Lithium Is Key to the EV Transition—And It’s in Short Supply

LIthium has made headlines lately, an element many of you have not considered since high school Chemistry class. Ithium is lightweight and is essential in the rechargeable lithium ion batteries that are found in almost all personal electronic gadgets as well as electric vehicles. And in the last year, it’s gotten expensive.

The price for lithium carbonate—the compound that gets extracted from the ground—has shot up 432% year over year, hitting nearly $62,000 per metric ton in April. It was around $11,000 in the six previous years.

This price rise is caused by the growing demand for electric vehicles, which puts pressure on producers of batteries, and in turn, minerals suppliers. While the Earth has plenty of lithium to go around, the supply needs to be extracted from brine pools and underground reserves, and current mining operations aren’t sufficient to keep up with the auto industry’s growing needs.

“The electric vehicle market has blown away expectations of deployment over the last years,” says Morgan Bazilian, director of the Payne Institute for Public Policy at the Colorado School of Mines. “Therefore, we see that the lithium-ion battery is in the midst of a transition from something that’s niche to something that’s absolutely mainstream for technology in the 21st century.”

Bazilian adds that the seeds of today’s market stresses were planted well before the recent demand for electric vehicles. While manufacturers have poured years’ worth of time and research dollars into developing vehicles that the public will buy, there wasn’t the same urgency downstream, particularly because lithium mining takes massive investment and the payoff for such investment was uncertain. In 2016, and 2017, lithium prices rose due to the popularity of electric vehicles, and there were a few indications that demand was growing such as in China for electric buses. But then they tapered off—and so, too, did investment.)

“We are starting to see action in those areas—from all the minerals that go into the batteries, through the manufacturing of those batteries, and into the cars,” Bazilian says. “But it takes a lot of time for a new mine or a new processing plant to be put online.”

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Indeed, hard-rock mines require three-to-five years to get up and running, while brine projects can take seven years, according to a 2019 analysis from S&P Global that ominously forecasted that lithium demand would outweigh supply. Caspar R. Rawles, the chief data officer of Benchmark Mineral Intelligence says it takes seven years to discover a mine and set it up. This is twice as long than the time required to establish other elements like battery plants.

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“We refer to this as the ‘great raw-materials disconnect’,” says Rawles. “The investments that happen today are going to pay dividends later in the decade, but it takes a while to get there.” In the meantime, he predicts, lithium prices will continue to climb until more of the stuff gets extracted, creating a market deficit that could last through to the second half of this decade.

What’s worse, those prices will compound the effects of other stressors—like inflation, rising labor costs, supply-chain bottlenecks, and other raw material price spikes—that are hitting auto manufacturers hard. Automobile manufacturers are already raising the price of electric cars. That’s contrary to a typical market cycle, where prices drop as more competition enters the market. Increasingly expensive price tags may put battery-powered vehicles further out of consumers’ reach— conceivably hampering the transition away from carbon-emitting combustion engines.

“Lithium has stood out because it’s seen the biggest increase in percentage terms. And automakers are fully exposed to those price swings because there is no hedging mechanism at the moment—they can’t hedge [lithium] prices like they can for steel, or aluminum, or other products that they use commonly,” says Rawles. “I think, if it was just lithium [getting more expensive]If everything had remained the same, automakers would find it easier to manage. But everything’s increased.”

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