Plunging Lithium Prices Could Herald Cheaper EVs
The Electric

              
              
          By Steve LeVine
        
        
        Welcome to The Electric! At the start of 2023, we and other industry watchers forecast a lithium shortage as far as the eye could see, squeezing the capacity of automakers to meet an expected flood of demand for electric vehicles. Analysts now think there is plenty of lithium through at least 2028, and mining companies are potentially facing a decade of low prices for the metal. This week, we look at what happened (in a word, lepidolite).    Battery production in China's Jiangxi province, where lithium is mined from lepidolite. Photo: by VCG/GettyIn a May 2022 note titled, “The End of the Beginning,” Goldman Sachs analyst Nicholas Snowdon said high lithium prices had ignited a surge of new production in Australia, Chile and China, creating a coming flood of supplies that would knock the metal’s price into a sharp decline. From $65 a kilogram at the time, he predicted lithium would fall to an average of $16 a kilo in 2023. Industry hands ridiculed the forecast; Snowdon, they said, had either smoked something or was simply out of his depth.Today, though we can quibble with the details, Snowdon’s contrarian call looks prescient: The price of lithium last week was $13.70 a kilo, down 84% from a peak of $83 in November 2022. And in a new note, Snowdon’s team said the metal has a further 20% to fall: By the end of next year, he predicts, lithium prices will be $11 a kilo.The ramifications of the lower prices are significant:
Winner: They have already helped cut electric vehicle battery costs—up to 40% of an EV’s cost—14% this year, according to BloombergNEF, a renewable energy research firm. Continued declines in battery costs should enable automakers to lower their high EV prices—the biggest stumbling block to their widespread adoption—and potentially trim their EV losses. Currently, almost all of the automakers lose thousands of dollars on every EV they sell.
Winner: Chinese EV and battery makers, with access to locally made batteries packed with lithium from mines they often partly own, appear likely to continue to wield a cost advantage over their Western counterparts.
Loser: Western lithium companies that last year scrapped many of their long-term supply contracts in order to earn much frothier prices on the spot market are now absorbing the downside of the decision in rock-bottom spot prices. New lithium mines and expansions in Argentina, Australia and Brazil will earn much lower revenue than they expected for years if Goldman’s projections continue to be more or less accurate. Snowdon did not respond to an email. But the price declines have turned lithium forecasts on their head: For more than two years, leading industry analysts have said lithium will remain in short supply through most or all of the 2020s. That would have meant automakers could not manufacture anywhere near the number of EVs they planned, as I reported. The surge in prices through last November seemed to back up the forecast.Now, though, automakers have all the lithium they could desire, and analysts—including Goldman—predict there will be no shortages until late in the decade. The new lithium forecasts stem in part from fresh projections of EV demand: Though EV sales growth in the U.S. appears likely to exceed 50% this year, it’s lower than many automakers had expected, and they have slashed their sales forecasts and investment plans for the next several years.But the heart of the lithium supply surge is Jiangxi, a Southeast Chinese province where mines big and small produce a hard rock called lepidolite in order to extract lithium, as I wrote earlier this year. Lepidolite isn’t precisely laden with lithium—its concentration of the metal is just 0.2% to 0.4%, compared with a 1.2% to 2% lithium concentration in the best Australian hard rock, called spodumene. From 200 tons of lepidolite, miners can extract a ton of lithium carbonate, according to Benchmark Mineral Intelligence. In addition, lepidolite contains relatively high levels of contaminants like potassium and sodium, which must be removed. As a result, lithium carbonate produced from Jiangxi’s lepidolite clocks in at $20 to $25 per kilo, one of the highest costs in the world for the compound, Western analysts say, compared with $5 to $8 a ton in Australia.Many analysts had assumed that the high cost would limit lepidolite mining in Jiangxi. But that isn’t what has happened. Instead, China’s largest battery and automakers, including Byd, Gotion and Contemporary Amperex Technology Ltd., have invested tens of millions of dollars in Jiangxi’s lepidolite mining companies. Some forecasts are that Jiangxi’s mines will produce 1.4 million metric tons of lithium carbonate by 2030, up from about 130,000 tons this year, and account for up to half of total global production.Chinese HistoryThe question that has stuck in my mind is whether the Jiangxi miners will truly stick it out. When you look at history, it seems they might. After all, in the 2010s, Chinese iron ore miners and steelmakers built massive production capacity, much greater than the Chinese economy could absorb, and began to export their products at prices below what Western rivals thought production would cost. About the same time, U.S. and European solar panel manufacturers complained bitterly that Chinese companies were dumping their competing products in the West at prices below production costs. It was never clear that the Chinese companies were actually losing money: Backed by state subsidies, they continued to operate, and many still do, while most Western solar panel makers are out of business. Why can’t the Jiangxi lepidolite miners follow the same playbook?David Deckelbaum, a metals analyst for TD Cowen, thinks we’re watching a reprise in lithium. He saw lepidolite move into the supply chain in February. That month, reports surfaced that CATL was offering its batteries to its best customers at surprisingly low prices—as if the lithium cost $29,000 per ton, less than half the then-prevailing lithium price of $68,000. All the customers had to do was agree to buy at least 80% of their batteries from CATL.Most analysts scoffed at the reported deal; they believed CATL was prepared to swallow a large loss to gain market share. But Deckelbaum says Western analysts missed what was going on: Chinese companies had figured out how to lower the high production costs, get rid of the contaminants and offer lower prices because they owned a share of the mines, thus controlling a critical part of the supply chain. “It’s fairly evident that they believed in their capabilities to refine lepidolite out of their own investments [in Jiangxi] and bring that supply on economically,” he said. “I think they’re a little bit price agnostic to the cost curve.”  ​​ As production has surged and prices have dropped, Western lithium specialists have stuck to their forecasts. They attribute the drop in prices largely to the Chinese economic downturn and a decline in expected EV demand in China, which is true as far as it goes. But almost no one anticipated that so much lepidolite would come on line this year; UBS estimates that the supply will increase 47% this year to about 130,000 tons. Yet the Western lithium analysts say Chinese lepidolite miners are subject to the same prices and costs as lithium producers everywhere; eventually they will have to reduce or halt their current operations until prices go back up. As for their planned new production, lepidolite projects, like all lithium mines, are typically years late, go over budget and produce less than expected, the analysts say. The expected lepidolite production will not arrive on schedule, and when it does—if it does—it will cost more than miners expect. “If pricing volatility is a feature of this market and not a bug, then capital discipline on the part of lithium producers both inside and outside China is a must,” said Chris Berry, president of House Mountain Partners, a lithium consultancy. “This means that Chinese lepidolite will be the first production to be curtailed or shut down should lithium prices remain at current levels for much longer.”Joe Lowry, founder of lithium consultancy Global Lithium, has perhaps been the loudest critic of Goldman Sachs’ forecasts about the metal, ridiculing the bank for allegedly not knowing what it’s talking about. In a Nov. 28 tweet, Lowry conferred the “clueless lithium analysis award” on the firm. In a tweet last week, he said that there was no way to make money with costs of $20 a kilo or more, and most analysts think Chinese lepidolite costs that and more to produce. But, he said, there was no knowing when the price plunge would end. “The price turn really depends on how long many of [the Chinese lithium] operators are willing to lose money.”----NoteworthyThe next-gen battery and EV industry has been hit with one report of bad news after another, but not all the companies are in trouble: AM Batteries, which I’ve written about a couple of times, reports that it’s completed a $30 million Series B investment round, led by Toyota Ventures, to develop dry battery electrodes.Duke Energy said it has disconnected CATL batteries for power storage at Camp Lejeune, a Marine Corps base in North Carolina, after lawmakers in Washington raised a fuss about the alleged security risk posed by the Chinese company. Some two dozen Republicans and Democrats signed a letter to Defense Secretary Lloyd Austin demanding that the batteries be removed from the base.Elon Musk’s problems in Scandinavia have multiplied. Musk has been at loggerheads with IF Metall, a Swedish trade union striking for recognition by Tesla, for six weeks. Now sympathy strikes have broken out among workers and organizations across Sweden, Denmark and Norway, all of them calling on Musk to relent and recognize IF Metall.An exclusive publication covering the nascent battery and electric vehicle revolutions.Read the Archive Steve LeVine is editor of The Electric. Previously, he worked at Axios, Quartz and Medium, and before that The Wall Street Journal and The New York Times. He is the author of The Powerhouse: America, China and the Great Battery War, and is on Twitter @stevelevineEmail Steve
      