June 2, 2023

Lithium, a common ingredient in nearly all electric vehicle batteries, has become so precious today that it is often referred to as platinum. But something surprising happened recently: Falling metal prices are helping to make electric cars more affordable.

Lithium prices have fallen nearly 20% since January, according to Benchmark Minerals, even as sales of electric vehicles have soared. The price of cobalt, another important battery material, has more than halved. Copper, vital to electric motors and batteries, fell about 18% even as U.S. mines and copper-rich countries such as Peru struggled to boost output.

The drastic changes have confounded many analysts, who predict prices will remain high or even climb, slowing the transition to cleaner modes of transportation that are an important part of efforts to limit climate change.

Instead, falling commodity prices have made it easier for automakers to lower prices on electric vehicles. This month, Tesla slashed thousands of dollars in prices on its two most expensive cars, the Model S sedan and Model X sport utility vehicle.

It follows Tesla axing its more affordable Model 3 and Model Y in January, and Ford axing its Mustang Mach-E. According to Kelley Blue Book, the average price of an electric vehicle in the US fell $1,000 in February compared to January.

“For electric vehicles, the main hurdle is cost,” said Kang Sun, chief executive of Amprius Technologies, a young battery maker that this month announced plans to build a factory in Colorado. Falling lithium prices “will boost electric vehicle sales,” he said.

Dr Sun believes prices could fall further because demand for the metal is not growing as fast as some in the industry expect.

As with any commodity, there are wide-ranging views on what has caused the recent price drop and how much lithium will cost in the coming months and years.

Some analysts said the drop in lithium prices was due to short-term factors such as slower sales growth in Europe and China after subsidies for electric vehicle purchases expired. But other industry experts said the drop showed new mines and processing plants were addressing the lithium problem faster than many analysts believed.

Even with such a steep drop, lithium prices remain so high that mining and processing the metal is an exceptionally profitable business. The metal, which is particularly useful in batteries because of its ability to store energy, costs about $5,000 to $8,000 per ton to produce. It sold for 10 times that figure, according to Mobility Impact Partners, a New York-based private equity firm that invests in areas such as the electric vehicle industry.

Given these fat profit margins, investors and banks are eager to invest in or lend money to mining and processing projects. The federal government is providing grants worth tens of millions of dollars to lithium prospectors and processors.

“You can’t have a profit margin that is 10 times the cost of extraction,” said Shweta Natarajan, a partner at Mobility Impact who has analyzed the lithium market. “You’ll see it come down.”

“Financing is readily available,” Ms Natarajan added. “There’s no reason to think you wouldn’t open up new programs to meet any shortages.”

But others, including members of Biden’s administration, are less confident. Lithium supply must increase 42-fold by 2050 to support the transition to clean energy, said Jose W. Fernandez, the State Department’s undersecretary for economic growth, energy and the environment.

“We have to find additional sources of supply because 42 is a lot,” Mr Fernandez said in an interview. “Right now, we’re not 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 soared, the industry scrambled to open new mines and refiners ramped up capacity to process the ore.

“Mining is not what drives costs,” said Bold Baatar, chief executive of mining giant Rio Tinto’s copper production unit. “It’s the availability of processing facilities.”

Most lithium refineries are in China, and few managers and engineers outside of China know how to build processing plants. Beijing’s near-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 close political and economic ties.

The supply of lithium and other critical materials is a national security issue, Mr. Fernandez said. Last year, the government established the Mineral Security Partnership, which he said included the European Union and 12 industrialized countries, including Australia, Japan and the United Kingdom, to identify mining opportunities and financing, and to promote recycling.

The Department of Energy will allocate $3 billion to create a domestic battery supply chain. In addition, the Lower Inflation Act, which Mr. Biden signed into law last year, provided tax credits for battery production.

American Battery Technology received a grant from the Department of Energy to help it build a lithium refinery and battery recycling facility in Nevada. The company is also developing lithium mines in the state.

American Battery Technology CEO Ryan Melsert attributed the recent drop in lithium prices to temporary factors such as a seasonal slowdown in electric vehicle sales in China. “We expect to see very high prices for the foreseeable future,” Mr Melset said.

Vivek Chidambaram, senior managing director of strategy at consultancy Accenture, also expects the decline to be short-lived. Lithium prices fell because sales of electric vehicles, while still buoyant, were not growing as fast as automakers had expected, he said. This causes suppliers to produce more product than needed.

“There was a time when it was thought that electric vehicles would take off,” Mr Chidambaram said. “Then the rate at which they actually grow catches up to reality.” He expects lithium prices to be volatile over the next few years.

Carmakers, concerned about lithium shortages and rising prices, have taken steps to ensure a steady supply. They have contracts with lithium suppliers that require them to buy a certain amount of the metal. In some cases, automakers have gotten more directly into the lithium business. Tesla said this month it would build a lithium processing plant near Corpus Christi, Texas.

GM said in January it would invest $650 million in Lithium Americas, which is developing a mine in Nevada called Thacker Pass. The deal makes GM Lithium Americas’ largest customer and shareholder.

Those investments could lose money if lithium prices continue to fall, analysts warn.

There is also a risk that improvements in battery technology could affect demand for lithium in unexpected ways.

Solid-state batteries being developed by several companies will require more lithium than batteries currently in use, increasing demand. But these batteries may not appear in production vehicles for several years. Other advances in production technology and chemistry will allow batteries to be smaller and lighter without sacrificing performance, reducing the need for lithium.

Transfer technology has hit cobalt. The collapse in the metal’s price is partly due to the growing popularity of cobalt-free batteries made from lithium, iron and phosphate, a combination known as LFP stocks by major cobalt suppliers, analysts said. impact on prices.

LFP batteries are heavier than those made with cobalt, but they are much less expensive and last longer. LFP batteries do not carry the pollution associated with cobalt, most of which come from the Democratic Republic of Congo, where mining operations are known for child labor and harsh working conditions.

Ford Motor said in February it would spend $3.5 billion to build a plant in Michigan to produce LFP batteries using technology from CATL, the world’s largest battery maker.

There is currently no technology that can remove lithium from mass-produced car batteries. For this reason, few analysts predict lithium prices will be as low as they were in 2020, when prices fell below $10 a kilogram.

“Even with prices coming off their highs,” said Ms. Natarajan of Mobility Impact Partners, “there are still very healthy margins.”

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