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2022 could be remembered as the year EVs become definitively mainstream, but the auto industry is still trying to bolster the supply chain for the batteries that power them. Some bumps in the road are to be expected, and one of the big ones is lithium.
Spot prices for battery-grade lithium in China—where 75% of all battery-making capacity is located—soared to more than $50,000 per metric ton this month, compared with $11,000 this time last year, according to Benchmark Mineral Intelligence. Prices elsewhere are lower, but also climbing: The global weighted average lithium carbonate price this month is $36,780, per Benchmark data shared with us, up from $9,000 a year ago.
These prices are all-time highs for the metal used to make the lithium-ion batteries that power EVs, smartphones, and wearables.
What’s going on: With rising demand for EVs, suppliers can’t keep up with the amount of lithium needed for battery production. At the end of 2021, lithium fell into a “structural shortage”—meaning there isn’t enough of the metal being mined and refined for everyone looking to buy some.
China is the biggest EV battery market in the world, so it has the highest demand for lithium. On top of that, contracts for lithium in China are “very short-term and volatile,” Simon Moores, CEO of Benchmark, told Emerging Tech Brew back in November.
As a result, China is experiencing the most drastic price increases, but the cost of lithium across the globe is surging. And that’s bad news for EV and battery makers that have yet to lock in lower lithium prices with long-term contracts, Moores said this week via email.
What’s next: More lithium mines are in the works, but Moores says that these projects take at least five to seven years before they come online. The cost can vary, but estimates range in the hundreds of millions of dollars.
Supply isn’t expected to catch up to demand until around 2023, and Moores expects the shortage will cause price volatility for the next three years or so.
While the “out of control” lithium prices in China might peak this year, the global average cost will continue to increase, Moores said.
Bottom line: Batteries account for at least 30% of the total cost of an EV, so lowering the price of batteries is vital to making EVs more affordable. While the average price of an EV battery pack has dropped by about 90% over the last decade, the pace of that decline slowed in 2021, due in part to the rising cost of raw materials like lithium, cobalt, and nickel.
The lithium squeeze will make it difficult for some automakers to reach their ambitious EV production targets and may delay price parity with ICE vehicles.