Lithium Bottlenecks – Real Risk for EV Adoption or Overhyped?

The following is a wonderful article by Charles Morris that communicates several key points excellently. It gives a bit of a different take on lithium than we usually present, while still referencing a comment from a battery manager highlighting an important point we’ve been communicating for years. The main point is that while it may only take a year or two (this director says two) to build a battery factory, it takes at least 5-7 years (this director says 8 years) to build a new lithium mine. to take production.

I think it’s worth making the argument that Charles pays a lot of attention, but I still agree with all the lithium experts I’ve talked to over the years who predict a major imbalance in lithium supply and demand because not enough firm commitments and funding for lithium years in advance (from battery makers or automakers, but due to insufficient firm commitments and orders from automakers). Aside from the supply side issues here, I don’t think one should discount what could happen in terms of demand. We are already seeing rapid adoption of EVs in Europe and China (and you could even say the United States), and it’s only 2022. We’re already seeing quite a few really competitive mass-market EV models, and it’s not until 2022. We’ve also seen a massive surge in lithium prices in recent years. By 2025, I think much of the public in most of the world will realize there’s little to no point in buying a fossil fuel vehicle. They may want to buy an electric vehicle ASAP, or they may decide they want to buy one within the next few years, but the bottom line is that automakers need sell tons of EVs to keep up their sales and not go bankrupt. That means they need a ton of lithium (well, many tons of lithium), and I don’t think there will be enough lithium mined and refined for global demand by the end of the 2020s — not nearly enough. But we’ll see.

For now, think carefully about this article from Charles as it offers a glimmer of hope and is based on market experience with many other products and technologies.

By Charles Morris, courtesy of EVANEX.

With sales of electric vehicles soaring, the industry faces numerous bottlenecks: scaling up the production of batteries and the raw materials that go into them takes time; global battery production is currently dominated by Asian companies; many of the necessary raw materials are extracted in unstable countries and/or countries with poor environmental and human rights records; and the extraction and processing of raw materials pose environmental challenges that make it challenging to ramp up domestic production.

The ongoing stream of anti-EV articles and social media posts constantly reminds us of all these issues, while insisting that the industry has either ignored them or deliberately hidden them for some nefarious reason. In fact, automakers and suppliers have been well aware of these supply chain challenges for years, but it’s only recently, when EVs started going mainstream, that they started to gain attention in popular media. The recent passage of the Inflation Reduction Actincluding measures to encourage domestic production of batteries and raw materials has really brought these issues to the fore.

Some industry experts (among others) are making dismal predictions of impending shortages of critical minerals. An exec at a battery manufacturer recently told me that while it may take as little as two years to build a giga battery factory, it will take at least eight years, and sometimes much more, to put a new lithium mine into production. Commodities analysts have also warned of supplies of graphite, nickel, cobalt and a long list of specialty materials needed for batteries.

While the bottlenecks are real and call for bold action from automakers, suppliers and governments, those who make the most pessimistic predictions undoubtedly underestimate the importance of human ingenuity (and the human desire for profit).

A recent Bloomberg article highlights a recent example of how a projected deficit has failed to materialize, due to efforts on both the supply and demand sides. A few years ago, prophets predicted a crippling cobalt crisis, just as they predict an imminent shortage of lithium. In case the prices for cobalt are down about 40% from their peak earlier this year.

As Colin McKerracher reports, this is largely due to supply-side measures. Mining giant Glencore increased production at its Mutanda mine in the Democratic Republic of Congo by about 40% in the first half of the year. (Glencore has been accused of a long list of human rights, environmental and bribery abuses in the DRC and elsewhere, but that’s a topic for another article.)

Obviously, higher prices motivate mining companies to increase supply. But the cobalt market has also been impacted by demand-side measures as battery and automakers strive to use less of the problematic element. According to Bloomberg, 86% of all EVs sold in 2018 used cobalt-based battery chemistry. By 2020, that share had fallen to 83% and this year it is expected to drop to 60%.

Car manufacturers are increasingly opting for cobalt-free lithium iron phosphate (LFP) chemicals for several reasons, in addition to a desire to avoid controversy: LFP batteries are cheaper and have a number of other technical advantages that make them a good choice for some are types of vehicles. Chinese automakers led the way to LFP adoption – BYD and CATL have been using the chemistry for a while – and Tesla started offering buyers a choice end 2021 between two alternative battery chemistries. Tesla now uses LFP batteries for Standard Range Model 3s and Model Ys manufactured in China. According to Bloomberg, nearly half of the vehicles Tesla produced in the first quarter of this year used LFP.

Other automakers are beginning to phase in LFP batteries to reduce costs and provide a cover against supply bottlenecks. Volkswagen plans to include LFP batteries in entry-level EVs starting next year; Ford plans to offer an LFP option for its Mustang Mach-E and F-150 Lightning in 2023 and 2024; and Hyundai is also reportedly in the process of developing LFP packs.

Meanwhile, battery manufacturers are reducing the amount of cobalt they use in nickel-manganese-cobalt (NMC) batteries. Bloomberg’s McKerracher explains that early NMC formulations contained equal parts nickel, manganese, and cobalt and were thus named NMC-111, but were later replaced by NMC-532, NMC 622, and most recently by NMC 811, which contains 8 parts Ni. . 1 part Mn and 1 part Co (nickel is another metal widely expected to face supply issues, but like cobalt, its price has fallen from the highs it reached earlier this year).

The story here is actually an old one: high prices for a particular material increase production, increasing supply, and several innovations that reduce demand. This is the invisible hand of capitalism at work, and it’s fair to expect similar stories to play out over time when it comes to other crucial minerals.

It is worth noting that there are two types of innovations that come into play to address shortages. Companies that depend on a material that is scarce are looking for solutions that allow them to use less to save money. At the same time, entrepreneurs are trying to devise new products and/or processes that can minimize or eliminate the need for scarce materials – products they hope to sell to existing companies to to make money. In the long run, this could be a stronger force as such innovations often come from young startups who think outside the box. How much demand for lithium, cobalt, et al can we reduce by allowing heavy EVs to run on smaller batteries? That is what momentum dynamics claims to offer, and while the company’s wireless charging technology has nothing to do with raw materials necessarily, if it meets its requirements, it can have a big impact. What if we had batteries that didn’t use lithium at all? Companies are working there.

“Whenever there is a boom in a particular material, there are always groups who claim that things are fundamentally different this time, that this time the supply curve is really inelastic, or that there are no substitutes this time,” writes Mr. McKerracher. . “Those claims are usually proven false by the combined effect of price signals and ingenuity.”

Featured image courtesy of Benchmark mineral intelligence


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