Summary
- The lithium industry may struggle to meet long term electric vehicle battery demand.
- Short term oversupply may turn to scarcity within a few years.
- Low cost production projects benefit at the expense of higher cost mining methods.
- Looking for a helping hand in the market? Members of The Lead-Lag Report get exclusive ideas and guidance to navigate any climate. Get started today »
The auto industry will change more in the next five to 10 years than it has in the last 50 – Mary Barra
Electric vehicles (EVs) are the biggest trend in transportation around the world. Trying to switch over the world’s primary fuel source is causing some growing pains. One of the biggest material inputs is the lithium used in the batteries that power the vehicles. The current global lithium supply is estimated at 312,000 metric tonnes per year. For the time being, this represents an oversupply of global demand. 56% of lithium production goes toward batteries, up from 29% in 2013.
Lithium prices are harder to find than many commodities. The material is not traded on any public exchange. Prices have dropped in 2019, and especially so in China. American and European markets were still down but to a less severe extent. The decentralized trading of lithium means that spot prices in different markets can diverge greater than more common commodities. Global demand decline is driven by 2019 EV sales being less than projected, which aligns with a general slowdown in total global vehicle sales. Global EV sales are especially affected by cuts in Chinese EV subsidies. Despite the short-term headwinds, forecasts for EV growth could lead to lithium demand increasing by 10-fold in next decade
Global lithium production is expected to triple by 2025, but may still struggle to meet electric vehicle battery needs. The material prices have come down as the market supply has become oversaturated over the past year. Many lithium projects around the world are facing financing pressures due to the price drops. Higher price production, like those pulling lithium from rocks and hard materials, is under margin pressure in the short term. Lower cost brine production has been less affected by the decline prices.
Lithium production has been concentrated among a few major companies, but there is room for smaller firms to take advantage of new supply opportunities. Lithium Americas (TO: LAC) is one of the small producers building out more production capacity in the hope of taking advantage
LAC is developing a new brine production site in Jujuy, Argentina. The new facility has a planned capacity of 40,000 tonnes of lithium carbonate annually. This is an increased expectation from the original plan of 25,000 tonnes, which the company raised after the results of a study they commissioned earlier in 2019. They also have the tailwind of full funding for the project already being confirmed. Funding needs are made easier by a weaker than expected Argentine peso exchange rate. Production is planned to begin in early 2021.
On a less optimistic note, in September the company cut budget and production goals for the American mine they are developing in Nevada. They cited the declining prices and oversupply in global markets. They cut production targets from 30k tonnes to 20k tonnes annually. The Argentinian brine site is a much lower-cost project compared to the Nevada mine, which is pulling lithium from clay deposits.
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