Lithium is the key to the electric vehicle transition and in short supply

LItium, an element you may not have thought of since your high school chemistry class, made headlines recently. This lightweight substance is a key component in rechargeable lithium-ion batteries, which are used in most personal electronic devices and electric vehicles. And in the last year, it has gotten expensive.

The price of lithium carbonate, the compound that is extracted from the soil, rose 432% year-over-year, reaching nearly $ 62,000 per ton in April. In the previous six years, by comparison, it averaged about $ 11,000.

The spike in prices is due to the booming electric vehicle market, which is putting demand pressure on battery producers, which in turn puts demand pressures on mineral suppliers. While the Earth has plenty of lithium in circulation, the supply has to be extracted from brine pools and underground reserves, and current mining operations are not enough to keep up with the growing needs of the auto industry.

“The electric vehicle market has swept away implementation expectations in recent 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 is niche to something that is absolutely mainstream for technology in the 21st century.”

Bazilian adds that the seeds of today’s market stress were planted well before the recent demand for electric vehicles. Although manufacturers have invested years of time and money into research for the development of vehicles that the public will purchase, there was not the same urgency downstream, particularly as lithium mining requires huge investments and the profit from that investment was uncertain. (Lithium prices rose in 2016 and 2017, driven by enthusiasm for electric vehicles and some hints of demand, such as a growing electric bus market in China at the time. But then they fell, and so did it. made an investment.)

“We’re 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,” says Bazilian. “But it takes a long time to get a new mine or processing plant online.”

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In fact, hard-rock mines take three to five years to operate, while brine projects can take seven years, according to a 2019 analysis by S&P Global which ominously predicted that lithium demand would outstrip supply. . Experts like Caspar Rawles, chief data officer at Benchmark Mineral Intelligence, say the seven years it takes from discovery to production is more than double the time it takes to create other parts of the supply chain, such as battery plants.

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“We refer to this as the ‘great commodity disconnect,'” says Rawles. “The investments that happen today will pay dividends later in the decade, but it takes a while to get there.” Meanwhile, he predicts, lithium prices will continue to rise until more stuff is mined, creating a market deficit that could last into the second half of this decade.

What’s worse, those prices will exacerbate the effects of other stressors, such as inflation, rising labor costs, supply chain bottlenecks, and other commodity price spikes, which are hitting hard. car manufacturers. Car manufacturers are already responding by raising prices for electric vehicles. This is contrary to a typical market cycle, where prices fall as more competition enters the market. Increasingly expensive price tags can put battery-powered vehicles increasingly out of reach of consumers, plausibly hampering the transition from carbon-emitting combustion engines.

“Lithium stood out because it saw the largest increase in percentage terms. And car manufacturers are completely exposed to these price swings because there is currently no hedging mechanism: they cannot hedge. [lithium] prices similar to those of steel, aluminum or other products they commonly use, “says Rawles.” I think, if it was just lithium [getting more expensive] and everything else had remained the same, it would have been much more manageable for the automakers. But everything has increased “.

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