Lithium has become a fundamental material for the transformation towards clean energy, whether it is used in batteries for electric vehicles or to store renewable energy from the wind or the sun. The lithium needed for these applications not evenly distributed all over the world. That is why it is a submissive good to price fluctuations. Of particular concern is its increase, since is currently 10 times higher, which is having a strong impact on the electric vehicle market. However, a study by a team from Tsinghua University indicates that it is a temporary situation and that will hinder the electrification of transport in the long term.
Despite limited supply and fluctuating lithium prices that are now at their highest levels, the electric vehicle market is expected to maintain steady growth over the next few years. The study published in the journal Joule (Surging lithium price will not impede the electric vehicle boom) states that the price of lithium is likely to fall back to previous levels around 2025.
History of the evolution of the lithium market
The global lithium supply chain is currently haunted by market fluctuations. From December 2020 to April 2022, the Chinese spot market experienced a price increase of 830% for lithium carbonate 100% for cobalt sulfate and 60% for nickel sulphate, with prices amounting to 73,000, 18,000 and 7,000 dollars per ton respectively.
These skyrocketing cost increases quickly passed down the supply chain, since raw material suppliers could not absorb such large increases. Thus, the price of cathodes increase a 140% in the case of the ternary chemicals NCM 811 (64,000 dollars/ton) and a 330% in the case of LFP chemicals (25,000 dollars/ton). In addition, the price of electrolyte rose by 160% up to 17,000 dollars per ton.
The impact of these increases caused a lithium price increase in the second half of 2021breaking the downward trend that had been observed for 30 years, when it became a commercial product in 1991. In April 2022, the average prices of a prismatic cell for electric vehicles with NCM and LFP chemicals reached 130 and 120 dollars/kWh, respectively, which is 30% and 50% higher than their previous levels. In response, many electric vehicle companies inflated retail prices by 3% to 5%, or even discontinued sales of low-profit models.
Conclusions and recommendations of the report
This rise in the price of lithium and other materials needed for batteries has raised serious concerns about the future development of electric vehicles. Focusing on lithium, the report indicates that although the current increase in prices has caused a strong short-term impact on the electric vehicle market, will not hinder the electrification of transport in the long term.
Despite supply shortages and price fluctuations, the electric vehicle market is expected to maintain steady growth over the next few years. Around 2025, with a significant advantage of supply over demand, the price of lithium is likely to fall back to its previous levels.
For this to happen, the researchers include in the report a series of recommendations:
Establish a global lithium trading platform. Cobalt and nickel are traded on the London Metal Exchange, while there is no such platform for lithium. Despite the potential increase in fluctuations caused by capital liquidity, an open trading platform provides timely feedback to market changes, transparent pricing information, and transaction monitoring while avoiding price extremes.
Diversify supply sources. The extreme geographic concentration of lithium supply increases the possibility of disruptions. In 2020, the top three lithium producing countries accounted for 90% of global supply. By comparison, only 40% of the world’s oil supply is concentrated in the top three producing countries. Although that lithium supply concentration is expected to drop to 70% by 2025, supply diversification remains a pressing need. Government reserves of lithium feedstocks could be considered to create a backup supply similar to that which exists for copper, aluminum, etc.
Improve recyclability. A well-developed recycling system, including strong standards, efficient collection and logistics, and ensuring high-quality product output can significantly improve the resilience of the material supply.
Reduce demand for lithium. The 426% year-over-year increase in LFP battery deployment in the second half of 2021 contained demand and price volatility for cobalt and nickel. Non-lithium batteries, such as sodium ion batteries, could serve similar roles in segments where the specific energy requirement is low. In addition, practices such as battery swapping and fast charging can effectively contain battery capacity needs and reduce lithium demand.
Establish information exchange mechanisms. The price crisis reveals the asymmetry of information that worries the industry, which reveals the need to establish mechanisms that facilitate coordination, cooperation and communication between the government, consumers, suppliers and companies that act in the supply chain . Such mechanisms can help the industry form an effective integration to reduce the occurrence of demand distortions, overproduction, and malicious and unnecessary storage.