appropriate sprinkler systems as recommended by the National Fire Prevention Authority (NFPA) and Factory Mutual (FM), both of which are trusted by insurers.
  4. Adequate compartmentalisation. If possible, only store batteries in specific buildings that are situated at least 10 metres from any other structure, as per NFPA, FM, or insurer guidance. Some insurers may be willing to accept fire resistant storage facilities with no access to the main building.
  5. Storage of damaged and faulty batteries. Determine how damaged and faulty batteries, which carry a higher risk of ignition, will be continuously monitored until they can be disposed of safely. These batteries should never be stored where their combustion could spread to other assets.
  6. Quality control. Outline how you monitor and control manufacturing quality to maintain the highest safety standards (for example, NFPA and FM) for your batteries and reduce risks, such as thermal runaway events.[ii]
  7. Handling procedures. Demonstrate how your handling procedures are intended to protect batteries from damage during mobilisation or storage, for example, the adaptation of lifting equipment to prevent piercing risks.
  8. Monitoring. Detail how stored batteries will be monitored, for example, through thermographic monitoring or a robust system of inspection and audit, to detect problems early. You also may want to provide related documentation to insurers.

The move to a net-zero future requires the EV sector to continue to evolve. As a rapidly developing industry, both risks and opportunities will emerge along the supply chain. A holistic approach to reducing the risks associated with Li-ion battery manufacturing and storage can help manufacturers secure the insurance coverage required by their financing partners, better enable their growth, and confidently meet regulatory requirements and consumer demands.

 

[i] https://www.marshcommercial.co.uk/articles/battery-energy-storage-fire-risks-explained/

[ii] https://www.energy-storage.news/preventing-thermal-runaway-in-lithium-ion-energy-storage-systems/

Meet the authors

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Alistair Schuberth

Risk Partner, Marsh Advisory

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Kasia Lipinska

Manufacturing and Automotive Industry Practice Leader, UK & Ireland