Despite Lithium being the lightest metal, it is perhaps the one with the heaviest impact on the environmental revolution. Once extracted and processed from ionic minerals in the earth’s crust, it is an important raw material for many batteries, with the ceramic, glass and pharmaceutical industries also utilising its unique properties. Lithium has seen a substantial increase in demand due to the energy transition, where batteries play a pivotal role in connecting green energy supplies to the demand for electricity.
A traditional need for batteries is to store renewable but inconsistent sources of energy, such as solar and wind. However, the key future catalyst for the increase in lithium demand is the transition to electrical vehicles (EVs). The UK has banned petrol and diesel car sales from 2030 and the future zero-emission vehicle (ZEV) mandate will require firms to sell an increasing percentage of ZEVs from 2024. The lightweight but energy-dense element produces batteries with a high charge and power-to-weight ratio, necessary for the increasing demands of the EV industry. According to Bloomberg, the demand for lithium-ion batteries used in EVs has been increasing rapidly since 2010, where the cumulative demand was at 0.5 gigawatt-hours. In 2020, it had risen to over 500-gigawatt hours and the European Commission predicts an 18-fold increase by 2030, and as much as 60-fold by 2060 once the use of EVs is fully incorporated.
The lithium required to meet these demands in the UK has not been located yet and has resulted in a reliance on long-distance supply chains across the globe. The large carbon footprint associated with importing lithium counteracts the environmental benefits of EVs, and the Brexit deal also means that from 2024 batteries containing less than 50% local materials face EU tariffs. This has given the government an economic, as well as environmental reason to find a local lithium source.
The latest attempt to localise lithium supplies is the company Cornish Lithium. In 2017, the founder and CEO Jeremy Wrathall raised 1 million GBP to start the exploration and modelling of lithium reserves in Cornwall by utilising the data from old mining maps. The start-up is now valued at 80 million GBP and hopes to be listed on London’s Alternative Investment Market (AIM) in 2022, progress which has built up a lot of attention surrounding its future. Despite reporting losses of over 4 million GBP in 2020, investors remain bullish. This year, 5.2 million GBP was raised over 3 days in a crowdfunding venture, far surpassing the original target of 1.5 million GBP. The backing has also come from the UK Government’s Getting Building Fund which granted 4 million GBP for the construction of a lithium extraction plant, in collaboration with Geothermal Engineering Limited.
The drive to back lithium start-ups has been propelled by worldwide demand, with Solactive’s Global Lithium Index reporting a 90% increase over the past year. A leading lithium producer is Albemarle Corporation which boasts a market cap of 32 billion USD. They have seen a successful third quarter this year as earnings and revenues surpassed estimates and the 52-week change in stock price is at 115%. Alongside many other names in the lithium industry, Albemarle plan on ramping up productions to twice the current output. The corporation has two new agreements in China that will see the beginning of production of two new plants in 2022. Despite the efforts of the industry to keep up with demand, Benchmark’s lithium forecast shows an annual supply shortfall of up to 500,000 tonnes in Europe by 2030. This will continue to push the prices up as new mining projects are rushed into development. The surges in demand could push large-cap lithium producers to buy out the smaller start-ups and investors could face dilution as more capital is needed to reach production goals.
Critics of the future of lithium include Neil Gregson, a manager of 2 billion USD of natural resources at J.P. Morgan. He believes that the scramble for lithium echoes that of uranium in 2007 where a similar boom boosted prices and led to the reopening of dormant mines. As the bubble broke, the price of uranium came crashing down and pulled with it many of the new projects who could no longer fund their speculations. For fear of history repeating itself, doubts surrounding the duration of the lithium boom could make investors reluctant to fund new production facilities. Battery development has seen huge accelerations this century and it would be naïve not to suggest that in a decade EV technology might have surpassed the use of lithium batteries altogether.
There is no doubt that there will be a strong future for the EV industry; complementary industries, such as lithium mining, will thrive off this. The issue that investors will face is the volatility of the market, as supplies struggle to meet demand and the risk that comes alongside supporting start-ups. However, to make substantial steps in this environmental revolution, the UK must go local with its lithium supply, thus investors must ultimately put trust in new companies.
By Alice Lane
Sector Head: Philipp Jiang