While you may have forgotten about lithium the moment you left your high-school chemistry class, this metal is making more headlines today due because of the crucial role it plays in the push to switch from the internal combustion engine vehicles we have grown up seeing to electric vehicles that don’t give off any emissions at the tailpipe.
To show how valuable this metal has become, its price has skyrocketed by 432% year-on-year, reaching a milestone in April this year. For comparison purposes, lithium carbonate cost about $11,000 a metric some six years ago, but it now costs $62,000. That is a huge jump for a material that exists in abundance within the earth’s crust.
This price hike can be directly connected to the surging demand for this metal by companies that make electric vehicle batteries and the resultant trickle-down pressure on the entities involved in extracting the metal. At the moment, the existing lithium mines can’t meet the escalating demand for this commodity, hence the demand for lithium pushing prices up as manufacturers scramble for the limited supplies available.
Analysts say the seeds of this current crisis were planted years before EVs took off. This is because lots of resources were poured into developing electric vehicles that could appeal to the members of the public, but no commensurate effort was directed toward developing the capacity to supply all the lithium that would go into battery production once EVs really take off.
There was some effort to invest in lithium extraction in 2016 when the excitement about fully electric buses rose in China, but those investments waned once electrified buses didn’t take off as had been anticipated.
Currently, we are seeing extraction companies pouring investment dollars into expanding their operations or setting up new mines. However, it can sometimes take up to seven years for a facility to move from feasibility to production, and even longer to start seeing a return on investment. This is in sharp contrast to other aspects upstream, such as setting up a plant to manufacture batteries requiring just a year or so before production starts.
This disconnect between the upstream demands of the electric vehicle industry and the downstream activities means that the recent shortages that have prompted many EV makers to raise their prices will persist until supply ramps up to match the demand for lithium. The risk in this is that electric vehicle prices may keep rising instead of going down as more companies join the space, which could deter how quickly people buy models from entities such as Rivian Automotive Inc. (NASDAQ: RIVN).
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