Lithium, an element that you may not have thought about since high school chemistry class, has been making headlines recently. This lightweight substance is a critical component in rechargeable lithium-ion batteries, which are used in most personal electronics and 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. In the six years prior, for comparison, it averaged around $11,000.
The price spike is due to the booming electric vehicle market, which is putting demand pressure on battery producers, which in turn puts demand pressure on the 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. (Lithium prices did go up in 2016 and 2017, spurred by the excitement around electric vehicles and a few hints of demand, such as a growing market for electric buses in China at that time. 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. Experts like Caspar Rawles, chief data officer at Benchmark Mineral Intelligence, says that the seven years it takes from discovery to production is more than twice as long as the time it takes to set up other parts of the supply chain, 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. Already, automakers are responding by raising electric vehicle prices. 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] and everything else had stayed the same, it would be much more manageable for automakers. But everything’s increased.”