The Lithium Rush: Prices Soar As Electric Vehicle Demand Rises

Electric vehicle demand is pushing up the prices for lithium, the key battery ingredient. According to data from Asian Metal Inc., the price for lithium carbonate more than tripled in the last year, hitting a new high of 501,500 yuan ($71,500) per metric ton in China.

The skyrocketing prices are accelerating the race among EV makers to pin down supplies while the global market worries about a shortage and how this would impact EV adoption outside of China, the world’s largest EV market.

The price surge is driven by the increase in EV sales in China and a supply squeeze caused by power outages in China. Car purchases surged after Shanghai finally eased its COVID lockdowns in June. The China Passenger Car Association estimates that EV purchases in 2022 will be twice the 2021 number at six million.

Power outages caused by a heat wave in Central China pulled down output from suppliers in the Sichuan province where a third of China’s lithium processing happens.

Outside of China, particularly in the United States, traders and analysts say that pressure isn’t easing anytime soon as global demand is expected to outpace supply, especially as the auto industry gears up to phase out internal-combustion engines and switches to battery-powered vehicles.

US EV makers have all closed deals with lithium producers to secure supplies of the now precious battery metal. According to Daisy Jennings-Gray, senior analyst at Benchmark Mineral Intelligence, over 80% of lithium-ion batteries are used in EVs, and this number will grow to 90% in 2030. 

The EV industry in the US is fast accelerating, with players welcoming the nudge from the Biden administration’s Inflation Reduction Act (IRA). The IRA will reward tax credits to those who will invest in the creation of domestic supply chains for the rechargeable cells. But there are more obstacles ahead.

Other than the issue of regulation on lithium extraction, the growing ‘not-in-my-backyard’ sentiment, and environmental concerns that have prevented efforts to open new deposits in the US, the country lacks refining capacity. 

Tesla Inc (NASDAQ: TSLA) Chief Executive Elon Musk in July implored entrepreneurs to invest in this crucial segment of the supply chain. 

“I would like once again to urge entrepreneurs to enter the lithium refining business,” he told analysts. “There’s lithium pretty much everywhere, but you have to refine the lithium into battery-grade lithium carbonate and lithium hydroxide, which has extremely high purity. So it is basically like minting money right now.”

Lithium refining is a market dominated by China, and they’re a big fish in a pond of shrinking global output. Russia’s two big producers have essentially been removed from the supply chain by the West after Vladimir Putin invaded Ukraine

Information for this briefing was found via the Wall Street Journal, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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