Lithium shortage slows electric vehicle supply

Lithium shortage slows electric vehicle supply

Consumers clearly want electric vehicles (EVs), and automakers are eager to respond. General Motors, Audi, and others have announced that they are aiming to completely phase out gas-powered cars by the early 2030s, paving the way for an eventual all-electric future.  

But sourcing materials for the batteries that EVs rely on isn’t assured. Multiple environmental, social, and supply chain risks are currently blocking lithium supply, slowing down vehicle manufacturing and threatening its long-term future.  

We asked Everstream’s automotive expert, Ulf Venne, for insight into lithium supply chain risk factors and how automotive manufacturers are working around the problem. 

Q: Why is lithium so critical to EV batteries?

EV batteries are known as lithium-ion batteries, as they generally work by moving lithium ions between two layers (anodes and cathodes) within the battery. The key raw materials used in these batteries are (obviously) lithium, as well as cobalt and nickel.  

Q: Are there other EV battery options?

Lithium-ion batteries have the known risk of catching fire if they are damaged or have manufacturing faults. The liquid used in these batteries is highly flammable at high temperatures. So manufacturers have indeed explored other options.  

One alternative would be cylindrical and prismatic batteries, which are encased in hard materials and generally considered safer than lithium-ion batteries. However, cylindrical batteries are heavier and are harder to pack densely; prismatic batteries are costly, have a shorter life cycle, and risk swelling.  

Pouch-type batteries, another alternative, are held in thin metal bags, making them lighter and more flexible. But they are the most vulnerable in crashes and also can swell.   

Overall, the lithium-ion battery has emerged as the safest and overall best choice. 

Q: What are the key risk factors in sourcing lithium?

Lithium is mined around the world in countries including Australia, Chile, and China. Generally speaking, EVs aren’t manufactured in the place where lithium is mined, with the significant exception of China. Global events, political issues, and trade tensions are a few risks that can contribute to each country’s supply chain difficulties, requiring consistent disruption monitoring. 

While lithium mining can impact the environment, it’s generally considered less damaging than petroleum extraction, especially when using geothermal energy to process lithium-rich water. Raw lithium in its natural state isn’t rare, but mining and refining it can be a slow process and has multiple risk factors. 

For example, Everstream has already recorded a 100% increase in lithium-related incidents in 2022 compared to 2021—an exceptionally high increase considering that we are less than halfway through the year. This increase includes production outages due to fires and other disruptions. 

Q: How does increased risk affect pricing?

At present, there are no real alternatives that can compete with lithium-ion batteries, or lithium in general, as a critical material for EVs. And for that reason, lithium prices are going through the roof. Benchmark Mineral Intelligence has reported that raw lithium prices have increased 480% in the last year alone. 

Q: Are automakers finding any workarounds for lithium sourcing?

Alternatives to lithium need to be identified to relax the reliance on lithium—but the likelihood of that happening in the next 20 years seems very slim. In fact, by 2030, the global demand for lithium is expected to double the demand forecasted for 2025 according to Statista. As lithium batteries are the only option, the supply chain will also be single-threaded. Companies will only react to changes and not be able to strategize with different options.  

Though some companies expect to be able to recycle raw materials to make new EV batteries, they likely won’t be able to until at least the 2030s, when used batteries will re-enter the manufacturing cycle. Everstream currently recommends that our clients monitor the entire end-to-end supply chain throughout all tiers and quickly take control of crisis management, even working along with sub-tiers when something happens to stay ahead of the curve and secure the scarce commodity. 

In the meantime, Tesla and other automakers continue to raise prices. Tesla’s CEO Elon Musk even recently tweeted that Tesla may have to get into lithium mining to keep costs down and stay resilient. 

As raw material prices continue to rise, EV prices will as well, potentially scaring off even the most devoted EV fans. To respond effectively to an increasingly limited lithium supply, EV manufacturers must have an ongoing view of their full multi-tier supply chains so that they can closely monitor all potential disruptions and take risk mitigation actions as necessary.  

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