A lithium shortage is coming, and automakers might be unprepared

If you’re not already familiar with lithium, 2022 will probably be the year that changes.

This metal is third on the periodic table, the lightest solid element on earth, and an essential material in the lithium-ion batteries used for electric vehicles and energy-storage systems as the world transitions away from fossil fuels.

While there is plenty of lithium on the planet, it isn’t being extracted and refined quickly enough to keep up with the rapidly growing demand for batteries. By 2030, there’s projected to be a lithium deficit between 455,000 and 1.7 million metric tons each year.

Simon Moores, CEO of Benchmark Mineral Intelligence, told Emerging Tech Brew the EV industry is already facing a shortage of battery-grade lithium, and that price volatility will be a “three-year thing.”

We spoke with him about what that could mean as companies work toward putting millions more EVs on the road by 2030.

This conversation has been edited for length and clarity.

Have lithium costs affected the price of lithium-ion batteries over the last few years?

Batteries have been going down in price and manufacturing costs the last five years, since the creation of Tesla's Gigafactory—the introduction of scale into the industry that allows you to then make them cheaper.

Raw material costs have been low, but what’s happened in the last year is raw material costs, especially lithium, are rising significantly. Lithium is the big one here. And at the same time as these battery costs keep dropping, raw materials are a much bigger proportion of the pie—the cost pie. So lithium prices have gone up and they’re now impacting battery cells.

What does it mean when you say there’s a lithium shortage?

So the “structural shortage” is what the commodity industry calls it. That’s when there’s literally not enough capacity in the industry to meet that demand. This year was the year where supply got tight and then it has just fallen into shortage in the last few months. It’s a very clear shortage, a structural shortage. It’s kind of no going back.

With automakers announcing these ambitious EV goals, are OEMs preparing to deal with this shortage?

It’s funny, I think OEMs are quite a unique beast in this sense. The OEMs only plan to build battery plants. They don’t think about the raw materials. And that’s because they don’t come from that world. The traditional automotive supply chain is built to serve them, and they’re used to having everything available.

But the difference now with the supply chain for electric vehicles—it’s being built from scratch and doesn’t exist at the scale they need, so they don’t think about the raw materials, and we call this the great EV raw material disconnect. Two years ago, they weren’t even thinking about batteries. They are thinking about batteries now, which is good. But they’re still not thinking about raw materials. And that’s a huge risk to anyone that’s really making EVs beyond 2025 or 2026, which is nearly everyone.

A good way to understand it is that it takes at least five to seven years to build a lithium mine. With all the money in the world, you can build one in five years. But it takes 24 months to build a gigafactory, so that’s the disconnect. And still the automakers are announcing all these battery plants. At the same time, they should be announcing new lithium mines—or new lithium-refining capacity, at least, if they didn’t want to get into mining—because they go hand in hand. But that’s not happening yet. And as a result, any of the EV goals between 2026 and 2030—it’s a red alert. Most of these guys won’t even meet a fraction of their EV targets because of that.

Will lithium production increase in the coming years?

The next big one that’s scheduled to come on stream next year—and it’s the first big lithium chemical operation in maybe 15 years— it’s Lithium Americas in Argentina. Back in 2011, they started it. It’s now 2021, and it’s just about coming on stream.

And that’s a sign that this public company has to get funding, has to wait for the market to be right for the funding to come. It’s a good example of how long these things take—maybe a little bit more extreme in that time, it can be shortened. But it’s also all of these lithium operations—or let’s say future lithium operations, these next generation—they’re all public companies. So they’re at the mercy of public markets and funding through that way, which is a big part of the problem.

I think investors are starting to understand it. The last few years have been good for that and important. But generally for most companies, it’s just a risk. It’s like, do I need to put my investment dollars into this, or will I get more from Netflix or something? It becomes as simple as that.

Do you expect this to affect the affordability and adoption of batteries in the long run?

Lithium-ion batteries, in general, they’re becoming cheaper. I know the price is going up now, but they’re becoming cheaper in the trend, lower cost to make. They’re at the same time becoming better. Lithium-ion batteries are now probably three times better than they were in 2015. The third thing is they’re becoming abundant through these gigafactories.

So all of those three things combined is this trend that’s underpinning not just EVs, but really the energy-storage revolution and everything we’re trying to do for climate change. I think people only now are starting to realize how important the humble lithium-ion battery is, really.

You’ve got to ride out the volatility. Long term, it will be fine. The price will be fine. There’s no geological shortage. Lithium-ion battery powered EVs will dominate the world.