EV Demand Is Through the Roof. Where Will the Lithium Come From?

Lithium shortages loom as demand looks to far outpace supply.

The electrification of transportation is widely accepted as fundamental to achieving global decarbonization. With current battery technology, lithium is both the rate and cost determining factor in the manufacturing of the millions of batteries needed to power that transition. Economically viable lithium production, however, is concentrated in only a few global geographies, and massive investment will be needed to increase output if electric vehicle production is ever to match demand.

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No change in fundamental technology has ever been so widely predicted and legislatively driven as has been the shift from internal combustion engines to electric drive. Every major automotive manufacturer on the planet is either producing electric vehicles or rapidly tooling up to do so, and several jurisdictions have taken active measures to ensure that consumers buy the product.  

Recent U.S. legislation includes considerable incentives for purchasers of EV’s, and incentives for firms to build them—and the phenomenon is worldwide. One Australian bank has gone so far as to stop providing new car loans for fossil fuel cars starting in 2025. Several nations have proposed the prohibition of sales of gasoline and diesel vehicles in the 2030 to 2035 timeframe.  

That is a rapid transition, about half the average life expectancy of a modern internal combustion engine vehicle, and the automotive industry will be hard-pressed to deliver the necessary number of vehicles.  

Currently, the critical chokepoint is the supply of batteries—and the key input to battery production is the lithium used for the cells. According to the U.S. Geological Survey, in 2019, 85,000 tons of lithium were produced worldwide, from a 14 million ton known reserve, with 56 percent of the metal used for batteries.  

Among traditional automakers, Volkswagen leads the transition, in no small part due to the diesel scandal of 2015, in the aftermath of which VW agreed to spend two billion dollars in brand neutral zero emission vehicle infrastructure programs, primarily charging stations.  For companies like VW making the transition, securing the lithium needed to feed the battery supply chain is crucial. Look at this VW map describing their new versus old procurement strategy. South America, Africa and Australia will likely be big winners in the new lithium-driven resource rush. 
Even with accelerated resource development, it is unclear if lithium production can keep pace with demand. According to the International Energy Agency, just under 10 percent of global car sales were electric in 2021, four times the market share of 2019. Over 10 million electric vehicles are on global roads today. First quarter sales in 2022 are up 75% from the same period in 2021, and this spike in demand has had a heavy impact on commodities pricing and by May of 2022, lithium prices were seven times higher than the beginning of 2021.  

While large reserves of the metal are located in Australia, Chile and the Congo, over half of lithium processing and refining capacity is located in China.  

The numbers are stark. According to the IEA, 60% of new vehicle sales in 2030 will be electric to help meet net-zero CO2 targets for 2050. But even if electric vehicle sales are only half that number at 30 percent, the demand for lithium will increase globally by six times, up to 2 million tons annually by 2030. New battery technology promises to reduce the need for other critical materials such as nickel and cobalt, but lithium remains the weakest link in the chain.  

For automakers, the global war for lithium now requires end users of the raw material to choose long-term supply contracts, both to feed joint venture battery making operations and to backstop production rates for Tier 1 suppliers. Not since Henry Ford invested in iron ore and latex production to feed his assembly lines a century ago have automotive OEMs been forced all the way up to the source of the supply chain.  

Batteries are the determining factor in electric vehicle pricing, and with economies of scale, battery prices have been falling, dropping six percent per kilowatt hour in 2021 compared to 2020, but that decline is slowing. According to the IEA, if lithium prices in 2022 remain as high as they were in the first quarter, battery packs will be 15 percent more expensive than they were last year, all else being equal.  

Electric vehicles will become more expensive. Can consumers afford them, even if they are motivated to buy? Government incentives will shield auto buyers from factors such as high lithium prices in the short term, but only more metal, very quickly, will deliver cost parity with internal combustion engines by the end of the decade. 

Written by

James Anderton

Jim Anderton is the Director of Content for ENGINEERING.com. Mr. Anderton was formerly editor of Canadian Metalworking Magazine and has contributed to a wide range of print and on-line publications, including Design Engineering, Canadian Plastics, Service Station and Garage Management, Autovision, and the National Post. He also brings prior industry experience in quality and part design for a Tier One automotive supplier.