BMW April 2022

Global lithium consumption is estimated to grow five-fold by the end of the decade. Lithium prices extended their yearlong rally as surging demand spurs a shortfall of the key battery material.

Prices have more than doubled in the past year, according to a Benchmark Mineral Intelligence index of lithium carbonate and hydroxide. Demand for the materials used in EVs and renewable-energy shortage has soared and, while miners are seeking to boost supply, there is not enough to meet consumption.

“The financing for lithium projects is still too little, too late,” said Cameron Perks, a minerals analyst. “The market deficit is already occurring.”

A lengthy slump since 2018’s peak meant investment in the sector slowed, while the pandemic has exacerbated supply constraints. On the demand side, the green energy transition has accelerated the adoption of EV’s and global lithium consumption is estimated to grow five-fold by the end of this decade, according to BloombergNEF.

“As prices increase now, there will be unknown yet-to-be-announced projects and expansions that will help to increase supply to meet demand. That is almost certainty. What is not certain is just how many unknown projects there are out there,” Perks added. 

“There is also a possibility that not enough lithium can be mined, then it could risk a slower EV roll-out.”

Battery costs

Battery makers are also facing higher prices for other key inputs such as cobalt and copper. After a decade of year-on-year battery prices declines – an important measure in gauging when EVs will cost the same or less than combustion-engined vehicles – there is now a change that trend will stall as raw material costs climb. About 40% of the cost of a battery is tied to commodities that have rallied. 

Still, manufacturers may be able to offset some of the higher costs through improving production processes, reducing scrap rates and switching to cheaper battery chemistries.