Falling lithium prices make electric cars more affordable

Lithium, the common ingredient in almost all electric car batteries, has become so valuable that it is often called white gold. But something surprising has happened recently: the price of metal has fallen, helping to make electric vehicles more affordable.

Since January, the price of lithium has fallen nearly 20%, according to Benchmark Minerals, even as sales of electric vehicles have soared. Cobalt, another important battery material, has more than halved. Copper, essential for electric motors and batteries, fell about 18%, even as US mines and copper-rich countries like Peru struggle to increase production.

The sharp moves have baffled many analysts who predicted prices would remain high or even climb, slowing the transition to cleaner modes of transportation, a critical part of efforts to limit climate change.

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

This follows cuts made in January by Tesla to its more affordable Model 3 and Model Y, and by Ford Motor to its Mustang Mach-E. The average price of an electric vehicle in the United States fell $1,000 in February compared to January, according to Kelley Blue Book.

“For electric vehicles, the biggest hurdle is cost,” said Kang Sun, chief executive of Amprius Technologies, a young battery maker that announced plans for a plant in Colorado this month. Lower lithium prices, he said, “will promote sales of electric vehicles.”

Dr Sun thinks prices could fall much further because demand for the metal has not grown as quickly as some in the industry had expected.

As with any commodity, there is a wide range of opinions on what caused the recent price drop and how much lithium will cost in the months and years to come.

Some analysts said the lower lithium price was due to short-term factors such as slower sales growth in Europe and China after subsidies for electric car purchases expired. But other industry experts said the drop suggested new mines and processing plants were solving the lithium problem sooner than many analysts had thought.

Even after falling so much, lithium prices remain so high that mining and processing the metal is an exceptionally profitable business. The metal, particularly suitable for batteries because of its ability to store energy, costs around $5,000 to $8,000 per ton to produce. It sells for 10 times that amount, according to Mobility Impact Partners, a New York-based private equity firm that invests in, among other things, the electric vehicle industry.

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

“You can’t have profit margins 10 times what it costs to mine,” said Mobility Impact partner Shweta Natarajan, who has analyzed the lithium market. “You’ll see it come down.”

“Funding is very easy to find,” Ms. Natarajan added. “There is no reason to think that new projects would not open to meet possible shortages.”

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

“We have to find additional sources of supply because 42 times is a lot,” Fernandez said in an interview. “Right now, we don’t have enough.

There is a lot of lithium in the world. But it wasn’t considered very valuable until electric vehicle sales started to take off in recent years. As demand soared, industry rushed to open new mines and refineries increased their ore processing capacity.

“It’s not the mining that drives the costs,” said Bold Baatar, managing director 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 that country know how to build processing plants. Beijing’s virtual 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 which it shares ties. close political and economic.

The supply of lithium and other critical materials is a national security issue, Fernandez said. Last year the administration created the Minerals Security Partnership, he said, a group that includes the European Union and 12 industrialized countries, including Australia, Japan and Britain, to locate mining opportunities and financing, and to promote recycling.

The Department of Energy is distributing $3 billion in grants to create a national battery supply chain. In addition, the Cut Inflation Act, which Biden signed into law last year, provides tax credits for battery production.

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

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

Vivek Chidambaram, senior managing director of strategy at Accenture, the consultancy, also expects the decline to be fleeting. Lithium prices have fallen because sales of electric vehicles, while still strong, are not growing as quickly as automakers had expected, he said. This has led suppliers to produce more than necessary.

“There was a time when people thought electric vehicles would develop very quickly,” Mr Chidambaram said. “Then the reality of how fast they were growing caught up.” He expects lithium prices to fluctuate over the next few years.

Automakers, fearing lithium shortages and rising prices, have moved to ensure a steady supply. They have signed contracts with lithium suppliers that require them to buy certain quantities of the metal. In some cases, automakers are moving more directly into the lithium business. Tesla announced this month that it would build a lithium processing plant near Corpus Christi, Texas.

General Motors announced in January that it would invest $650 million in Lithium Americas, which is developing a mine in Nevada known as Thacker Pass. The deal makes GM Lithium Americas’ largest customer and shareholder.

These investments could prove to be losers if the price of lithium continues to fall, analysts have warned.

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

Solid-state batteries developed by several companies would require even more lithium than the batteries used today, increasing demand. But these batteries are unlikely to appear in mass-produced vehicles for several years. Other advances in production techniques and chemistry would allow batteries to be smaller and lighter without sacrificing performance, thereby reducing the need for lithium.

The change technology has already touched cobalt. The price of this metal has plunged in part due to the growing popularity of batteries made without cobalt from lithium, iron and phosphate, a combination known as LFP Stockpiling by a major cobalt supplier may also have made fall in prices, according to analysts.

LFP batteries are heavier than cobalt batteries, but they are significantly cheaper and last longer. And LFP batteries don’t have the taint associated with cobalt, most of which comes from the Democratic Republic of Congo, where mining operations are notorious for child labor and appalling working conditions.

Ford Motor said in February it would spend $3.5 billion to build a factory in Michigan to produce LFP batteries using technology from Contemporary Amperex Technology, or CATL, a Chinese company that is the world’s largest manufacturer. batteries in the world.

No technology on the horizon would eliminate lithium from mass-produced car batteries. For this reason, few analysts predict that the price of lithium will fall as low as it did in 2020, when it fell below $10 per kilogram.

“Even when the price drops from its high levels,” said Ms. Natarajan, of Mobility Impact Partners, “there is still a very healthy profit margin.”