19
FEB
2018

Will Lithium Supplies Limit EV Growth?

Following is an informative article about the status of lithium production and how its supply is critical to the growth of the EV market.  Here are the critical passages…

 

“In the last two years, lithium production has not been enough to meet demand. As a result, lithium stockpiles have diminished,” said James Frith, an energy storage analyst at Bloomberg New Energy Finance, adding that producers have been working to replenish supplies to meet demand during the next five years.

By 2030, demand is expected to hit 250,000 metric tons a year, up from less than 50,000 metric tons in 2017, “so the industry will need to keep ramping up production,” Frith said.

Supplies of the metal can be difficult to predict because of the variety of ways it can be produced. Lithium is primarily mined in Australia through a process called hard-rock mining, which produces the metal in weeks, or in South America through brine mining, which is cheaper but can take up to two years.

The price of lithium has increased steadily as products powered by rechargeable batteries have gained popularity — up to $290.19 per ton in January 2018 from $134.16 per ton in January 2016, according to data from Benchmark. These costs could continue to soar for automakers unless they land long-term agreements, Moores said.

 

Tesla’s scramble for lithium

Musk: Model 3 output hurt

Battery module production is one stumbling block, the company acknowledged last week. And while it’s unclear whether a shortage of lithium is part of the problem, Tesla is making moves to ensure it can access enough of the light metal — a growing concern for the entire industry.

Tesla reportedly has been in talks with Chilean lithium supplier SQM to invest in the company and secure a steady supply of the metal. Lithium is a key component in lithium ion batteries used to power electric vehicles, and its future supply could be a major concern for long-term battery production.

First, however, Tesla must address getting its current batteries off the line.

“Battery module production has been a limiting factor on Model 3 output,” Musk said last week on a call with analysts to discuss fourth-quarter earnings. The company posted a $675.4 million net loss for the fourth quarter of 2017, compared with a net loss of $121.3 million in the year-earlier period, largely due to problems ramping up production of the Model 3. “We were a little overconfident and complacent in thinking this is something we know and understand.”

Tesla’s battery struggles show that the massive transition to electric vehicles won’t be without significant hurdles. Much of the demand for lithium is taken up by the consumer electronics industry. As automakers ramp up plans for EVs, lithium demand is expected to hit new highs, and competition for lithium will soar.

That means manufacturers need to secure strong supplier relationships with lithium producers in the short term or brace for major price fluctuations.

Electric Platform Snaps up Bodies as Required

“In the last two years, lithium production has not been enough to meet demand. As a result, lithium stockpiles have diminished,” said James Frith, an energy storage analyst at Bloomberg New Energy Finance, adding that producers have been working to replenish supplies to meet demand during the next five years.

By 2030, demand is expected to hit 250,000 metric tons a year, up from less than 50,000 metric tons in 2017, “so the industry will need to keep ramping up production,” Frith said.

Sanford C. Bernstein & Co. estimates companies will have to spend between $350 billion and $750 billion to find and develop new lithium mines to support this rising demand.

Increasing demand

SQM said it does not comment on specific customers, but it has been in talks with automakers to play a “more active role” in the supply chain.

Supplies of the metal can be difficult to predict because of the variety of ways it can be produced. Lithium is primarily mined in Australia through a process called hard-rock mining, which produces the metal in weeks, or in South America through brine mining, which is cheaper but can take up to two years.

Tesla, General Motors, Nissan Motor Co. and Chinese automakers are the primary companies producing fully electric vehicles, but in the last year, automakers from Volvo Cars to Ford Motor Co. to Mercedes-Benz have pledged to beef up their EV offerings in the next five years. And those numbers are expected to rapidly increase in the next decade — Bloomberg New Energy Finance projects EV sales to reach 24.4 million by 2030, compared with global sales of just more than 1 million now, according to Navigant Research.

These commitments have yet to include supply chain plans for increased battery production, begging the question of whether lithium supply can keep up.

“No major automaker has yet got a lithium contract in place that is consuming supply,” said Simon Moores, managing director of Benchmark Mineral Intelligence, a data collection company focused on the lithium ion battery supply chain. “This means that it becomes a longer-term issue.”

Securing supply

The price of lithium has increased steadily as products powered by rechargeable batteries have gained popularity — up to $290.19 per ton in January 2018 from $134.16 per ton in January 2016, according to data from Benchmark. These costs could continue to soar for automakers unless they land long-term agreements, Moores said.

And so automakers are starting to stake claims in long-term agreements, even taking equity positions in new projects, said Daniel Jimenez, commercial vice president of iodine, lithium and industrial chemicals at SQM.

“It seems very likely that OEMs will continue in this trend of securing themselves lithium assuming a role that, so far, has been in the hands of cathode and battery manufacturers,” he said.

Last year, Chinese automaker Great Wall Motors took a 3.5 percent stake in Australian lithium producer Pilbara Minerals, and in January, Toyota Motor Corp. invested in Argentinian lithium mining company Orocobre. These new relationships are a departure from the traditional roles of component producers, Moores said, and could take time to work in the automakers’ favor.

“The reality is this should have been done two to three years ago,” Moores said. “The sellers have the purchasing power right now, not the buyers; especially big new buyers looking for significant volumes.”

Few alternatives

In June 2016, Musk called lithium “the salt on the salad,” saying nickel and graphite make up most of a battery cell and lithium makes up just about 2 percent of a lithium ion battery.

However, automakers’ recent investments suggest lithium may be more than just a sprinkling for batteries, and automakers may be left with few options if there isn’t enough.

K.C. Chang, a senior economist at IHS Markit, said there’s no current replacement for lithium in rechargeable batteries, but if faced with shortages or other risks to supply, automakers could be incentivized to explore the development of other components. Supplier pricing also will be a major driver of whether lithium alternatives or processes such as battery recycling will get more attention.

“This is still an industry trying to find a better sense of direction,” Chang said. “If producers charge too high a price, OEMs will look for alternative battery chemistries. The results of these negotiations are going to be a signpost of how quickly or slowly EV adoption will evolve on a global basis.”

Lithium substitutes may not be so easy to find. Frith said the metal’s value lies in its ability to provide a high amount of energy in a lightweight package. Alternatives using calcium or magnesium are being developed but are in the beginning phases.

“It has taken more than 50 years to develop lithium ion batteries to the point that they are now at, so don’t expect any of these early-stage technologies to hit the market anytime soon,” he said.

You can reach Katie Burke at kburke@crain.com – Follow Katie on Twitter: @KatieGBurke

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