Lithium, the common ingredient in almost all electric car batteries, has become so precious that it is often called white gold. But something surprising happened recently: The price of metal fell, helping to make electric vehicles more affordable.
Since January, the price of lithium has fallen nearly 20 percent, according to Benchmark Minerals, even as electric vehicle sales have skyrocketed. Cobalt, another important material for batteries, has been cut by more than half. Copper, essential for electric motors and batteries, is down 18 percent, even as American mines and copper-rich countries like Peru are struggling to ramp up output.
The sharp moves have confounded many analysts who predicted prices would stay high, or even rise higher, slowing the transition to cleaner forms of transportation, an essential component 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 cut the prices of its two most expensive cars, the Model S sedan and the Model X sport utility vehicle, by thousands of dollars.
That followed cuts 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 with January, according to Kelley Blue Book.
“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 for a factory in Colorado. The fall in the price of lithium, he said, “will promote sales of electric vehicles.”
Dr Sun believes that prices could fall much further because demand for the metal has not increased as fast as some in the industry had hoped.
As with any commodity, there is a wide range of opinion on what has caused the recent price crash and how much lithium will cost in the coming months and years.
Some analysts said the lithium price drop was due to near-term factors, such as slowing sales growth in Europe and China after subsidies for the purchase of electric cars expired. But other industry experts said the drop suggested new mines and processing plants were solving the lithium problem sooner than many analysts thought possible.
Even after falling so far, lithium prices are still so high that mining and processing the metal is an unusually profitable business. The metal, especially suitable for batteries because of its ability to store energy, costs about $5,000 to $8,000 a 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 the electric vehicle industry, among other areas.
Given those wide profit margins, investors and banks are eager to invest in or lend to mining and processing projects. The federal government is awarding tens of millions of dollars worth of grants to lithium seekers and processors.
“You can’t have profit margins 10 times what it costs to mine,” said Shweta Natarajan, a partner at Mobility Impact who has researched the lithium market. “You’ll see how it goes down.”
“It’s very easy to get funding,” added Ms. Natarajan. “There is no reason to think that new projects would not be opened to fill the shortage.”
But others, including members of the Biden administration, are less confident. Lithium supplies must increase 42-fold by 2050 to support a transition to clean energy, said José W. Fernández, under secretary for economic growth, energy and the environment at the State Department.
“We have to find additional sources of supply because 42 times is a lot,” Fernández 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 EV sales started to take off in recent years. As demand has skyrocketed, the industry has rushed to open new mines and refineries have increased their capacity to process the mineral.
“Mining is not what is driving 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 over an essential resource alarmed the Biden administration, which has allocated billions of dollars to encourage companies to develop lithium mines and refineries in the United States or in countries with which it shares close political ties and economic.
Supplies of lithium and other critical materials are a national security issue, Fernández said. Last year, the administration established the Minerals Safety Association, he said, a group that includes the European Union and 12 industrialized nations, including Australia, Japan and Britain, to target mining opportunities and funding, and to promote recycling.
The Department of Energy is doling out $3 billion in grants to create a home battery supply chain. In addition, the Inflation Reduction 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 it 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 decline 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,” Melsert said.
Vivek Chidambaram, senior managing director of strategy at Accenture, the consultancy, also expects the decline to be short-lived. Lithium prices have fallen because electric vehicle sales, while still strong, are not growing as fast as automakers had hoped, he said. That has led suppliers to produce more than is necessary.
“There was a time when people believed that electric vehicles would grow very quickly,” Chidambaram said. “Then the reality of how fast they were growing up hit them.” He expects lithium prices to fluctuate over the next few years.
Automakers, fearful of lithium shortages and rising prices, have taken steps 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 getting more directly involved in the lithium business. Tesla said this month that he would build a lithium processing plant near Corpus Christi, Texas.
General Motors said 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 the largest customer and shareholder of Lithium Americas.
Those investments could result in money losses if the price of lithium continues to fall, analysts have warned.
There is also a risk that improvements in battery technology could affect lithium demand in unexpected ways.
Solid-state batteries being developed by various companies would require even more lithium than batteries currently in use, increasing demand. But those batteries probably won’t show up 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, reducing the need for lithium.
Changing technology has already reached cobalt. The price of that metal has plummeted in part because of the growing popularity of batteries made without cobalt from lithium, iron, and phosphate, a combination known as LFP hoarding by a major cobalt supplier that may also have affected prices. prices, analysts say.
LFP batteries are heavier than batteries made with cobalt, but are significantly less expensive and last longer. And LFP batteries don’t come with the contamination associated with cobalt, most of which comes from the Democratic Republic of Congo, where mining operations are notorious for child labor and abysmal working conditions.
Ford Motor said in February that it would spend $3.5 billion to build a plant in Michigan to produce LFP batteries using technology from Contemporary Amperex Technology, or CATL, a Chinese company that is the world’s largest battery maker.
No technology on the horizon would remove lithium from mass-produced car batteries. For that reason, few analysts forecast the price of lithium to fall as low as it did in 2020, when it fell below $10 per kilogram.
“Even when the price comes down from its elevated levels,” said Ms. Natarajan of Mobility Impact Partners, “there is still a very healthy profit margin.”
