Precious lithium’s price drop makes for cheaper EVS
Lithium, the common ingredient in almost all electric-car batteries, has become so precious that it is often called white gold. But something surprising has happened recently: The metal’s price has fallen, helping to make electric vehicles more affordable.
Since January, the price of lithium has dropped by nearly 20%, according to Benchmark Minerals, even as sales of EVS have soared. Cobalt, another important battery material, has fallen by more than half. Copper, essential to electric motors and batteries, has slipped by about 18%, even though U.S. mines and copper-rich countries like Peru are struggling to increase production.
The sharp moves have confounded many analysts who predicted that prices would stay high, or even climb higher, slowing the transition to cleaner forms of transportation, an essential component of efforts to limit climate change.
Instead, the drop in commodity prices has made it easier for carmakers to cut prices for EVS. This month, Tesla lowered the prices of its two most expensive cars, the Model S sedan and Model X sport utility vehicle, by thousands of dollars.
That followed cuts in January by Tesla to its more affordable Model 3 and Model Y, and by Ford Motor to its Mustang Mach-e. The average price of an EV in the United States fell by $1,000 in February compared with January, according to Kelley Blue Book.
Even after falling so much, lithium prices remain so high that mining and processing the metal is an unusually profitable business. The metal, uniquely suitable for batteries because of its ability to store energy, costs $5,000 to $8,000 per ton to produce. It sells for 10 times that amount, according to Mobility
Impact Partners, a New York private equity firm that invests in the electric vehicle industry, among other areas.
Given those fat profit margins, investors and banks are eager to invest in, or lend to, mining and processing projects. The federal government is awarding grants worth tens of millions of dollars to lithium prospectors and processors.
“You can’t have profit margins that are 10 times
what it costs to extract,” said Shweta Natarajan, a partner at Mobility Impact Partners who has analyzed the lithium market. “You will see that come down.”
But others, including members of the Biden administration, are less confident.
The supply of lithium has to increase forty-twofold by 2050 to support a transition to clean energy, said Jose Fernandez, the undersecretary for economic growth,
energy and the environment at the State Department.
There is plenty of lithium in the world. But it was not considered very valuable until sales of EVS began to take off in the past few years.
“The mining is not what is driving the costs,” said Bold Baatar, the CEO of the copper production unit at mining giant Rio Tinto. “It’s the availability of processing facilities.”
Most lithium refineries
are in China, and few managers and engineers outside that country know how to build processing plants.
Beijing’s near-monopoly on an essential resource alarmed the Biden administration, which has allocated billions of dollars to encourage companies to develop lithium mines and refineries in the United States or in countries with which it shares close political and economic ties.