The following is a wonderful article by Charles Morris that communicates several important points superbly. It presents a bit of a different take on lithium than we’ve typically been presenting, while still referencing a comment from a battery exec that emphasizing a key point we’ve been communicating for years. That key point is that while it may take just a year or two (this exec says two) to build a battery factory, it takes at least 5–7 years (this exec says 8 years) to get a new lithium mine into production.
I think it’s worth giving the argument Charles presents a lot of attention, but I still side with all of the lithium experts I’ve talked to in the past few years, who forecast a big imbalance in lithium supply and demand due to not enough firm commitments and financing for lithium years in advance (whether from battery makers or automakers, but stemming from not having firm enough commitments and orders from automakers). Aside from the supply-side issues here, I think one shouldn’t discount what could happen with regards to demand. We already see rapid adoption of EVs in Europe and China (and you might even say the USA), and it’s just 2022. We already see a good number of truly competitive mass-market EV models, and it’s just 2022. We’ve also already seen an enormous increase in lithium prices in the past couple of years. By 2025 onward, I think a good portion of the public in most of the world will realize that it makes little to no sense to buy a fossil fuel vehicle. They may want to buy an electric vehicle ASAP, or they may decide they want to buy one within the next few years, but the bottom line is that automakers will need to sell a ton of EVs in order to keep their sales up and not end up in bankrutpcy. That means they will need a ton of lithium (well, many tons of lithium), and I don’t think there will be enough lithium mined and refined by the end of the 2020s for global demand — not nearly enough. But we shall see.
For now, give this article from Charles some serious thought, because it does offer a sliver of hope and is based on market experience with many other products and technologies.
By Charles Morris, courtesy of EVANNEX.
As electric vehicle sales soar, the industry is facing a host of bottlenecks: scaling up production of batteries and the raw materials that go into them takes time; global battery production is currently dominated by Asian firms; much of the necessary raw material is mined in unstable countries, and/or ones with poor environmental and human rights records; and mining and processing of raw materials present environmental challenges that make it challenging to ramp up domestic production.
The ongoing flood of anti-EV articles and social media posts constantly reminds us of all these issues, while insisting that the industry has ignored them, or deliberately concealed them for some nefarious reason. In fact, automakers and suppliers have been keenly aware of these supply chain challenges for years—however, it’s only recently, as EVs have begun to break into the mainstream, that they have started to receive coverage in popular media. The recent passage of the Inflation Reduction Act, which contains measures to encourage domestic production of batteries and raw materials, has really brought these issues to the forefront.
Some industry experts (among others) are making dire predictions of looming shortages of critical minerals. One exec at a battery manufacturer recently told me that, while it might only take two years to build a battery gigafactory, it takes at least eight years, and sometimes much more, to bring a new lithium mine into production. Commodities analysts have also been sounding warnings about supplies of graphite, nickel, cobalt and a long list of specialty materials that are needed for batteries.
While the bottlenecks are real, and call for bold action from automakers, suppliers and governments, those making the most pessimistic predictions are surely undervaluing the importance of human ingenuity (and the human desire for profit).
A recent Bloomberg article highlights a recent example of how a predicted shortage failed to materialize, due to efforts on both the supply and demand sides. A few years ago, prophets were predicting a crippling cobalt crunch, just as they’re now forecasting a looming lack of lithium. However, in the event, prices for cobalt have fallen about 40% from their highs earlier this year.
As Colin McKerracher reports, much of this is due to supply-side measures. Mining giant Glencore increased output at its Mutanda mine in the Democratic Republic of Congo by about 40% in the first half of the year. (Glencore has been accused of a long list of human rights, environmental and bribery abuses in the DRC and elsewhere, but that’s a subject for another article.)
Obviously, higher prices motivate mining firms to increase supply. But the cobalt market has also been affected by measures on the demand side, as battery manufacturers and automakers strive to use less of the problematic element. In 2018, according to Bloomberg, 86% of all EVs sold used cobalt-based battery chemistries. By 2020, that proportion had fallen to 83%, and it’s expected to drop to 60% this year.
Automakers are increasingly choosing lithium-iron-phosphate (LFP) chemistries, which contain no cobalt, for several reasons in addition to the desire to avoid controversy—LFP batteries are cheaper, and have some other technical advantages that make them a good choice for some types of vehicles. Chinese automakers led the way to LFP adoption—BYD and CATL have been using the chemistry for some time—and Tesla started offering buyers a choice between two alternative battery chemistries in late 2021. Tesla is now using LFP batteries for Standard Range Model 3s and Model Ys produced in China. According to Bloomberg, almost half of the vehicles Tesla produced in the first quarter of this year used LFP.
Other automakers are starting to phase in LFP batteries, in order to reduce costs and to provide a hedge against supply bottlenecks. Volkswagen plans to include LFP batteries in entry-level EVs starting next year; Ford plans to offer an LFP option for its Mustang Mach-E and F-150 Lightning in 2023 and 2024; and Hyundai is reportedly also developing LFP packs.
Meanwhile, battery-makers are reducing the amount of cobalt they use in nickel-manganese-cobalt (NMC) batteries. Bloomberg’s McKerracher explains that early NMC formulations contained equal parts nickel, manganese and cobalt, and thus were denoted NMC-111, but that these were later replaced by NMC-532, NMC 622, and lately by NMC 811, which contains 8 parts Ni, 1 part Mn, and 1 part Co (nickel is another metal that’s widely expected to face supply issues, but like cobalt, its price has plummeted from the heights it reached earlier this year).
The story here is actually an old one: high prices for a particular material drive more production, which increases supply, and various innovations that reduce demand. This is the invisible hand of capitalism at work, and it’s reasonable to expect that similar stories will play out over time when it comes to other critical minerals.
It’s worth noting that there are two kinds of innovations that come into play to attack shortages. Companies that rely on a material that’s in short supply look for workarounds that enable them to use less, in order to save money. At the same time, entrepreneurs try to dream up new products and/or processes that can minimize or eliminate the need for scarce materials—products they hope to sell to existing companies in order to make money. In the long run, this may be a more potent force, as such innovations often come from young startups that think outside the box. For example, how much demand for lithium, cobalt, et al could we reduce by making it possible for heavy-duty EVs to operate with smaller batteries? That’s what Momentum Dynamics claims to offer, and although the company’s wireless charging tech has nothing to do with raw materials per se, if it fulfills its claims, it could have a large impact. What if we had batteries that used no lithium at all? Companies are out there working on it.
“Whenever there’s a boom in a particular material, there are always groups claiming this time things are fundamentally different, that this time the supply curve really is inelastic, or that this time there are no substitutes,” Mr. McKerracher writes. “Those claims usually get proven wrong by the combined effect of price signals and ingenuity.”
Featured image courtesy of Benchmark Mineral Intelligence
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