Elon Musk and Exxon talked this year about a key ingredient in electric cars. This is why

By | December 24, 2023

A crucial mineral used to make batteries for electric vehicles received a lot of attention from industry leaders in 2023.

Tesla ( TSLA ) CEO Elon Musk has described lithium batteries as “the new oil.” Earlier this year, he urged entrepreneurs to produce more lithium amid a “bottleneck” in refining capacity.

“Instead of making a photo-sharing app, please refine lithium,” Musk said during Tesla’s April earnings call.

Last month, oil giant ExxonMobil (XOM) announced plans to mine lithium in southern Arkansas in an effort to become a major supplier of the material.

Global demand for lithium is expected to double between 2025 and 2030 as more consumers purchase electric vehicles. Electric vehicles are expected to account for about half of global new car sales by 2035, according to research from Goldman Sachs.

The US EV market share recently reached 7.9% – an all-time high, with sales in the third quarter of this year up almost 50% from a year ago to 313,000.

The government aims to have 50% of all new vehicle sales electric by 2030. The Biden administration’s Inflation Reduction Act (IRA) passed last year encourages electric vehicle adoption by offering $7,500 tax credits to eligible households.

“We probably have more of the reality checkpoint over time where people realize there’s a lot of lithium, but having a lot of lithium is one thing. Getting it out of the ground is another thing entirely,” said Graham Harris, chairman of Surge. Battery Metals (NILI.V), the developer of a lithium clay rock project in Elko County, Nevada.

Harris points out that the US is still building out its extraction and refining infrastructure. Currently, the US produces only about 1% of the world’s lithium supply.

“I think the focus next year and for years to come will be on domestic lithium supply,” he added.

Softer demand for electric vehicles in 2023 will drive prices down

Amid initiatives to expand lithium production in the US, prices have fallen this year.

The critical silvery-white soft metal is not traded on any major exchange and contracts between buyers and sellers are kept private. However, prices in China, which are made public, have shown a sharp decline this year.

Prices reached a record high, rising above $80,000 per tonne in 2022, but falling below $20,000 in November.

Last month, North Carolina-based lithium producer Albemarle (ALB) lowered its full-year guidance for 2023, citing “softer” market prices.

“While the US and Europe will account for only about a third of total EV production in ’23 and ’24, we see potential near-term challenges to EV growth in those regions related to economic weakness and higher interest rates,” Albemarle CEO Kent Masters said during the company’s third-quarter earnings call.

Lower EV forecasts amid high interest rates and affordability concerns indicate that “lithium demand growth slows from 30% annualized to 22% in 2024, leading to lithium oversupply sooner than expected,” wrote UBS analyst Joshua Spector and his team in a recent note to clients.

But this year’s challenges around lithium are likely temporary, Harris said.

“I really think we are in for another serious lithium supply crisis,” he added.

Long-term challenges for lithium

The increased American attention to lithium stems from the ambition to become battery independent. Much of the world’s refining of the lightweight metal takes place in China. The country’s battery manufacturers supply an estimated 80% of the world’s cells.

It will take years for U.S. producers to break into the lithium market, said Irina Tsukerman, president of market research and geopolitical risk consultancy Scarab Rising. She is bearish on the US outlook for the crucial mineral.

“I believe that in the very long term the future is actually doomed,” she said. “It’s very difficult to refine. The problem is that the lithium refining process has effectively become a Chinese monopoly.”

Some manufacturers are rushing to develop technologies that could replace lithium in the long term.

Chinese EV manufacturer BYD plans to build a $1.4 billion sodium-ion battery factory, and Sweden’s Northvolt AB recently announced a major breakthrough: It developed a battery without critical minerals in it.

However, Surge Battery Metals’ Harris said he doesn’t see a shift in lithium demand anytime soon.

“It took a long time for lithium-ion technology to become the commercial technology of choice,” he said.

“There may one day come a new technology that surpasses it in terms of scalability and economics of use,” he added, “but not in the near future.”

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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