Looming Lithium Shortage: Will It Affect Electric Vehicle Production?

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Lithium serves as a crucial raw material for electric vehicles (EVs) and energy storage systems.

However, insufficient investments in new lithium sources in the past few years can potentially lead to a supply shortage as demand for EVs pick up pace.

Even established lithium companies with strong financials are grappling with difficulties in their expansion plans.

Lithium producers have frequently faced project delays, primarily because of the disruption from the pandemic and the associated supply chain complexities.

During a recent period of low lithium prices, investments in the sector dwindled.

In early , there was boom in investment in increasing capacity for spodumene (an ore for lithium) in anticipation of an EV boom. The effort only materialized in the latter half of . By then, there was a crash in lithium prices and the incentive of further investment dwindled.

This time, the situation is different because lithium demand is strong and growing faster than supply.

Global EV sales reached a record 6.2 million units in the first half of , reflecting a 49% year-on-year growth. China, as the world's largest electric vehicle market, played a pivotal role in this growth, accounting for 59% of global EV sales in the past year.

Conversely, Europe, the second-largest EV market, experienced a more modest 15% increase in sales in , primarily due to persistent component shortages aggravated by the war in Ukraine.

Meanwhile, the United States and Canada exhibited healthier growth, with a 48% year-on-year increase in EV sales.

The adoption of EVs is also increasing in emerging markets such as Indonesia, India, and New Zealand.

This jump in EV demand has compelled lithium suppliers to accelerate expansion efforts and launch new projects.

However, securing financing and permits remain a challenge.

Long-Term Outlook for Lithium Supply

Lithium prices have been falling since July because of cautious approach from upstream as well as downstream sectors.

Downstream demand recovery is slow, leading to limited transactions. On the supply side, lithium production is relatively stable, with an abundant supply of goods in the spot market.

Prices are anticipated to remain low for few months, primarily due to discoveries of new lithium mines in the U.S such as Exxon Mobil's lithium reserves in Arkansas and the Thacker Pass Lithium Mine (Nevada), which may contain up to 40 million metric tons of lithium.

However, these discoveries alone won't be sufficient to address lithium's long-term supply-demand imbalance.

Research by BMI anticipates a shortfall in lithium supply in the next 3 years. It projects that China&#;s demand for lithium in EVs alone would grow at an average annual rate of 20% from to .

In contrast, China's domestic lithium production is expected to increase by just 6% in this period.

These new lithium reserve discoveries may exert a temporary influence on supply but they may fall short of satisfying even a third of the predicted demand.

Conclusion

The growing demand-supply gap in lithium is expected to push up prices. Despite substantial investments made by the EV battery industry to bolster downstream battery production capacity in response to the soaring EV demand, lithium production has not received the requisite funding.

This deficiency in investment could worsen the shortage. The insufficient investment in lithium capacity over the past five years is poised to prolong the supply shortage.

There is a need for increased investments as more lithium mines and mining exploration projects kick off, which could support the rising demand.

Additionally, streamlining the permitting process will be important. Currently, there are hundreds of lithium projects under exploration. Still, challenges persist due to geological complexities and the time-consuming nature of the permitting process, hindering the development of this critical industry.

Sources and references:

A worldwide lithium shortage could come as soon as (cnbc.com)

BYD Once Again Destroys Tesla in Global EV Sales as Global Market Surges 49%, with 55% of Vehicles Sold in China - Gizmochina

Lithium Market Size, Share & Analysis - Li-ion Industry Outlook (mordorintelligence.com)

Infographic: Insufficient lithium supply could decelerate energy transition | S&P Global Commodity Insights (spglobal.com)

_projects_lithium_deficit_roadmap.jpg (996×) (spglobal.com)

Lithium facts (canada.ca)

Lithium Market: A New Booming Trend In And ? - InvestingHaven

Lithium&#;s Next Big Risk Is Grand Supply Plans Falling Short - Bloomberg

Electric vehicle sales leapt 55% in , with China in front | World Economic Forum (weforum.org)

Electric vehicles - IEA

A bulldozer moving lithium ore at the Sigma Lithium Xuxa mine near Itinga, Minas Gerais state, Brazil.

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Bloomberg | Bloomberg | Getty Images

The world could face a shortage for lithium as demand for the metal ramps up, with some analysts forecasting that it could come as soon as . Others, however, see a longer time frame before that shortfall hits.

BMI, a Fitch Solutions research unit, was among those that predict a lithium supply deficit by . In a recently published report, BMI largely attributed the deficit to China's lithium demand exceeding that of its supply.

"We expect an average of 20.4% year-on-year annual growth for China's lithium demand for EVs alone over -," the report stated. 

In contrast, China's lithium supply will only grow 6% over the same period, BMI said, adding that rate cannot satiate even one third of forecasted demand. 

China is the world's third largest producer of lithium, which is an integral element in electric vehicle batteries. 

The world produced 540,000 metric tons of lithium in , and by the World Economic Forum projects that global demand will reach over 3 million metric tons.

The global battery supply chain may find lithium in shortfall again approaching the end of this decade.

Rystad Energy

Vice President Susan Zou

According to forecasts by S&P Global Commodity Insights, EV sales are set to reach 13.8 million in , but will subsequently proceed to skyrocket to over 30 million by .

"We do fundamentally believe in a shortage for the lithium industry. We forecast supply growth of course, but demand is set to grow at a much faster pace," said Corinne Blanchard, Deutsche Bank's director of lithium and clean tech equity research. 

By the end of , Blanchard sees a "modest deficit" of around 40,000 to 60,000 tonnes of lithium carbonate equivalent, but forecasts a wider deficit amounting to 768,000 tonnes by the end of .

deficit?

Other analysts don't see a deficit coming so soon, but still predicted a shortfall by the end of the decade.

While more lithium mines and mining exploration projects coming online could support burgeoning demand, that would only extend the runway for a few more years, according to Rystad Energy's estimates.

According to the energy research firm, hundreds of lithium projects are currently under exploration, but the complexity in geology and time-consuming permitting process still pose challenges.

There are currently only 101 lithium mines in the world, according to Refinitiv data.

Rystad Energy Vice President Susan Zou estimates that total lithium mine supply will increase by 30% and 40% year on year in and , and that miners would continue to develop both existing and greenfield projects amid a "global push to electrify transportations."

While that could point to a global lithium surplus next year, shortages could start to plague supply chains in . 

"In the next couple of years, though the lithium supply may stay adequate at a world-level, regional supply imbalance is still inevitable," Zou added, noting regional mining and processing capacities in the U.S. and Europe might not be able to keep up with demand for EV batteries. 

"The global battery supply chain may find lithium in shortfall again approaching the end of this decade when the supply growth might not keep pace with that of the demand," she said.

In that scenario, Zou said lithium prices could spike to their historic highs, which in turn would increase battery production costs. 

Lithium carbonate prices surged to a record high of almost 600,000 yuan per ton in November , more than 12 times January prices.

Wood Mackenzie similarly forecasts that the overall lithium market will see a supply surplus in the coming years. However, continued demand growth and very few projects entering production in the early s could mean the market is likely to experience another supply deficit, said the consultancy's energy transition and battery raw materials research director, Allan Pedersen.

"The main risks [are] likely to come from delays in commissioning of new projects and delays in permitting of new assets," he said.

Lithium mines generally take "10 years or longer" from first discovery to full-fledged lithium operation, Piedmont Lithium's chief commercial officer, Austin Devaney, told CNBC via .

"We believe there will eventually be enough lithium to support the demands of electrification. But in the near term, we expect to see the impact of supply constraints on lithium pricing for many years, if not longer," he said.

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