energy insights

Tightening Lithium Supplies Threaten EV Industry

In the marketplace, the difference between success and failure eventually comes down to math, and the electric vehicle (EV) industry is facing mathematical head winds that may soon blow automakers off the road.

With worldwide EV production and sales at record highs, lithium prices are skyrocketing with ever-growing demand for batteries. Lithium is the key ingredient for EV batteries and suppliers are struggling to keep up in the face of near record EV sales.

And that spells trouble for automakers, according to a study by Fastmarkets.

“From 2025 to 2030 new supply sources must come online to support demand,” Fastmarkets says in its report.

Lithium price hikes will increase EV prices

The price of lithium has been spiking since last year and the cost continues to climb.

As a result, consumers are seeing higher prices. Colorado research firm E Source estimates that battery cell prices will reach $138 per kilowatt-hour by 2026. The firm believes those costs will result in car price increases ranging from $1,500 to $3,000.

This signals a real problem since auto manufacturers jumped on the EV bandwagon with the assumption that the cost of building an EV was starting to align with the manufacturing cost of conventional vehicles, primarily due to a decade of falling battery prices. In 2010, an EV battery pack cost $1,200 per kilowatt-hour. In 2021, some lithium-ion batteries hit a record low cost of $132 per kilowatt-hour. With the industry pushing toward sub-$100 per kilowatt-hour prices, soaring raw material costs have reversed the once touted trend, sending EV prices upward.

Since the ever-escalating demand for lithium and other raw materials is what is driving the soaring prices, dramatically producing more materials is the key to stabilizing prices. However, to increase supply, more resources are needed and they need to come online soon.

Car, battery companies search for new lithium sources

The problem starts at the source, said E Source Vice President Sam Jaffe. “You cannot make the batteries if you don’t mine the lithium.”

That’s why the world’s largest automakers are scrambling to secure reliable lithium supplies to ensure the battery production they need for the future.

GM is investing in a lithium mining venture at California’s Salton Sea, and BMW purchased more than a half billion dollars-worth of lithium in Australia. Tesla CEO Elon Musk and Ford CEO Jim Farley have also called for more lithium mining.

In addition to automakers, lithium mining has captured the attention of entrepreneurs from around the world who are clamoring to cash in on the global rush. A Chinese auction for 54.3% interest in the Yajiang Snowway Mining Development in southwest China drew nearly 3,500 bids. The asset eventually sold for $299 million, nearly 600 times higher than the opening bid. The auction drew nearly a million online viewers.

Meanwhile, the U.S. electric vehicle industry continues to eye American lithium prospects that remain mired in a regulatory abyss. Southern California’s Salton Sea is among the higher profile projects, projected to produce as much as 600,000 metric tons of lithium per year, which would be far more than the amount produced worldwide in 2021. To achieve this, geothermal operators would need to increase capacity by tenfold, which is unreasonable.

The giant Thacker Pass mining prospect in Nevada celebrated state regulatory approval in February, but the good news was overshadowed by a continuing court fight with a coalition of indigenous communities, environmental groups and a nearby rancher.

Lithium mining projects in the U.S. can take up to a decade to bring on line, said lithium and mining expert Joe Lowry.

To date, less than 2% of the world’s lithium supply is produced in the United States, despite President Biden’s commitment to transition the nation away from fossil fuels. His administration acknowledges that global demand for critical minerals, such as lithium, will surge, but increased lithium mining in the U.S. can only come with strings attached.

The president said he supports the mining industry, but only if it focuses on the environment, community engagement and Tribal consultation standards.

In the meantime, lithium prices continue to surge, and it’s only a matter of time before EV sales give way to spiraling costs. As is commonly said, “The cure for high prices is, high prices.” Meaning, if prices continue to climb due to high demand and supply constraints, prices will eventually fall when demand diminishes.

Afterall, in the marketplace, the difference between success and failure eventually comes down to math. For the EV revolution to continue, there needs to be more supply to keep pace with the rising demand, and it needs to be soon.