Rising lithium prices could stop the electric vehicle revolution – or could they?
One of the guiding principles of the belief that electric vehicles will take over from combustion is the falling cost of batteries. From a pack price of around $1,200 per kWh in 2010, prices had fallen to $137 per kWh in 2020 and £132 per kWh in 2021. Costs below $100 were expected from by 2023, when electric vehicles would reach price parity with equivalent internal combustion vehicles and the game would be over for oil and gas. But the global lithium price spike has led some to wonder if that dream will really become a reality.
According to Edison Group. But, largely due to demand for electric vehicles, the price has been rising throughout 2021, reaching over $25,000 a ton late last year, and now reaching more than $40,000 per ton. It looks like a dire situation as demand for electric vehicles is only increasing and some are now saying production cannot scale as lithium prices will hold it back, along with soaring prices for other minerals. According to Trade economycobalt jumped from $30,000 in 2020 to $80,000 per ton today and nickel jumped even more, in relative terms, from $20,000 to $80,000 per ton.
This doubling, tripling, and quadrupling of key lithium-ion battery components seems almost terminal for the price reductions and volume growth we’ve seen over the past two years. However, there are a few other factors to consider. First, while these items are expensive, one must consider how much of each actually goes into an EV battery and the overall price of the vehicle.
Just over half the price of a typical EV battery cell comes from the cathode minerals, and 12% from the anode graphite. The popular “NMC” type of cathode uses lithium, nickel, manganese, and cobalt (the latter three giving it the name NMC) for the anode. A typical high-nickel NMC design such as LG’s is “811”, referring to how it contains 80% nickel, 10% manganese and 10% cobalt. As already mentioned, the prices of nickel and cobalt exploded with lithium, but the price of manganese did not increase at the same level. Graphite prices have also risen a bit recently, but not in the same multiples as cathode minerals.
Overall, however, most of the minerals that make up about half the price of a lithium-ion battery cell have increased by several orders of magnitude, which could in theory mean up to tripling the price per kWh of EV batteries. However, while there have been some increases in the cost of electric vehicles, for example with Tesla raising the price of its Model 3 in the UK, there has not been any significant inflation on the part of other manufacturers, aside from forecourt digging due to universal chip shortages. If the price of the 2021 pack was $132 per kWh, even the 100 kWh monster batteries in the most high-end luxury vehicles should have only cost around $13,000, but in reality there is a huge margin that can soften the blow to the end customer.
Like Michael Liebreich of Bloomberg NEF and Liebreich Associates pointed out in a Tweet, we’ve been here before with silicon. A huge spike in silicon prices in 2008 led some to argue that solar panels would not scale, but a year later prices fell again and then continued to fall. Solar panels now cost less than a third of the price they were per watt in 2010. High mineral prices for EV batteries are also likely to be a blow. There’s nothing like a high mineral price to encourage increased production as mining companies look to cash in. Lithium is described as “white gold” and many startups are looking to tap into the reserves because it’s actually quite abundant. In the UK there is Cornish Lithium and British Lithium, and in Germany Vulcan Energy is looking to blow up a huge brine lake in the Upper Rhine Valley. There are many startups in the US looking to mine lithium, such as Austin’s EnergyX and Bill Gates-backed Mangrove Lithium.
Technological development in battery chemistry will also play a role. If some minerals are too expensive, the battery chemistry can be changed. NMC anodes aren’t the only choice – there are also lithium titanate, lithium-cobalt oxide, and lithium-manganese oxide. Tesla switched to using lithium iron phosphate (LFP) CATL batteries for the base Model 3 currently on sale in Europe, which I predicted in July 2020. I also recently reported on the radical design of Theion’s sulfur-based battery, which does not use nickel, manganese or cobalt, but still requires lithium. Theion is also not the only company researching lithium-sulfur, as sulfur is relatively cheap and plentiful, giving it considerable cost advantages.
The skyrocketing price of lithium and other minerals currently used in electric vehicle batteries is concerning. But we have been here before, several times. Just as the shift to electric vehicles is part of the solution to the problem of CO2 emissions and climate change, technological innovation will find a way forward for electric vehicle batteries, as it has always done in other areas. The smooth battery price curve toward electric and internal combustion vehicle price parity may have reached a speed bump, but the general direction of travel remains the same.