Lithium Shortage May Stall Electric Car Revolution.
“They ignore the trillion-ton elephant in the room. Carbon-free power and gasoline-free transportation cannot exist without mining an absurd amount of lithium”
The electric car revolution will stall in the West if supplies of crucial battery elements like lithium fail to keep up with the forecast huge increase in demand. This will drive battery prices higher, decimate profit margins, and the coveted $100 per kWh battery, which would have signaled the arrival of affordable green vehicles, will remain on the launch pad.
“Western weaknesses in lithium-ion supply chains will slow electric vehicle adoption and demonstrate China’s dominance of the EV (electric vehicle) market,” according to a report from GlobalData, a leading data and analytics company. https://www.globaldata.com/
This kind of pressure might also delay Tesla’s long promised “affordable” $25,000 electric car.
The report said EV output is set to “skyrocket” to 12.76 million cars a year by 2026, with over half coming from China.
“With lithium prices set to rise throughout the next decade, the EV sector in the West will have to face rising battery costs. If they pass costs on to the consumer, EV adoption will likely accelerate at a slower rate than previously expected,” the report said.
The International Energy Agency (IEA) has estimated that the growth in EVs could see lithium demand increase by over 40 times by 2030, according to the International Lithium Association (ILiA) https://lithium.org/. Last year lithium demand was about 320,000 tonnes and is expected to hit 1 million by 2025 and 3 million by 2030, according to Reuters.
Earlier this month, LMC Automotive predicted European EV sales would rise from 1.2 million in 2021 to 3.4 million in 2024, 6.1 million in 2027 and 10.5 million in 2030.
U.S. investment newsletter Energy & Capital’s Luke Sweeney put it this way, as world leaders rush to implement green energy promises.
“They (the leaders) are ignoring the trillion-ton elephant in the room. Carbon-free power and gasoline-free transportation cannot exist without mining an absurd amount of lithium. Right now, production is not even close to keeping up. We simply aren’t pulling enough lithium out of the ground to match the projected demand,” Sweeney said.
Daniel Clarke, Thematic analyst at GlobalData, said China held 80.5% of global lithium-ion battery capacity in 2020, and even with the U.S. and EU’s best efforts will still dominate by 2026 with an expected 61.4% share.
“The rising price of lithium demonstrates what many in the industry have warned about for some time: the growing divergence between supply and demand for lithium. Ultimately, this will lead to an increase in the price of EVs, as automakers pass the cost on to the consumer,” Clarke said.
The average price of lithium carbonate has been erratic – halving before doubling again, and this has made investors wary of investing in new capacity.
“Batteries are already the most expensive part of an EV. Cell costs would need to be notably below $100 per kilowatt hour for mainstream production to take off, but this isn’t looking likely. Any increases in cost will be a blow to the decarbonization agenda of advanced economies, as well as lead to a deceleration in the decarbonization of the automotive industry,” Clarke said in the report.
In an online interview, I asked Clarke if the outlook for the price of lithium meant LMC Automotive’s European EV sales targets were still possible.
“It very much depends on automakers. Estimates see the rising cost of lithium hitting the EV market sometime between 2022 and 2024. (manufacturers) will have to decide on whether to absorb the cost or pass it onto the consumer. The market will become more competitive as a result. It is very possible that the (manufacturers) with the deepest pockets, such as Toyota, are able to take market share by absorbing the cost of the battery and undercutting their competitors, who would be forced to increase their prices. Tesla, whose EV market is focused on premium cars, would likely not be too badly affected, but it will make them potentially reconsider their plans for a low-cost $25,000 Tesla Model 2.”
Clarke said lithium represents about 7% of the total cost of a battery but you also need Graphite, Manganese, Nickel, Cobalt. The latter two prices are also precarious because of supply issues.
$100 target in danger
“Cobalt is used in the cathode, and the cathode is the most expensive part of a battery, which is in turn the most expensive part of an EV. However, necessity is the mother of invention, and new battery chemistries are being developed all around the world.”
Is the 100 kWh battery now in jeopardy?
“It is hard to say. Recent reports have the price per kWh at $105 but it is expected to rise next year as a result of the aforementioned forces at play. Lithium shortages will get worse next year and may continue into the middle of the decade. It is important to remember that building a lithium mine takes seven years and many automakers want high-quality batteries. Mines are huge investments, much like chip fabrication plants, there isn’t a lot of room for just increasing capacity… most of these mines will be working around the clock anyway,” Clarke said.
According to the ILiA, natural lithium minerals are relatively abundant and found in many countries. Currently there are around large industrial operators in Australia, Chile, Argentina, China, Brazil, Zimbabwe and Portugal, that produce lithium raw materials at significant scale, although this number is set to rise as lithium production increase to meet demand. Experts say there are bottlenecks in the conversion processes needed to produce usable lithium. Plants take years to reach full production and this, combined with accelerating demand, means supplies will remain tight and prices high.
The big car and SUV makers are scrambling to set up deals to guarantee supplies. Tesla has a deal with Piedmont Lithium of North Carolina. General Motors is investing in a Californian project. Companies like Stellantis, Renault and BMW are know to be investing in projects which seek to speed up, and clean up, the conversion process. It’s safe to assume that every single auto operative is doing the same thing.