Lithium, a common ingredient in almost all electric car batteries, has become so valuable that it is often referred to as white gold. But a surprising thing has happened recently: the price of metal has dropped, which has helped make electric vehicles more affordable.
Since January, the price of lithium has fallen nearly 20%, according to Benchmark Minerals, even as sales of electric vehicles have soared. Cobalt, another important battery material, fell by more than half. Copper, essential for electric motors and batteries, has fallen about 18%, even as US mines and copper-rich countries like Peru are scrambling to increase production.
The sharp moves have baffled many analysts who predicted prices would remain high or even climb, slowing the transition to cleaner means of transport, a key part of efforts to limit climate change.
On the contrary, falling commodity prices have made it easier for automakers to cut prices for electric vehicles. This month, Tesla slashed the price of its two most expensive cars, the Model S sedan and the Model X sport utility vehicle, by several thousand dollars.
The move follows January cuts from Tesla for its more affordable Model 3 and Model Y and Ford Motor for its Mustang Mach-E. The average price of an electric vehicle in the United States fell by US$1,000 (C$1,375) in February compared to January, according to Kelley Blue Book.
“For electric vehicles, the main barrier is cost,” says Kang Sun, CEO of Amprius Technologies, a young battery maker that this month announced plans to build a plant in Colorado. Lower lithium prices, he added, “will support electric vehicle sales.”
Sun believes prices could fall further as demand for the metal has not grown as quickly as some industry players expected.
As with any commodity, opinions are very divided on the causes of the recent price drop and the cost of lithium in the months and years to come.
Some analysts believe that the fall in the price of lithium is due to short-term factors, such as slowing sales growth in Europe and China after subsidies for the purchase of electric cars expired. But other industry experts said the decline indicated new mines and processing plants were solving the lithium problem sooner than many analysts believed possible.
The metal, which is ideal for batteries due to its ability to store energy, costs between US$5,000 and US$8,000 per tonne to produce. It sells for 10 times more, according to Mobility Impact Partners, a New York-based private equity firm that invests in the electric vehicle industry in particular.
Given these large profit margins, investors and banks are eager to invest in or lend to mining and processing projects. The US government provides grants worth tens of millions of dollars to lithium prospectors and processors.
“You can’t have profit margins 10 times the cost of mining,” said Shweta Natarajan, partner at Mobility Impact Partners, who has analyzed the lithium market. “You will see that it will go down. »
“Funding is very easy to get,” adds Ms. Natarajan. There is no reason to think that new projects will not emerge to deal with possible shortages. »
But others, including members of the Biden administration, are less confident. According to Jose W. Fernandez, undersecretary for economic growth, energy, and the environment at the State Department, lithium supply must increase 42 times by 2050 to support the transition to clean energies.
“We have to find other sources of supply because 42 times is a lot,” Fernandez said in an interview. So far, we don’t have enough. »
There is a lot of lithium in the world. But it wasn’t considered very valuable until EV sales started to take off in recent years. As demand exploded, industry rushed to open new mines and refineries increased their ore processing capacity.
Most lithium refineries are in China, and few managers and engineers outside of that country know how to build processing plants. Beijing’s virtual monopoly on a key resource has alarmed the Biden administration, which has allocated billions of dollars to encourage companies to develop lithium mines and refineries in the United States or countries with which it has ties. close political and economic ties.
The supply of lithium and other critical materials is a matter of national security, said Fernandez. Last year, the U.S. government created the Mineral Security Partnership, a group that includes Canada, the European Union, and 11 industrialized nations, including Australia, Japan, and Britain, to find mining opportunities and financing, and to promote recycling.
The U.S. Department of Energy distributes $3 billion in grants to create a national battery supply chain. Additionally, the Cut Inflation Act, which President Joe Biden signed into law last year, provides tax credits for battery production.
Automakers, fearing a lithium shortage and rising prices, have taken steps to ensure a steady supply. They have signed contracts with lithium suppliers that oblige them to buy certain quantities of this metal. In some cases, automakers are getting into the lithium business more directly. Tesla said this month it would build a lithium processing plant near Corpus Christi, Texas.
General Motors said in January it would invest $650 million in Lithium Americas, which is developing a mine in Nevada called Thacker Pass. This agreement makes GM the main customer and shareholder of Lithium Americas.
These investments could turn out to be loss-making if the price of lithium continues to fall, analysts have warned.
Solid-state batteries developed by several companies would require even more lithium than the batteries used today, increasing demand. But these batteries probably won’t appear in mass-produced vehicles for years. Other advances in production techniques and chemistry would allow batteries to be smaller and lighter without sacrificing performance, reducing lithium requirements.
Technological evolution has already affected cobalt. The price of this metal has fallen in part due to the growing popularity of batteries made without cobalt from lithium, iron and phosphate, a combination known as LFP. Analysts said stockpiling by a major cobalt supplier may also have weighed on prices.
LFP batteries are heavier than cobalt batteries, but they are significantly cheaper and last longer. Additionally, LFP batteries are free from the pollution associated with cobalt, most of which comes from Congo, where mining operations are notorious for child labor and abysmal working conditions.
Ford Motor said in February it would spend US$3.5 billion to build a factory in Michigan to produce LFP batteries using technology from Contemporary Amperex Technology, or CATL, a Chinese company that is the world’s largest battery maker. batteries in the world.
No technology on the horizon will remove lithium from mass-produced automotive batteries. This is why few analysts expect the price of lithium to fall as low as in 2020, when it fell below $10 per kilogram.
“Even if the price drops from its high levels, there is still a very healthy profit margin,” concludes Ms. Natarajan, of Mobility Impact Partners.
