Over recent years the price of lithium hydroxide has been falling. Used primarily as a storage-battery electrolyte, the chemical compound is integral in the building of modern batteries and as the biggest consumer of lithium, to the future of the sustainable transport industry. With the rising demand for electric vehicles powered by lithium batteries, there is speculation that this bear market will turn bullish. Nonetheless, it is worth considering the sort of pressures this will be placed on the lithium market, as well as whether all the research invested into alternative power will allow an alternative element to rise to power the cars of the future.
Although the number of electric cars that are currently being sold a year accounts for only 2.6% of car sales globally, Ocean Wall, a London-based advisory firm, has forecasted that electric vehicles are expected to make up 25% of the automotive market as soon as 2030. This industry alone will drastically increase the demand for lithium, and depending on how supply reacts, potentially push the price up to record highs. Currently, 0.3 million tonnes of lithium are traded annually, predicted to hit 2 million tonnes by 2030. This forecasts massive stress on the current lithium supply because although lithium is not in itself a scarce resource, there are limited accessible reserves of the metal, prompting the search for an alternative battery-powering element with lower barriers to extraction. That said, attention is now moving to Chile, described as the next Saudi Arabia given it is home to the world’s largest reserves of lithium brine. This potential new blossom in supply is sure to disrupt future prices in an unpredictable way.
Behind the pressure on the price of lithium is the world’s newest most valuable car manufacturer, Tesla. The company reached incredible valuations at the on-set of the COVID-19 pandemic and currently has a market capitalisation of around 390 billion USD, higher than all of its competitors in electric car manufacturing. With the car company’s plan to reach production of 20 million cars by 2030, the supply of lithium will be required to increase by almost a factor of 10 to supply Tesla alone, meaning the firm is now seeking ownership of its own supply. In a spontaneous announcement, CEO Elon Musk has confirmed Tesla’s move into lithium mining, having recently obtained the rights to build a factory in Nevada, where extraction of the metal is set to commence. Even though the planned Gigafactory is not complete, it already takes up 1.9 million square feet of the land Tesla owns outside of Reno and the company predicts it will give a 100 billion USD boost to Nevada’s economy over the next two decades.
Further to this, Tesla has unveiled plans to build a lithium refinery to supply its new car factory in Texas. The scale of the supply of lithium from these locations remains unknown, however Tesla’s move to own part of its supply chain has greatly disrupted the market. Albermarle and Livent, chemical manufacturers supplying Tesla, have lost a combined 1.7 billion USD in market capitalisation, as without innovation or fresh capital to expand, they have fallen behind. Reacting to reporting, Mr. Musk stated that ‘Tesla will do lithium mining only as needed’, suggesting that Tesla’s commitment to the sector will be limited. However, being the largest contributor to battery demand, it is likely that Tesla will further its commitment to mining and processing for its own growing needs and thereby disrupt lithium supply chains for other non-auto consumers in the future.
By William Kollard
Sector Head: Edouard Nelson