Could Lithium slow down growth of Electric Cars?

Ensuring the supply chain for EV batteries is a widely discussed topic these days. The most critical metals that are used are nickel, cobalt and lithium aside from copper, graphite and manganese. But the resources and the geographical distribution of reserves and resources of these metals are very different. Therefore it is worthwhile to discuss them individually.

In this blog I would like to have a closer look at the expected demand for lithium and analyze what issues supply chains might experience with the boom everybody is expecting for EVs.

Lithium is the lightest solid element under normal temperature and pressure conditions. Unlike nickel or cobalt it is abundant in the earth’s crust but because of its high reactivity is found exclusively in compounds. It is extracted from brines that are pumped from underneath salt lakes or is mined from hard rock. World’s largest lithium supplier is Australia covering more than 50% of the current demand through mining followed by Chile, China and Argentina where lithium is extracted predominantly from brine. Global production in 2020 mounted to 82ktons. 

After extraction the lithium compound requires refining in which the transformation into lithium carbonate and lithium hydroxide takes place. Interestingly over 60% of this operation today is performed in China. Imagine that the lithium is send from South American sources across the ocean for refining to China. Once converted into lithium carbonate or lithium hydroxide the material is shipped to battery producers throughout the world.

When I was doing the research for this blog I discovered is that the pure lithium content per kWh seems to be one of the greatest secrets of the lithium-ion-battery industry. There also appears to be a huge confusion which weight to use between lithium and lithium-carbonate which is the ultimately used material after processing the material shipped from the mines and brine fields. After looking at many different opinions I finally stuck with 0,16kg/kWh. The 0,8kg/kWh which is found in some sources is actually the weight of the lithium-carbonate per kWh. Some mistakenly use the 0,8kg/kWh to calculations and forecast future demand. 

So doing my own calculations for the amount that goes into EV-battery production I came up with a tonnage somewhere between 20 and 35kton in 2020. You can see the range of error is huge but when you read on you will see that it is more important to have an order rather than an exact number for what I want to conclude. 

Trying to estimate the range of EV volumes for 2030 is like looking in the crystal ball but with the projections of many OEMs and the EU Green Deal, Chinese subsidies and the changed attitude of the new US government towards electric cars, an assumption of 30 – 40 million EVs is not an unlikely forecast with a world production of around 90 million light vehicles (https://automotive-strategy.com/fully-electric-by-2030/ ). At the same time the average battery size per car will increase since the Plug-in hybrids will also be replaced by Full-EVs.

What does all this mean for the expected lithium demand?

A conservative scenario with 30 million EVs with an average battery size of 50kWh would result in a lithium demand just for the car industry of 240ktons per annum. This is almost three times total global demand for lithium of 2020 and somewhere in the region of 10 times the annual demand for electric car batteries today.

The more aggressive scenario with 40 million EVs with an average battery size of 70kWh results in a demand of almost 450ktons versus a current total global production of just over 80ktons or the 20 -35ktons that goes into EV-batteries. We can expect the demand for other applications for consumer electronics, household devices etc. also to continue to increase.

With the ability to recycle most of the lithium one day we will be able to cover a large portion of the demand by reusing material from old batteries. But until the recycled tonnage will become significant it will still take a long time. I expect that until 2035 – 2040 we will see  large year-on-year increases in extraction capacities.

The recent statements and declarations of many OEMs indicate a major shift of their sales towards EVs. I think the simple calculations I made illustrate that we can expect a massive run on resources and plenty of competition between the OEMs to secure supply chains while extracting companies should enjoy supply power.

Being an abundant material, the availability of reserves and resources aren’t the major problem for lithium supply. The big challenge will be ramping up capacities to extract lithium from salt lakes and mines within a short period of time as the demand for EVs is already rising rapidly.

Another problem to solve will also be the location of lithium-refineries. To decrease transportation cost and the dependance on China much more refining capacities will have to be brought to Europe and North America.

With the battle for raw material and the lowest cost it will be important to remember that the shift from ICEs to EVs in the first place is an environmental decision. Ecological damages, like the impact on ground water levels, resulting especially by extracting lithium from salt lakes need to be tackled.

It comes as no surprise that BMW has announced end of March that it had secured a second major contract with Livent for lithium supply. The lithium in this case will be extracted from brine of Argentinian salt lakes. Not only is this the second large contract BMW has signed with a lithium supplier, but the agreement also defines ecological standards for extraction.

VW and Daimler also have similar lithium contracts in place but it would be interesting to know what level of lithium consumption is already guaranteed by OEMs. 

The volume forecasts for EVs are moving a very large corridor. I am certain that currently the estimates for lithium and other metals for batteries represent one of the major challenges for OEMs and their procurement departments when it comes to take investment decisions.

The disruptions the car industry in particular has been experiencing since early 2020 from factory shutdowns because of COVID-19 to the ongoing semi-conductor and plastic resin shortages are costing the industry billions and they are exposing the fragility of automotive supply chains. The fact that some OEMs reconfigure the supply chain and to manage the lithium sourcing for their battery suppliers proves how seriously they take the potential risk of lithium availability down the road.

On the other hand the example of lithium shows how dependant Europe will be by supplies from other regions like Asia, Australia and the Americas. There are many different opinions out there whether hydrogen technology is a good alternative. Some OEMs have exited that avenue almost completely arguing that it can never reach the efficiency of fully-battery-electric while others like Toyota and Hyundai are still strongly developing hydrogen as a parallel path to the full-battery-electric option even for passenger cars. One explanation could be that hydrogen-electric cars will have far less dependance on certain raw materials like lithium, nickel and cobalt with battery sizes that are only a fraction of those used in fully-electric cars. A Japanese company like Toyota being from a country poor in natural resources might be more inclined to think this way. Should this make some of the European manufacturers reconsider hydrogen as a further option to keep in the back of their hands?

Sources:

[1] Martin, P. (29.11.2017). How much Lithium is in a Li-Ion Vehicle Battery? Retrieved from URL https://www.linkedin.com/pulse/how-much-lithium-li-ion-vehicle-battery-paul-martin/

[2] Thail, W. (05.03.2010). How Much Lithium does a LiIon EV battery really need? Retrieved from URL http://www.meridian-int-res.com/Projects/How_Much_Lithium_Per_Battery.pdf

[3] Statista. Lithium mine production worldwide from 2010 to 2020. Retrieved from URL https://www.statista.com/statistics/606684/world-production-of-lithium/

[4] Barrera, P. (27.06.2019). Will Lithium Hydroxide Really Overtake Lithium Carbonate? Retrieved from URL https://investingnews.com/daily/resource-investing/battery-metals-investing/lithium-investing/will-lithium-hydroxide-overtake-lithium-carbonate/

[5] FreightWaves, Retrieved from URL https://www.benzinga.com/news/20/01/15124175/what-is-lithium-used-for

[6] U.S. Geological Survey, Mineral Commodity Summaries, (January 2021). Lithium. Retrieved from URL https://pubs.usgs.gov/periodicals/mcs2021/mcs2021-lithium.pdf