Electric vehicle manufacturers, already battling supply chain challenges and a semiconductor shortage, face another potential roadblock in 2022 as prices for battery-grade lithium are poised to “skyrocket”, according to a report by Rystad Energy.
The metal, which is widely used in several industries including electronic devices such as mobile phones, is currently trading at a record high of $35 per kilogram in Asia. However, the price is expected to jump 43 per cent to $50 in the second half of 2022 and 50 per cent to reach about $52.5 by January 2023, the Norway-based intelligence company said on Friday.
Interest in lithium iron phosphate batteries has accelerated among electric vehicle manufacturers since early 2021. However, producers, particularly in China, appear reluctant to sell significant volumes on the spot market as supply constraints and the continuing logistical issues caused by the pandemic create bottlenecks in the trading market for lithium salts, Rystad Energy said.
Lithium is also viewed as a key element to help the transition to a lower-carbon future. Global demand for the densest metal is set to surge to $60 billion by 2025, from $8bn in 2018, according to the UN Conference Trade and Development.
“A fresh new driver for China’s lithium market are lithium contract prices on the Changzhou Zhonglianjin exchange platform. Launched some six months ago, the futures contracts have driven sentiment in the market to some extent, especially over the past two months,” Susan Zou, senior analyst for battery materials at Rystad Energy, said in the report.
“This has contributed significantly to the current momentum in lithium prices in China and made trader-suppliers who have attempted to destock in January hold back from selling for now.”
Battery pack prices fell 89 per cent in real terms to $132 per kWh in 2021, from $1,200 per kWh in 2010, and 6 per cent down from $140 per kWh in 2020, according to a Bloomberg New Energy Finance report in November.
“Continuing cost reductions bode well for the future of electric vehicles,” the report said.
However, the impact of rising commodity prices and increased costs for key materials such as electrolytes has put pressure on the industry in the second half of 2021, and higher raw material prices would mean average pack prices could rise to $135 per kWh in 2022 in nominal terms, the Rystad Energy report said.
Elon Musk's Tesla, the world's largest EV maker, said in October it was changing the battery chemistry on all of its standard-range cars to a lithium-iron-phosphate cathode to replace the nickel-cobalt-aluminium-oxide composition it used in its Model 3 sedans. The move was expected to increase the company's profit margins.
Germany's Volkswagen, Europe's biggest car maker, plans to build six large battery cell plants in Europe by the end of the decade in an effort to overtake Tesla in the increasingly competitive EV market.
However, building the facilities and securing vital raw materials – lithium included – will cost as much as €30bn ($34bn), Thomas Schmall, Volkswagen's board member and technology chief, said last month.
German carmaker Mercedes-Benz and its parent company Daimler have already pledged to go fully electric by the end of the decade, investing €40bn ($45bn) by 2030 to take on Tesla and build eight battery plants.
The supply of lithium salts is expected to remain tight through the first half of 2022 due to lagging production in China and South America, Rystad Energy said. Suppliers in South America are also hesitant to allocate volumes outside long-term contracts despite their planned ramp-up in 2022 because of the logistical challenges.
Changzhou’s lithium contract price for February 2022 hit an intraday high of 418,500 yuan ($65,800) per tonne on January 10, up 14.34 per cent from 366,000 yuan on December 31.