Although the current 10-fold price spike of lithium is giving the electric vehicle market a sharp short-term shock, a study by a team from Tsinghua University indicates that it will not hinder transportation electrification in the long run.

Despite tight supply and high-point price fluctuation of lithium, the electric vehicle market is expected to maintain steady growth for the next few years. The price of lithium is likely to fall back to its pre-surge level by around 2025, according to the study, published in the journal Joule.

Contrary to anticipation, the global LIB supply chain is currently haunted by market fluctuations. From December 2020 to April 2022, the Chinese spot market has seen a price increase by 830% for lithium carbonate, 100% for cobalt sulfate, and 60% for nickel sulfate, with their per-ton prices rising to $73,000, $18,000, and $7,000, respectively.

Skyrocketing costs were transmitted downstream as raw material suppliers were powerless over such huge surges. That made the cathode price increase by 140% for LiNi_0.8Co_0.1Mn_0.1O₂ (NCM-811) to $64,000/ton and 330% for LiFePO₄ (LFP) to $25,000/ton, and electrolyte price increased by 160% to $17,000/ton.

The collective impact prompted an increase in LIB price in the second half of 2021, reversing its 30-year decline that began with the first-ever commercial product in 1991. In April 2022, prices of NCM and LFP prismatic electric vehicle (EV) battery cells reached $130/kWh and $120/kWh, respectively, 30% and 50% higher than their pre-surge levels. To respond, many EV companies inflated retail prices, typically by 3%–5%, or even discontinued the sales of low-profit EV models, e.g.,the Great Wall Ora.

The surging prices of materials, especially lithium, have stirred up wide concerns about future EV development. In this commentary, with a focus on lithium, we argue that although the current price spike gives the EV market a sharp short-term shock, it will not hinder transportation electrification in the long run. Despite tight supply and high-point price fluctuation of lithium, the EV market is expected to maintain steady growth for the next few years. By around 2025, with a significant lead of supply over demand, lithium price is likely to fall back to its pre-surge level.

—Sun et al.

The researchers make a number of recommendations, including:

1. Set up a global lithium trading platform. Cobalt and nickel are traded on the London Metal Exchange, whereas there is no such platform for lithium. Despite the potential increase of fluctuations elicited by capital liquidity, an open trading platform provides timely feedback to market changes, transparent price informa- tion, and transaction supervision and thus circumvents price extremities.

2. Diversify supply sources. The extreme geographical concentration of lithium supply amplifies the possibility of supply disruptions. In 2020, the top 3 lithium-producing countries made up 90% of global supply. In comparison, only 40% of global oil supply clusters in the top 3 producing countries. Even as such concentration of lithium supply is expected to drop to 70% in 2025, supply diversification remains a pressing need. Government stockpiles of lithium raw materials could be considered to create a backup supply similar to what exists for copper, aluminum, etc.

3. Enhance recycling capacity. A well-developed recycling system, including sound regulations, efficient collection and logistics, and high-quality recycled output can significantly improve the resilience of material supply.

4. Develop substitutions and manage battery demand. The 426% year-on-year increase of LFP battery deployment in the second half of 2021 effectively contained the demands and price volatilities of cobalt and nickel. Lithium-free batteries such as sodium-ion batteries could play similar roles in seg- ments where the specific energy requirement is low. In addition, practices such as battery swapping and fast charging can effectively contain EV battery capacity and thus suppress lithium demand.

5. Establish information-sharing mechanisms. The price crisis uncovers the information asymmetry that burdens the industry, revealing a need to establish facilitative mechanisms in co-ordination, cooperation, and communication among the government, consumers, intelligence providers, and enterprises within the supply chain. Such mechanisms can help the industry form effective integration to reduce the occurrence of demand distortion, over- production, and malicious stockpiling.

Resources

• Sun et al. (2022) “Surging lithium price will not impede the electric vehicle boom,” Joule doi: 10.1016/j.joule.2022.06.028