The EV industry is desperate for new lithium supply

Lithium is once again rallying as automakers go all-in on electric vehicles. According to the OilPrice analyse, demand for lithium is set to see a prolonged rally, prompting buyers to scramble to secure long-term contracts

The last time lithium prices went on a tear was a few years ago, spurred on by expectations of an EV revolution.
At the time, the boom came to an end fairly quickly as producers ramped up output.
Now, lithium is once again rallying ahead of what most see as the almost complete electrification of transport.
But this time is different.

Back in 2015, when the previous lithium price rally began, Tesla was hogging headlines while the big carmakers were mostly in a business-as-usual mode.
They were developing electric models, but nothing like the lineup the likes of VW, Renault, GM, and Ford have been announcing over the past year or so.
Now, the auto majors are actually planning to become all-EV in the not too distant future - in line with government policies.

With such plans by the world's biggest carmakers, demand for lithium is set to enjoy a prolonged rally.
This is prompting buyers to turn to what they used to shun: long-term contracts.

Reuters reported this week that the price of lithium carbonate in China has added 276 % since the start of the year, thanks to strong demand from the EV industry as sales of electric vehicles increase.

In the 1^st half of 2021, EVs - including plug-in hybrids and battery-electric cars - made up 7.2 % of total global car sales.

This compared with 4.3 % last year and 2.6 % in 2019.

The numbers are seen rising significantly, and with them, the price of lithium.
A Benchmark Mineral Intelligence analyst told Reuters:

Prices are up over 230% year to date, really around a lack of available material
As a result, people are willing to sign up for longer-term contracts going into 2022 with more frequent price breaks

The price breaks refer to regular periods at which the price of the commodity is renegotiated.
Bloomberg last month reported that because of the soaring demand for lithium, buyers are not only opting for long-term contracts, but also buying lithium mining assets themselves to secure supply, as new lithium mining capacity has been slow in coming due to price fluctuations and some projects have been delayed.
Joe Lowry, an independent consultant & mining industry vet, told Bloomberg in October:

It's kind of like revenge of the miners
The suppliers are in the driver's seat, and it's going to stay that way for a while

According to Morningstar forecasts, demand for lithium will remain higher than supply at least over the next 5 years.
All in all, nobody expects an end to the current lithium price rally anytime soon.
This, however, is sparking a new worry: that it would take longer for EVs to reach cost parity with internal combustion engine vehicles.

Their manufacturers need to achieve this parity in order to be able to push EVs as an on-par replacement for gas guzzlers, but with all battery metals prices rising fast, the moment of that happening is moving farther down the road.

And this is not the only problem.

Some are already sounding the alarm that lithium could effectively become the new oil, making certain countries dependent on imports rather than developing self-sufficiency.

Currently, China is the lithium king of the world, and this certainly does not sit well with decision-makers in Europe or the United States.
This could spur new lithium mine development wherever there is lithium - and there is in the United States - but exactly how fast this new supply could come is still questionable.

Until it gets an answer, lithium prices - and EV prices - will remain elevated, and coupled with current inflation, trade could slow down the world's EV transition.

Author: Irina Slav