Article

Morocco: Poised To Become MENA's Regional Hub For EV Manufacturing

Fitch Solutions / Autos / Morocco / Wed 31 Aug, 2022

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Key View

  • Morocco will become the regional hub for EV manufacturing in the Middle East and North Africa (MENA) region as it is quickly developing a circular economy (end-to-end EV production) in its domestic EV supply chain.

  • The growth of Morocco's cobalt sector will attract interest from mining and automotive companies in the short term (2022-2026), posing an upside to the development of Morocco's local EV supply chain.

  • We also believe that the development of Morocco's midstream (EV battery manufacturing) sector will attract EV manufacturers to the market, as having a local, reliable source of EV batteries will be highly advantageous to EV automakers.

We expect that Morocco will become the regional hub for electric vehicle (EV) manufacturing in the Middle East and North Africa (MENA) region as it is quickly developing a circular economy (end-to-end EV production) in its domestic EV supply chain. Informing our view is a string of investments into the up, mid and downstream sectors in Morocco's EV supply chain that will allow the production of EV battery metals, batteries, EVs, and battery recycling, to all happen domestically. Morocco's ability to offer all of these processes will make it a highly attractive location for EV manufacturing by providing local, reliable sources of all the parts and components to build EVs and, critically, recycling facilities to re-use costly EV battery metals in the production of EV batteries. We also note that the market already has a well-established autos parts and components manufacturing sector that will further boost the appeal of the country for investors, especially given the focus on de-risking supply chains by near/on- or friend-shoring supply chains.

Recycling will be a key feature of automakers and EV battery manufacturers operations by transforming current supply chains into a 'closed loop' or circular economy (see graphic below). This will enable firms to reuse the critical raw materials in EV batteries at a low cost, which will be critical for automakers as EV adoption rises exponentially around the globe over the next decade.

Europe Leads For ICE Bans
Internal Combustion Engine (ICE) Vehicle Bans, global
Source: Fitch Solutions

We also believe that Morocco's close proximity to Europe will also attract interest from EV manufacturers as Morocco is a key export market to the EU; data from TradeMap shows that 82% of autos-related goods exported from Morocco were sent to Europe in 2021. We believe that strong EV demand from Europe in the next decade; we're expecting sales of 2.7mn units in 2022 and an annual average growth rate of 15.6% from 2022-2031. We are particularly bullish on EV sales in the bloc due to the EU's agreement to ban internal combustion engine vehicles by 2035 (see graphic above). We also believe that, given that two European-based automakers, Renault and Stellantis, are the two largest automakers in Morocco, that the market will continue to focus on exports to Europe over the long term.

Europe To Remain As Global Leader In EV Adoption
Global – EV Penetration Rate (%) By Regions (2021-2031)
f = Fitch Solutions forecast. Source: ACEA, Fitch Solutions

We note that recycling will be a key feature of automakers and EV battery manufacturers operations by transforming current supply chains into a 'closed loop' or circular economy (see graphic below) which will allow automakers and battery producers to manage their supply chains more efficiently to meet Environmental, Social, and Governance (ESG) targets. This will enable firms to reuse the critical raw materials in EV batteries at a low cost, which will be critical for automakers as EV adoption rises exponentially around the globe over the next decade.

Players In The Battery Industry Looking To Recycling For Sustainability Boost
The Circular Economy Of LiBs
Source: Fitch Solutions

We note that Morocco's strength in the upstream segment (see graphic below) makes it a stand-out location for EV manufacturing in the MENA region, and recent investments into this segment inform our view that the market will become the lead for EV manufacturing in MENA. Morocco, currently, is the only location that offers local supplies of EV battery metals through Managem, Morocco's leading mining company - we do note that, while Saudi Arabia does not currently produce any EV battery metals, it will become a competitor in the long term (2022-2031) given the extensive investments by mining firms Maaden and Metals Group into EV battery mining and refining projects in the market over the past year.

Managem first announced its partnership in July 2020 to supply BMW with a fifth of its cobalt needs from 2020-2025. Managem then announced on January 26 2022 that it would construct another cobalt plant with partner Glencore near Marrakech, featuring an on-site cobalt recycling facility that aims to recycle cobalt, nickel and lithium, and also aim to produce cobalt from the black mass. Most recently, Managem's partnerships have expanded to include Renault, one of the two leading automakers in Morocco's autos industry alongside Stellantis. We highlighted this deal between Renault and Managem in our recent investment round-up of the MENA region, noting that the latter will supply the automaker with 5,000 tonnes of low carbon cobalt from 2025 onwards. The project is also considered 'low carbon' as 80.0% of the energy used to power the project will be renewable. We also believe that there will be further expansions of the Kingdom's cobalt mines in the next decade; the National Office of Hydrocarbons and Mines announced in February 2022 that it is exploring other cobalt reserves in partnership with Managem in order to expand the countries cobalt production over the next decade. Indeed the country has the 11th largest cobalt reserves globally, meaning that there are opportunities for additional projects.

Sectors Of The EV Supply Chain Explained
EV Supply Chain Model
Source: Fitch Solutions

We expect that the growth of Morocco's cobalt sector will attract interest from mining and automotive companies in the short term (2022-2026), posing an upside to Morocco's local EV supply chain. Cobalt will continue to be in high demand over the next decade as the growth of EV adoption worldwide (we expect sales to reach 30mn units by 2031) will require a consistent demand of cobalt. Our Metals and Mining team also expect that there cobalt supply will be in deficit from 2024 onwards, as the high demand for the metal will outpace the rate of supply from global suppliers, meaning that there will be strong demand for new cobalt supply. Moreover, given the human rights concerns surrounding cobalt production in the Democratic Republic of Congo, we believe that Morocco will be an attractive alternative supply source for automakers as Morocco's commitment to the International Labour Standards, a United Nations agency, means that the market is already a popular location for autos parts and components manufacturing. Consequently, we expect that these upsides will attract investments from mining companies, but also from automakers, as automakers are increasingly using upstream investments and supply contracts to secure enough battery metals (lithium, cobalt and battery grade nickel) to drive forward their respective EV policies and to meet the decarbonization targets set by governments globally.

We also believe that the development of Morocco's midstream (EV battery manufacturing) sector will attract EV manufacturers to the market, as having a local, reliable source of EV batteries will be highly advantageous to EV automakers. Currently, Opel, a subsidiary of Stellantis, is the only EV manufacturer in the market. However, we expect that Renault and further subsidiaries of Stellantis will take an interest in introducing EV manufacturing in the market. We believe this will occur over the next year as, on July 22 2022, it was announced by Morocco's government that a gigafactory would be built in the market, though it stated that more details would be published on the project, and its signatories, in Q422. This would be Morocco, and the MENA region's, first gigafactory, and the project represents a major upside to Morocco's autos industry as the increasingly high demand for EV batteries, as a result of rising EV demand, makes it incredibly attractive for Morocco to have a local, reliable supply of EV batteries. We believe that it is likely that the battery manufacturer will aim to supply EV batteries to Renault and Stellantis, as the two automakers have begun to build their own EV supply chain's in the country over the past year, as seen by Renault's cobalt agreement with Managem, and Stellantis's decision to construct an Opel (an EV subsidiary of Stellantis) manufacturing hub in Morocco in September 2021. We believe that the development of Morocco's circular economy, enabled through the development of Morocco's midstream (battery manufacturing) sector, in addition to the development of its downstream (recycling) and upstream (mining) segments, will make Morocco a stand-out location for EV manufacturers who will be able to localise the entire EV manufacturing process.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.

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