May 28, 2024

Elon Musk and Exxon talked up a key ingredient in EVs this year. Here’s why.

A critical mineral used to make electric vehicle batteries gained significant 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 refining capacity “choke point.”

“Instead of making a picture sharing app, please refine lithium,” Musk said on Tesla’s earnings call in April.

Then last month oil giant ExxonMobil (XOM) announced plans to extract lithium in southern Arkansas in a bid to become a key supplier of the material.

Worldwide demand for lithium is expected to double between 2025 and 2030 as more consumers buy electric vehicles. EVs are expected to make up about half of new car sales worldwide by 2035, according to Goldman Sachs research.

Elon Musk has called lithium batteries the

Elon Musk has called lithium batteries the “new oil.” (Kirsty Wigglesworth/AP Photo, Pool, File) (ASSOCIATED PRESS)

The EV market share in the US recently hit 7.9% — its highest-ever level, with sales in the third quarter of this year jumping by nearly 50% from a year ago to 313,000.

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

“We’re having probably more of the reality checkpoint in 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 totally different,” said Graham Harris, chairman of Surge Battery Metals (NILI.V), the developer of a lithium claystone project in Elko County, Nevada.

Harris points out the US is still in the process of building out the extraction and refining infrastructure. Currently the US only produces about 1% of global lithium supply.

“I think the focus next year and for the coming years is going be on the domestic lithium supply,” he added.

Softer EV demand in 2023 drags down prices

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

The critical silvery-white soft metal is not traded on a major exchange, and contracts between buyers and sellers are kept private. However, prices in China, which are made public, show a steep decline year to date.

Prices reached all-time highs, surging beyond $80,000 per metric ton, in 2022 but dropped below $20,000 in November.

Last month North Carolina-based lithium producer Albemarle (ALB) cut its 2023 full-year guidance citing “softer” market pricing.

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

Reduced EV forecasts amid high interest rates and affordability concerns point to “lithium demand growth declines from 30% Y/Y to 22% in 2024, and results in lithium over-supply sooner than expected,” wrote UBS analyst Joshua Spector and his team in a recent note to clients.

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

“I do think we’re going to come in for another serious crunch in the lithium supply,” he added.

Long-term challenges for lithium

The increased US attention on lithium comes from its ambition to become battery-independent. Much of the world’s refinery of the lightweight metal happens in China. The country’s battery manufacturers supply an estimated 80% of cells worldwide.

Elko County site of Surge Battery Metals’ Nevada North claystone lithium project, June 2023. 
Photo by: Marc Davis. Courtesy Surge Battery Metals

Elko County site of Surge Battery Metals’ Nevada North claystone lithium project, June 2023. Photo by: Marc Davis. Courtesy Surge Battery Metals

It will take years for US producers to break into the lithium market, says Irina Tsukerman, president of market research and geopolitical risk advisory Scarab Rising. She is bearish on America’s prospects for the critical mineral.

“I believe in the very long term, its future is actually doomed,” she said. “It’s very difficult to refine. The problem is lithium’s refinery process has became basically a monopoly of China.”

Some manufacturers are racing to develop technologies that could replace lithium in the long run. 

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

Harris, of Surge Battery Metals, said he doesn’t see a shift in demand for lithium coming anytime soon, though.

“It’s taken a long time for lithium-ion technology to be the commercial technology of choice,” he said.

“There may be one day another technology that comes along and surpasses this in terms of being able to scale it and do it economically,” 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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