Lithium Prices Are Down, Cheaper Batteries and EVs Could Follow

After a period of two years, the surge in lithium prices has come to a halt, which could benefit both consumers and automakers that faced higher battery costs last year. Benchmark Mineral Intelligence reports that the value of the crucial battery material has declined by over 30% this year, reversing the two-year growth that saw its value multiply by 12. Traders suggest that the decline is a necessary correction, bringing prices to more sustainable levels after the remarkable surge. The decrease in lithium prices is due to the deceleration in demand for electric vehicles, particularly in China, and the unpredictability of markets, which has made traders cautious. The prices of other metals that are also used in batteries, such as cobalt and nickel, are also slipping.

Cumulative price change since 2018 for battery materials, monthly.

Eric Norris, the President of Lithium at Albemarle Corp, one of the world’s largest producers, has predicted a turbulent few months ahead due to the recent decline in lithium prices. Despite the downturn, Albemarle and other producers are still sufficiently motivated to pursue new projects, as evidenced by the recent announcement of a $1.3 billion lithium-processing facility in South Carolina. Mr. Norris expects the current pullback to be brief, and shares of the company and others in the sector have retreated after a prolonged rally.

The reduction in prices for battery materials could bring some relief to both automakers and consumers, as commodities helped push up battery prices by approximately 7% last year, according to BloombergNEF. The price increase for batteries last year was an exception to a ten-year trend of declining prices, which had made electric vehicles more affordable since batteries are their most expensive component. Benchmark reports that battery cathode prices have declined by about 30% this year.

It usually takes several months for changes in metal prices to impact car costs, as buyers negotiate long-term price contracts.

The estimated difference between battery material demand and supply by year.

The recent reversal in lithium prices has occurred at a time when electric vehicle manufacturers such as Tesla Inc. and Ford Motor Co. have already started reducing vehicle prices to increase their market competitiveness. In fact, Ford has projected a loss of approximately $3 billion in its electric vehicle business this year, underscoring the cost pressures faced by manufacturers.

According to analysts, reports that Contemporary Amperex Technology Co. (CATL), a major battery supplier to both Tesla and Ford, is offering battery-price discounts to some of its customers, which has further affected market sentiment. Some have interpreted CATL’s recent sale of a stake in an Australian lithium producer as a bet that share and commodity prices in the sector will decline.

Despite the current decline, lithium prices still remain high, and automakers are concerned about securing adequate supplies. General Motors Co. has recently invested $650 million in start-up Lithium Americas Corp. to gain access to material from a proposed mine in Nevada. The drop in lithium prices could prompt further deals or mergers and acquisitions, now that the valuations in the sector have become more reasonable, according to Jordan Roberts, a battery raw-materials analyst at price and data provider Fastmarkets.

To support domestic production, the US government is providing significant financial support to the sector in the form of billions of dollars in loans and grants to Albemarle and other suppliers. Last year’s climate legislation also provided new tax credits for electric vehicles tied to their domestic content.

Albemarle is attempting to purchase Liontown Resources Ltd., an Australian lithium producer, for around $3.7 billion. However, Liontown has rejected the latest offer, stating that it undervalues the company.

Share-price and ETF performance since the end of 2018, weekly.

According to the Alliance for Automotive Innovation, electric vehicles (EVs) represented 10% of U.S. vehicle sales in December, a significant increase from the 2.3% reported in 2020. Additionally, research firm Rho Motion found that 10.5 million EVs were sold worldwide in 2022, up almost 60% from the previous year, with global sales expected to increase by nearly 40% this year.

Despite this growth in demand, analysts predict that the long-term supply of battery metals will not be sufficient to meet it. The recent slide in prices due to volatile markets and slowing demand could worsen the problem by making producers more hesitant to invest in supply. For instance, miner Jervois Global Ltd. recently suspended construction of its Idaho cobalt project due to low prices for the key battery metal.

Furthermore, a rise in short-term supplies of nickel and cobalt is also contributing to the drop in prices. The halt in exports from the Democratic Republic of Congo, the world’s largest supplier of cobalt, due to a dispute with a Chinese cobalt producer, has raised concerns about a potential glut of metal hitting the market.

Related Articles

Responses

  1. Thanks for sharing this mate! Great article. I have been closely watching the lithium space in the lead up to sustainable energy, however there is a real unique space for lithium or EV vs. products like renewable diesel (RD) and hydrogen. I foresee EV being big in the consumer space however in the commercial market bio-diesel and RD is on the radar for the definite future.