Market Paradox: Lithium Supplies Plentiful, But EV Batteries Scarce

The electric vehicle (EV) supply chain faces a striking contradiction: Lithium, the key material required to make EV batteries, is in copious supply – even though the batteries are scarce.

The impact of the EV battery shortage is widespread, with Ford, Porsche, and General Motors noting the effects on their bottom lines due to supply constraints, shipping delays and increased expenses.

Tracing the Disconnect

GM’s CEO indicated that the company’s battery module assembly operations are being slowed by issues at one of its equipment suppliers. Ford hinted that the high cost of batteries is making it difficult for the company to keep pace with competitors amid the current EV price war.

In contrast, lithium availability is high and pricing has declined precipitously throughout 2023, despite short-term rallies in May and June. The Commodity IQ Lithium Cobalt Oxide (LCO) Global Battery Pricing Index fell to 48.8 on September 25, down 54% from the recent peak of 105.6 on November 16, 2022.

So, where does the disconnect lie?

One major issue is the divergence between market expectations and actual results for EV sales growth, a factor impacting the various nodes of the supply chain in different ways.By most metrics, EV demand is booming, with global sales set to rise 35% this year, according to the International Energy Agency (IEA).

However, sales growth has fallen short of industry expectations in 2023, as China’s weak economic conditions have eroded consumer spending on various goods, including EVs. This lower-than-anticipated demand has contributed to the oversupply of lithium, resulting in favorable availability and pricing conditions for buyers.

However, despite falling short of expectations, the robust increase in EV demand is stressing the capabilities of lithium refiners and battery producers.

What Does the Future Hold?

In 2021, automotive lithium-ion (Li-ion) battery demand increased by about 65%, according to the IEA. With suppliers rapidly expanding battery production, the robust growth is set to continue in 2023.

This tremendous increase is straining capacity at lithium refiners. Meanwhile, the EV battery makers themselves are facing difficulties with sourcing enough manufacturing equipment as well as other elements used in batteries besides lithium.

This situation may persist as high interest rates spur a deceleration in capital spending by refiners and battery makers.

With the EV supply chain likely to face continued supply and demand mismatches at different nodes, buyers need to be prepared for continued battery shortages.

To mitigate these shortfalls, battery makers should consider establishing their own lithium processing capabilities or partnering with lithium refiners to fund capital expenditures and lock in supplies.

Automakers like Tesla and BMW have already engaged in such activities, while GM is considering making these kinds of investments. Meanwhile, to limit the impact of shortages of non-lithium metals on battery production, battery makers should hasten the adoption of alternative battery chemistries, such as lithium iron phosphate (LFP), that eschew nickel and cobalt.