Lithium Supply and the Automotive Industry

Lithium is a soft, silvery-white alkali metal know at “white gold.” Lithium has a number of uses but one of the most valuable is as a component of rechargeable lithium-ion batteries which is widely used in electric and hybrid vehicles, portable consumer electronics such as cell phones and laptops.  

At last year’s United Nations Climate Change Conference (COP26), countries reaffirmed the Paris Agreement goal of net zero greenhouse gas emission by 2050, further stating that a future without dependence on fossil fuel, is crucial if we want to slow down climate change. This plan is dependent on production and storage of alternate clean energy as well as the electrification of the transportation industry.  

Lithium is used in more than 90% of the global grid energy storage around the world, especially for storage of wind and solar energy. EU’s plan to reduce its dependence on Russian natural gas will significantly increase demand for lithium battery storage. 

The International Energy Agency (IEA) has stated that about 2 billion Electric Vehicles (EVs) need to be on the road by 2050 for the world to hit net zero. At the COP26, over 30 countries pledged that they would stop sales of new gasoline and diesel vehicles by 2040.  

Taking into consideration that every electric vehicle needs a battery, and those batteries are manufactured from a range of raw materials including lithium, cobalt, nickel, manganese, and graphite. Demand for these raw materials is expected to increase significantly in the coming years.  

Lithium Supply Challenges & Risk Factors 

The worldwide lithium reserves stand at about 22 million tons, according to the US Geological Survey and the global lithium production totaled 100,000 tons last year. Currently 90% of world total lithium used worldwide comes from Australia, Chile, and China.  

The IEA says the world could face a lithium shortages by 2025. Two factors are behind the expected shortages. First, is the supply vs. demand.  

Considering the projection of EVs coming into market, the lithium needed per battery pack and the amount of lithium currently being mined we are left with a supply chain gap.  

The second factor is the midstream and downstream supply chain constraints.   

Currently Chile and China dominate the midstream lithium salt market and China accounts for more than half of global lithium hydroxide exports. China is also the world’s leading producer of lithium cathodes, battery cells, and battery packs, both for its domestic EV industry and for export.  

Diversifying the global supply chain of lithium is crucial for countries strategic risk mitigation as well as energy independence.  

ESG Impact of Lithium Extraction 

Lithium mining is highly water resource intensive and can pose a number of environmental hazards, such as soil and groundwater contamination which goes against the environmental objectives behind the use of this commodity.  

Tough regulations are being placed around the lithium battery supply chain. The EU for example will require importers to declare the CO2 footprints of batteries sold in the region starting 2024. In addition, the European Commission is considering establishing a “battery passport,” a technology platform that will enable everyone in the supply chain to share information on the manufacturing history of every battery sold in the EU. 

New mining technologies such as Direct Lithium Extraction (DLE), which recycles most of the brine water and Geothermal Brine Extraction are being explored to reduce the environmental impact of Lithium mining.  

Lithium Supply Chain Risk Mitigation 

The U.S. Department of Energy (DOE) announced this month that it will be funding research on the extraction and conversion of lithium from geothermal brines. Following that announcement this week the DEO stated that 20 battery companies will receive a combined $2.8 billion to build and expand commercial-scale facilities in 12 states. 

The companies receiving the funds will work to extract and process lithium, graphite and other battery materials, manufacture components and demonstrate new ways of acquiring critical materials, including battery recycling, domestically or within free trade agreement countries, said, the DOE. This investment is the first phase of the $7 billion Infrastructure Law to strengthen domestic battery supply chains and reduce reliance on China for battery supply and production and to meet the U.S.’s goal of a net-zero clean energy economy by 2050 and 50% electric vehicle adoption by 2030.   

Currently, the EU imports 78% of its lithium from Chile but plan on spending billion to create a complete domestic battery value chain. For example, a lithium mine with the capacity to supply 700,000 electric car batteries per year is set to open in France. Geothermal brine extraction is also being explored and developed in the U.K. to help mitigate the Lithium supply chain dependencies.  

In Conclusion 

World is dependent on lithium batteries for energy storage and although, research is being done to find alternatives to these batteries as storage options for vehicles and power grids, none of these options currently offer the combination of cost, weight, and energy storage capacity.  

The current lithium battery supply chain has major country dependencies making it vulnerable to geopolitical, natural disasters, or other disruptions.  

EV Automotive OEMs should be looking at understanding and diversifying their battery supply chain.