Could Lithium Shortage Scupper Accelerating Sales Of Electric Cars?

Politicians have decreed that Europeans must embrace electric cars, and to make sure, they are trying to force early retirement for internal combustion engine (ICE) powered vehicles. But a shortage of a key battery component, lithium, might scupper that plan and force carmakers to return to the drawing board.

Experts say current supplies of lithium are adequate for the current electric car global market share of about 2.6% and probably will keep pace with the expected growth towards 14% in Europe by 2025. But after that demand will outstrip supply and likely halt the predicted powerful acceleration in electric car sales.

Some politicians, activists and enthusiasts experts expect battery-electric vehicle (BEV) sales to reach close to 50% of the global market by 2030, but lithium supplies are unlikely to come close to matching that required battery demand.

The European Union (EU) has passed a law insisting that carmakers raise average fuel efficiency on new cars from the equivalent of about 57 miles per U.S. gallon in 2020/2021, to 92 mpg by 2030. That would require a massive majority of BEVs, unless the EU can be persuaded to dilute the requirements, which some say will wreak havoc on the European auto industry.

That poses questions about the policy of automotive manufacturers, which have been relentlessly seeking to match the power and range of ICE cars. This has meant the use of huge batteries, which call into question one of the key reasons for electric cars in the first place – their clean, carbon dioxide-free quality. As demand for electric cars accelerates, the price of some key minerals used in batteries like cobalt, copper, nickel and of course lithium might well be forced higher, calling into question the whole direction of design.

It might make more sense to try a different tack, and produce a no-frills electric vehicle with much smaller batteries, just good for local commuting and shopping, a glorified golf-cart really, which might cost a fraction of the price of a normal ICE car  – say $6,000 compared with current price in Europe for a small electric sedan of about $40,000. This would have the by-product of forcing politicians to accept ICE powered cars will be around for many more years.

But according to data provider IHS
INFO
Markit, lithium supply might be relatively easy because although politicians grandstand about how they will create a CO2-free world and ban the ICE car, the forecasts demonstrate a different picture. IHS Markit says by 2030 global sales of BEVs will only reach 17.1% of the market and plug-in hybrids 6.6% for an electrified total of 23.7%, while ICE cars and so-called mild-hybrids – ICE cars with electrified components – will account for nearly 70%. For the EU, latest IHS forecasts call for BEVs to capture about 25% of the market by 2030. Other reputable forecasters predict similar outcomes

During the decade of the 2030s when some European countries claim they will have eliminated new ICE cars, some forecasters say up to 80% of new cars will still be fossil fuel powered. Gautam Kalghatgi, visiting professor for Mechanical Engineering at Imperial College London, and Engineering Science at Oxford University, says over 85% of transport in Britain will still be ICE powered in 2030. Britain is likely to be typical of European nations and has said it will ban the sale of new ICE cars by 2035, and may bring this forward to 2032.  

Meanwhile developments in the lithium market might bring these decisions to a head.

Problem after 2005

Pedro Palandrani, research analyst at Global X in New York, said supplies of lithium are likely to be adequate through 2023 and 2024.

“But I really struggle to see how there will be enough supplies (of lithium) by 2025. There is still time for miners to invest in lithium production, but it takes between 4, 5 or 6 years to bring a mine to market and a lot of time and know-how. It’s not like say, the oil market, when in less than 6 months you can go from extracting to selling,” Palandrani said in an interview.

Palandrani said because lithium prices are currently very low and some mines are operating at below the operational market costs of production, there’s not much incentive to invest the huge sums required. If BEV sales reach close to 50% of the market by 2030, Palandrani said it will require about 2 million metric tonnes of lithium carbonate equivalent (LCE), over 6 times 2019’s demand of close to 300,000 tonnes of LCE.

Another reason lithium mining companies might be reluctant to invest heavily in long-term supply is the fear a new technology might appear and render the investment redundant. According to Fitch Solutions Country Risk & Industry Research, recent innovations substituting stacked sodium in place of lithium may pose risks to lithium-ion batteries in the distant future, although it didn’t define “distant”.

“On July 20, researchers from NUST MISIS, (en.misis.ru) the Russian Academy of Science and the Helmholtz-Zentrum Dresden-Rossendorf (www.hzdr.de) reported that stacked sodium atoms could be utilised to produce batteries with lower-costs and equal or greater capacity than lithium. Although early on in testing, should further research result in cheaper battery production, we could expect sodium to emerge as a cost-effective competitor to lithum ion batteries,” Fitch said in a report.

No problem with lithium supply

IHS Markit doesn’t think lithium supply will be a problem because BEV sales won’t get close to 50% of the global market by 2030, compared with its forecast of 17.1%. This will come as a big surprise to big carmakers like Volkswagen, which plans to have 25% of its global sales as BEV as early as 2025.

I do not think this (lithium supplies) makes BEVs questionable at all according to our forecasts, because we still expect over 80% of the vehicles produced in the world (in 2030) to still be using the internal combustion engine in some way, not just a battery for propulsion. Therefore, I would disagree that there is a huge increase in sales planned, but a relatively large increase compared to the number of yearly sales we see today,” IHS Markit analyst Devin Lindsay said.

Will IHS be changing its BEV forecasts?    

“No, as we do not expect a lithium shortage to be the major hurdle in BEV penetration in that time frame, especially in the United States. More pressing hurdles are: a comprehensive and lasting fuel economy policy (specifically for the U.S.), the charging infrastructure and consumer acceptance. Therefore, we have not seen a need to cut the current forecast in any way,” Lindsay said.

David Merriman, analyst at commodity researcher Roskill of London, agreed new lithium capacity will be needed with the rise of what he called “mega-refineries” to match the BEV demand beyond 2024. That will require huge investment, perhaps from battery or vehicle manufacturers themselves. Meanwhile the development of new solid-state technology will mean even more supplies of lithium will be required.

“Certainly the requirements of solid state batteries will create a major bottleneck in the lithium industry, as the technology is still under development by numerous companies because of the game-changing impact it would have on battery energy density,” Merriman said.

The combination of tightening supplies of lithium and the lack of unsubsidized demand for electric cars suggests the EU might have to relax its crack down on ICE vehicles, or the industry could change its current plan of producing electric cars that mimic the qualities of current ICE vehicles. That might be an opening for cheap little city cars like the Citroen Ami 1, which has a range of 45 miles and a top speed of about 30 mph, but will cost about $6,000, or be rented by the hour.

ICE lifeline

IHS Markit’s Lindsay agrees this might be an ICE lifeline or prompt a change of tactics by the manufacturers.

“…… at least for the U.S., I would say we would see a continuation of ways to keep improving the efficiency of the ICE or focus on lower forms of electrification, like mild hybrids if lithium was that much in question. Other regions where those smaller A-and B (city cars and small family cars) segment vehicles are more in demand or emerging markets, may be much more receptive to lower priced and limited range BEVs,” Lindsay said.

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