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What you need to know about the lithium market, the companies involved and risks

Summary:  The lithium market is competitive and rapidly changing. The price of a lithium battery accounts for 40% of an electric vehicle’s production costs, so EV makers such as Tesla, Ford and BYD are on the hunt for cheaper alternatives. Much of the world hopes to be emission free by 2050, and about 30 countries have pledged to phase out the sale of new fuel engine cars. These are just some of the factors driving demand for critical EV minerals. Meanwhile, China continues to dominate the lithium battery production market, but the US wants to change that, and so too does latecomer, South Korea. We cover what you need to know about lithium, which is dubbed white gold, the companies involved and potential risks.

What is lithium – let’s cover the basics

Lithium, which has been dubbed ‘white gold’, is a key metal needed in making rechargeable batteries for electric vehicles (EVs), hybrids, laptops and mobile cell phones. Car makers use lithium ion batteries because they are light weight, highly dense (meaning they can store a lot of energy in a small space) and they have the ability to quickly be recharged.  

There are two main types of lithium that are commonly used in EVs, and lithium-ion batteries; lithium carbonate and lithium hydroxide. Some of the world’s largest lithium producers make both types of lithium products for EVs, while they also produce other types of lithium, which are needed in other industries. Smaller lithium companies typically only produce one type of lithium.

Lithium is also used in medicine, with the World Health Organisation (WHO) listing lithium-carbonate as an essential medication in treating millions of people with bipolar disorder. Lithium is also used in the grease and lubricants raw materials industry, it’s used to create ceramic glazes, tile adhesives, cement densifiers, and used in alloys for the aviation sector.

The five factors supporting demand for lithium

Factor one – There’s a push to be an emission free. The International Energy Agency (IEA), which is made up of about 31 countries including the UK, Denmark, United States, Japan and Australia, vowed to be emission free from 2050. Ahead of the deadline, in a bid to reduce emissions, some nations announced they’re banning the sale of new fuel powered engines, which are known as internal combustion engine (ICE) vehicles.

Norway and South Korea are banning new ICE vehicle sales from 2025. Denmark, Netherlands, Sweden, India, the UK, New Zealand and Japan are banning new ICE vehicles sales from 2030. China, Canada and France will enact the ban from 2040. Australia has not joined the ban. However, one lone Australian state, the Australian Capital Territory (ACT) is bringing in the ban from 2035. While in the US, the White House wants fully electric vehicles to make up over 20% of new vehicle sales by 2030.

Factor two – Car makers are phasing out fuel-car sales. Scores of car makers have committed to stop producing fossil-fuel vehicles by 2040, including Ford, Mercedes, GM, Volvo, Mercedes-Benz, BYD, and Jaguar Land Rover. To make the change, global car makers are expected to be spending $515 billion on EVs and batteries, through to 2030, with about a third of that going into buying battery components and making batteries, according to Reuters.

European automakers are expected spend big on EV and battery investment, purely in dollar terms. What’s also interesting is that, about 50% of what European car makers are planning to invest, through to 2030, stems from German car maker, Volkswagen, who is planning on spending $112 billion. This underpin Volkswagen’s aggressive rollout strategy to sell millions of EVs in Europe, China and North America over the next decade.

Factor three - Countries are rolling out EV incentives, to encourage consumers to buy an EV. This is buoying electric vehicle sales and that’s fuelling lithium demand. Even in the height of the pandemic, the IEA found that countries with EV policies saw strong EVs sales, and this contributed to EV sales breaking records.  Countries with incentives to buy EVs include, the US, Canada, Norway, Germany, France, Italy, the UK, New Zealand and China. 

Factor four – Rounds of government stimulus are supporting the sector. For example in the US, as part of President’s Biden $1 trillion Inflation Reduction Act, US EV manufacturers will get a tax credit for producing EVs, making EV batteries, building new EV manufacturing facilities. The Act also offers up to $20 billion in loans and $2 billion in grants for new and existing EV facilities, as well as $3 billion to procure zero-emission vehicles for public transit and the federal fleet. This obviously means more raw materials will be required, including of lithium.  

Factor five - Innovation and competition are likely to drive more lithium demand. For example, South Korea plans to invest $15 billion by 2030 to deliver the world’s first commercialized solid-state batteries. Solid-state batteries can reduce the carbon footprint of an EV battery by two-fifths, with their technology showing promise, that they can store more energy, with less materials. They are also lighter, and faster to charge. Solid state batteries could require up to 35% more lithium, than the current lithium ion technology, but far less graphite and cobalt

All in all, all this underpins stronger demand for lithium, while also bolstering demand for other critical materials that are needed in EVs. An average EV requires many metals including 250 kgs of Aluminium, 83 kgs of Copper, 10 kgs of Lithium, 70 kgs of Graphite, 14 kgs of Cobalt and 45 kgs of Nickel.

Who are the world’s biggest producers of lithium

Most of world’s lithium comes from Chile and Australia, with Chile having the largest known lithium reserves, followed by Australia. Argentina and China have the third and fourth highest lithium reserves. 

  1. Albemarle is the world’s largest producer of lithium and operates salt mines in Chile, the USA and Australia for instance, producing both lithium carbonate and lithium hydroxide.
  2. The world’s second biggest lithium producer is Chilean Sociedad Química y Minera, known as SQM, it also operates mines in South America, and in Australia’s WA. SQM produces both lithium carbonate and lithium hydroxide.
  3. Ganfeng is the world’s third largest lithium company and produces both lithium carbonate and lithium hydroxide, among other types of lithium. It has mines all over the world, including in Argentina, Australia, Mali, China, Mexico and Ireland.

We put together a list of lithium-related stocks in our Lithium- powering electric vehicles equity theme basket. It features some of the largest lithium producers in the world, by market cap, including the US giant, Albemarle, China’s Ganfeng, Chile’s SQM, and Australia’s Pilbara Minerls and Allkem. We write regular commentary on the lithium and battery metal sector, which can be found on our Research tab. You can also refer to our Energy Storage basket for equity inspiration on other companies involved in the battery market.   

Tesla, Ford are now using cheaper forms of lithium batteries, buying them from China

Tesla and Ford Motor are among automakers that have pivoted to using a different type of lithium ion battery in some of their EVs. These batteries are known as lithium iron phosphate (LFP) batteries. They are cheaper to produce than the cobalt-based lithium ion batteries and nickel-based lithium ion batteries, which are commonly used in EVs made in Europe and the US.

In 2022, LFPs were the cheapest form of lithium-ion batteries, according to Bloomberg. Bloomberg also estimates about 40% global EVs produced this year will use LFP batteries. Bloomberg also sees global demand for LFP batteries continuing to rise for the rest of the decade.

Tesla switched to using the cheaper LFP batteries at its plant in Shanghai from October 2022. Meanwhile, Mercedes-Benz Group AG, Volkswagen AG and Rivian Automotive Inc have pledged to use LFPs for some of their vehicles. Ford Motor will use them in their Mustang Mach-E sport utility vehicle from 2023, and in its F-150 Lightning pickups from 2024. 

LFP batteries are made by Chinese manufacturers, Contemporary Amperex Technology (CATL), and BYD, who account for 99% of global LFP battery production. CATL is the world’s biggest maker of EV batteries, with Tesla being one of their larger clients. With China dominating the LFP market, it carves out China’s dominance of the entire global battery industry. However, the question remains, how long can China continue to dominate when the US and European Union are spending hundreds of billions of dollars to create their own EV manufacturing capabilities. 

The EV battery production market is dominated by China: this is probably not changing soon

China dominates EV battery production, not only producing almost 100% of the world’s LFP batteries, but produces most the world’s lithium-ion batteries, most of the world’s cathodes and anodes (which are needed for lithium-ion batteries). China also processes and refines 50% of the world’s lithium, cobalt and graphite. And through to 2030, the IEA estimates most of the worlds global battery production capacity will continue to come from China.

  • All in all, Chinese companies make up 56% of the EV battery market, followed by Korean companies (26%) and Japanese manufacturers (10%).
  • 51% of the world’s EV batteries come from the Chinese company, CATL. They provides lithium-ion batteries to Tesla, Peugeot, Hyundai, Honda, BMW, Toyota, Volkswagen, and Volvo. BYD produces 16% of the world’s EV batteries, including batteries for Rivian.
  • Other lithium battery makers include Korea’s LG Energy, Samsung and SK ON, Japan’s Panasonic, as well as China’s, CALB, Guoxuan, Sunwoda and SVOLT.

Governments in Europe, the United States and now South Korea have bold public sector initiatives to develop domestic battery supply chains, with Biden’s administration alone pledging $3.1 billion to make EV batteries in the US. However for now, it seems the majority of the supply chain is likely to remain in China.

Lithium price swings: what is next?

The world’s largest lithium company, Albemarle expects global lithium demand to continue to outstrip supply in years to come, seeing lithium demand rise from 1.8 million metric tons in 2025 to 3.7 million metric tons in 2030. Australia, a top producing lithium nation, also sees demand remaining strong.

The lithium carbonate price surged 1,078% from 2020, before hitting a record high in November 2022. Since, its price has pulled back over 70% (as at the time of writing). It seems the market is weighing up oversupply fears, awaiting for EV demand to pick up, and for recessionary concerns to abate. That said, supply concerns have not subsided, especially given 50% of today’s lithium production is in areas of high water stress. And now, the world is bracing for potentially warmer temperatures from El Nino.

The potential risks of investing in lithium

The risk of investing in lithium is that lithium-ion batteries become undesirable in the face of alternatives to lithium, such as sodium-ion batteries, or hydropower powered vehicles. This may mean that lithium producers would suffer. There is also a risk that government support could slow, or EV demand slows.

There is talk about sodium-ion batteries coming to the market and competing with lithium-ion batteries. And should they be rolled out, it may cause price pressures for lithium companies. However, they could potentially be complementary, rather than substitutes. Sodium-ion batteries low energy density makes them more suitable for use in medium and low-speed EVs and large-scale energy storage. Whereas lithium may still be needed for powering high-speed EVs. That said, the battery market is constantly changing with scientists, EV companies and governments driving change, to hunt for alternatives.

Saxo's Lithium equity basket

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