energy insights

Booming EV Demand Could Out Pace Lithium Production

Global mining consultant McKinsey and Company says new sources and new extraction technologies are needed to meet the rising demand for lithium, or the demand could outpace supply by 2030.

Lithium is the key ingredient in the lithium-ion battery, which powers nearly all the electric vehicles (EVs) being built around the world. Demand for EVs has grown from 0.01% of market share in 2010 to 8.6% in 2021, and the EV battery industry now accounts for nearly three-quarters of worldwide lithium consumption.

Lithium demand expected to increase

Industry watchers say upward pressure is likely to continue. Multiple countries have pledged to phase out internal combustion engine vehicles by 2030, and large automakers, such as Volkswagen, GM and Ford will soon be rolling out several new EV models. As EV demand rises, lithium consumption will continue to increase with batteries expected to use 84% of the world’s lithium production in 2025.

In its analysis of future lithium supplies and growth in electric vehicle sales, McKinsey predicts annual demand for lithium will reach 3.3 million metric tons per year by 2030, growing at an annual rate of 25%.

“Due to the short lead times associated with new lithium production, we only have visibility of 2.7 million metric tons of lithium supply in 2030,” the consultant says.

The remaining supply gap of 600,000 metric tons could be filled with future lithium production from early-stage conventional projects and unconventional plays involving oilfield brines and brine from geothermal projects, McKinsey says. But some of those extraction technologies are still not proven.

If the lithium industry cannot keep pace with demand, the EV energy transition could decelerate, according to S&P Global Commodity Insight.

“The lack of investment in new supply in previous years might generate a structural deficit throughout this decade,” the analytics provider says.

EV sales fuel the need for lithium

Meanwhile, electric car sales are at an all-time high, with companies such as Tesla, Volkswagen and Mercedes posting record shipments in the first three months of this year. But industry watchers are wondering how long lithium production can keep up with demand.

“In the next two years, even though there will be significant growth in supply, it will be less than demand, so the gap will just continue to grow,” lithium and mining expert Joe Lowry said in a recent an interview with Bloomberg, thus the concern of lithium demand outstripping supply.

Musk highlights need for increased lithium supply

Despite Tesla’s record profits, CEO Elon Musk was also ringing alarm bells during a quarterly earnings call with investors last month.

Musk called battery production the fundamental limiting factor for electric-vehicle adoption worldwide.

“We think we’re going to need to help the industry on this front,” Musk said. “I’d certainly encourage entrepreneurs out there who are looking for opportunities to get into the lithium business. Lithium margins right now are practically software margins.”

Lithium prices have increased by more than 400% above last year as demand has nearly quadrupled over the past decade. As a result, Tesla and EV makers in China are raising vehicle prices.

Several prospective producers have lined up to open new lithium mines in the United States, but they must first clear assorted regulatory hurdles. Currently, the country produces less than 2% of the world’s lithium from one mining operation in Nevada.

Alternative battery chemistries exist, but according to McKinsey’s report, there are currently no substitutes to lithium batteries to substitute the performance needs of EVs. Therefore, the need to bring new, innovative supply solutions to the forefront will be critical in reaching U.S. electric mobility goals.