The lithium market experiences heavy demand

The shift towards powering the car industry by electricity has sped up in recent years. Thanks in large part to a number of innovative new companies, electric cars are finally beginning to emerge as a genuine choice for the average car user.

And as transportation is increasingly electrified, the need for large numbers of batteries to store all that electricity has become apparent. As a result, demands on lithium deposits – the mineral used in most batteries – mean a boom for the commodity is set to occur. Indeed, according to the US Geological Survey, demand for lithium could triple by the middle of the century as a result of electric vehicles taking off in popularity.

However, it’s not just electric cars that are placing greater demand on the lithium resources of the world. A report by investment bank Credit Suisse, published last year, said: “Driven by power storage demand (everything from power tools and handheld devices to electric vehicles), the global lithium industry should, we believe, enjoy a [compound annual growth rate] of roughly 12 percent through the end of the decade (starting in the mid/high single digits and accelerating afterwards as the electro voltaic (EV) market enjoys further penetration).”

Big backing
Until fairly recently, there has been plenty of supply to match the demand for lithium. However, with such a heavy demand coming from power-hungry new technologies, lithium is set to become one of the most sought after commodities in the world. Investors such as Warren Buffett have recently poured money into lithium mines, while tech entrepreneur Elon Musk has also poured huge sums of money into the market.

Musk’s electric car firm, Tesla Motors, is banking on lithium to power its vehicles, but he also has ambitions to revolutionise more than just personal transport. Earlier this year, Musk announced plans for a “home battery” he claimed would radically transform the “entire energy infrastructure of the world”. Dubbed ‘the Tesla Powerwall’, the battery can store power from solar panels as well as from the electricity grid. It could give homes a secure power source when there are outages, and potentially help many parts of the world that struggle with unreliable energy infrastructure.

The Powerwall has a 10kWh weekly cycle, and is part of the company’s Tesla Energy offering. Speaking at the launch in May, Musk was typically grandiose with his ambitions for the device and the company’s energy plans. He said: “The goal is complete transformation of the entire energy infrastructure of the world, to completely sustainable zero carbon.”

Much of Tesla Energy’s operations will come out of the $5bn Gigafactory 1 it is currently building in collaboration with Japan’s Panasonic. Announced last year, the Gigafactory 1 will be located in Nevada and will be operational within the next 18 months. When completed, it will be the world’s largest lithium-ion plant.

The aim behind the vast lithium-ion factory is to bring down the production cost of batteries for Tesla’s electric cars, as well as its Powerwall packs. The company hopes these costs could fall by as much as 30 percent as a result of producing them all in one place, and that it could deliver as much as 35GWh a year capacity in terms of fuel cells and 50GWh a year of Powerwall packs. This would, in turn, power around 500,000 Tesla cars each year.

The economic benefits to Nevada, according to the state’s Governor Brian Sandoval, could be as much as $100bn over the next two decades. Employing approximately 6,500 people, the Gigafactory 1 will become a major employer within the state.

Musk isn’t alone in his enthusiasm for lithium investments. Buffett has backed Chinese carmaker Build You Dreams (BYD), which is investing large sums of money in electric vehicles. It is reportedly set to open its own lithium-producing factory that will have 10GW of battery production capacity before the end of this year. BYD is also looking to build a similar size factory to Tesla’s Gigafactory in Brazil before the end of the decade.

Trouble with supplies
While a 2008 US Geological Survey study suggested there were around 13m tonnes of lithium deposits around the world, it has been suggested there is considerably more of the mineral buried in the ground. The largest deposits of lithium can be found throughout Latin America, and in particular across the Andes mountain range.

Chile is the biggest producer of lithium in the world, but a number of recent disputes have hampered its industry. Santiago-based Soc Quimica & Minera de Chile, the world’s third largest producer of lithium, has been beset by trouble as a result of tax evasion issues relating to its chairman, stock manipulation accusations against its directors, and a regulatory dispute over its operations in the Atacama Desert.

The supply ‘shortage’ does not mean there won’t be enough lithium to meet the needs of the EV industry

Argentina is the second largest producer of lithium, but foreign investors have been reticent about putting their money in the industry because of that country’s economic woes. Bolivia is thought to have as much as half of the world’s known reserves of lithium, and has been in discussions with many international firms over extracting it for years. Elsewhere, the US has a large number of lithium deposits, mostly around the Nevada desert.

Despite these deposits, surging demand is putting pressure on the industries in these countries. According to Credit Suisse, supply of lithium is likely to tighten before the end of the decade because of these new technologies demanding batteries. The report said: “There have been investor concerns about the supply side of the equation given a number of announced projects in the lithium industry. Upon a detailed review of the projects, we believe the risk is that demand will actually outstrip supply as we approach the later part of the decade, with demand potentially as high as 125 percent of total capacity (in an industry where 90-95 percent utilisation rates are considered full capacity).

“To be clear, the supply ‘shortage’ does not mean there won’t be enough lithium to meet the needs of the EV industry – there is plenty of lithium in the world. However, without significant incremental investment from the lower-cost producers (beyond the announced projects) pricing will need to push higher to facilitate investment in higher-cost projects/methods of lithium production (the way rising oil prices facilitated ultra-deep water and oil sand projects/investments).”

Increased demand on lithium deposits is set to heighten the race to find further sources. While much of this attention is likely to centre on areas surrounding the existing known deposits in Latin America, there are other parts of the world that are proving of interest to investors. Afghanistan reportedly has huge deposits of lithium, which could be worth up to $1trn. However, extracting that lithium in a country so troubled will inevitably prove difficult for most mining firms.

However, it’s safe to say that, if such respected investors as Musk and Buffett are backing lithium-based projects, the industry will pick up many other financial speculators looking to piggyback on their strategies. If that happens, lithium could prove to be the world’s most valuable commodity in the not-too-distant future.