Battery metal prices have come off the boil in the last 12 months but the long-term undersupply scenario has not gone away. Lithium production only looks set to meet electric vehicle-driven demand in 2025 if every single project in development right now makes it into production, according to Benchmark Mineral Intelligence.
This is unlikely, given the realities of the mining sector. There have been positive moves recently, like Bacanora Lithium (BCN) getting the backing of Chinese major firm Ganfeng Lithium after struggling to raise cash for its Mexican project. Overall, though, it’s unlikely carmakers will have enough lithium supply to meet their planned moves to majority electric vehicle (EV) line ups. This is despite the abundance of lithium reserves in the ground.
Currently, the majority of lithium supply comes from Chile and Australia, with just nine operations providing the lion’s share of the 65,000 tonnes of lithium carbonate equivalent (LCE) produced in 2018, according to the US geological survey.
Benchmark consultancy chief Andy Leyland said at a media briefing carmakers would push development along to guarantee supply. “You're starting to see the OEMs (original equipment manufacturers) realise [they’re] going to have to start taking steps to learn about these supply chains, and learn about these industries,” he said. “The alternative to the OEMs not doing it, quite frankly, is the oil and gas industry doing it, because they're the losers from this, and they've got plenty of money.”
Volkswagen (Ger:VOW) has been held up as an example of an industry laggard, both on committing to EVs and locking down cobalt and lithium supply. It now has an agreement with Ganfeng Lithium. Elon Musk has also floated the idea of getting into mining.
Former Tesla supply chain manager Vivas Kumar, now principal consultant at Benchmark, said if carmakers left themselves beholden to miners and specialty chemical companies it would very difficult to keep EV prices stable. “You cannot just rely on your cell manufacturer to manage your prices, because they have made it abundantly clear they just don't care,” he said.
The lithium supply chain has already seen more M&A activity than cobalt or nickel since the EV boom began in 2015, with the biggest deal coming last year with Chinese company Tianqi Lithium buying a quarter of the world’s second-largest producer, Sociedad Química y Minera (US:SQM) for $4.1bn (£3.2bn). Other Chinese companies specialising in producing batteries or the lithium products that go into them have bought plenty of stakes in junior miners, across hard rock and brine developers.
Leyland said SQM and Albermarle (US:ALB), the world’s largest producer with a market capitalisation of $7.2bn, were not big companies compared with oil and gas majors and carmakers, with their combined market capitalisation of $10bn less than 10 per cent of BP's (BP.) valuation.
Royal Dutch Shell (RDSB) and BP declined to comment on the prospect of buying lithium miners. Both companies have so far stuck to infrastructure such as charging points.
