EV adoption could slow down as lithium prices go up by almost 500% in a year due to chronic lack of supply

The push for electric vehicles has driven lithium prices up by almost 500% in a year, according to a report by Bloomberg. The metal is a key component in EV batteries, and its high price is a result of demand severely outweighing supply.

Lithium carbonate prices in China were at around 70,000 yuan (RM45,694) per ton in July last year, but the latest data from Trading Economics showed the commodity trading at around 450,000 yuan (RM293,805) per tonne currently.

China makes about 80% of the world’s lithium-ion batteries, and the shortage lithium is so acute that the government has to coral suppliers and manufacturers to demand “a rational return” to lower prices – analysts expect prices to double for 2022.

The low supply of lithium is a problem for EVs, as the rising price of the metal will add to the cost of new vehicles. Coupled with the higher prices of other raw materials, this may reverse the efforts of carmakers to make EVs cost-competitive against internal combustion engine vehicles. Clean-energy vehicles are necessary for carmakers to meet increasingly stringent global emissions targets.

“It looks like the expansion ramp up is not going to be fast enough to hit demand over the next three years. EV makers have been asleep at the wheel.” said Cameron Perks, an analyst at Benchmark. Meanwhile, Tesla CEO Elon Musk took to twitter to exclaim, “price of lithium has gone to insane levels! Tesla might actually have to get into the mining & refining directly at scale, unless costs improve.”

Lithium is in short supply because of a slump in prices between 2018 and 2020, resulting in chronic underinvestment in new sources of supply just when EV demand was taking off. The Russia-Ukraine conflict further compounds the problem, as other materials like nickel, graphite and cobalt become harder to come by.

The Bloomberg report also noted that acquisitions and joint ventures between battery makers and carmakers became more common to deal with the shortage and high prices. Given the correlation, Kwasi Ampofo, head of metals and mining at BloombergNEF said the lack of investment in increasing supply in the upstream part of the value chain is one of the reasons for the current issue.

Current methods of producing lithium are either time-consuming or limited by the availability of permits issued by local governments. There’s also the matter of environmental cost, as producing lithium uses quite a lot of electricity and water, be it through mining or extracting from brine.

The emissions profiles of lithium producers is worsened by having to ship extracted materials to other sites for refining. “There’s a lot of dirty things happening in producing these materials,” said Steven Vassiloudis, CEO of Novalith, which is working on a system that would streamline processing of spodumene and absorb carbon.

Companies are looking at other technologies to speed up lithium supply, although it will still take time to catch up with demand. There are also efforts to find alternatives to the popular lithium-ion battery, which Ampofo says will remain the dominant technology until at least 2035.

Solid-state and sodium-ion batteries are frontrunners to replace lithium-ion packs in certain applications in the second half of the decade, but qualification and scaling up manufacturing are challenges that need to be overcome. Recycling can help with supply but “there is no great way to recycle a battery today,” said Ken Hoffman, senior expert at McKinsey & Co.

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