Koby Kushner, Mining Analyst, Red Cloud Securities
2022 was another explosive year for the battery metal, with lithium chemical prices rising more than 150 per cent on the back of heightened demand for electric vehicles (EVs) and energy storage solutions. With prices straddling record highs, we have noticed several members of the investment community proposing that lithium may need to be “engineered-out” of batteries in order to To answer our question, we first need to go back to high school chemistry. Lithium is #3 on the periodic table, after hydrogen and helium – it is the lightest metal in existence.
The next lightest solid element, potassium, is more than 60 per cent denser. This trait translates to superior energy density for batteries, which
is critical for products that need to move, like EVs or cell phones. Unlike metals like nickel or cobalt, lithium is also a constant found across the dominant battery chemistries (including NMC,LFP, LCO, LMO, and NCA). Non-lithium-based chemistries simply do not provide the same energy density. For example, vanadium-redox flow batteries, while a promising solution for grid energy storage, have low energy density – as a result, these batteries tend to be very large and impractical for mobile applications. The same goes for sodium-ion batteries, never mind the fact that it would likely take decades to develop a new, sodium-ion battery supply chain. Bottom line: we do not think lithium can be “engineered-out” or replaced with another metal for most mobile applications, including EVs.
We also do not think prices are high enough to cause demand destruction – lithium chemicals still make up a small portion of the total cost of an EV, and cathode chemistry improvements can likely offset some of the rising raw material costs. The fact that Tesla is announcing price cuts amidst a rising lithium price environment speaks for itself. The bigger concern for OEMs is not high prices – rather, it is the lack of available lithium supply. According to the USGS, only nine lithium operations account for more than 50 per cent of global raw lithium production. S&P Global Market Intelligence expects the lithium chemical supply- demand deficit to grow from approximately 8,000 tonnes in 2022 to around 91,000 tonnes in 2027, on a lithium carbonate equivalent basis. At this rate, current global lithium reserves are expected to be depleted by the mid-2030s. We simply need more lithium, which means we need more investment in exploration and resource development, in order to meet our electrification and de-carbonization goals.
While the lack of lithium supply may hinder widespread EV adoption, there is still hope
for an electrified future. Lithium itself is not geographically sparse, despite current raw lithium production being concentrated in Australia and South America. Nor is it geologically sparse; lithium has a higher crustal abundance than most other elements, including lead, uranium, tin, platinum, silver, and gold, combined. Meanwhile, high lithium prices have incentivized the development of technologies that could unlock “unconventional” sources of lithium such as lepidolite or clays. Other innovations, like direct lithium extraction (DLE), may allow the recovery of lithium from brines without the need for evaporation – it may be feasible to develop both low-grade brines and brines located in non-desert climates. The biggest bottleneck in developing a battery supply chain, in our view, is upstream investment – that is, the resource, the exploration required to delineate that resource, and the technology required to extract it.
