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André, Founder Explorado

Written By ANDRÉ  |  Investing, Lithium  |  1 Comments

André is a mining and mineral sector specialist with many years of global experience. Having worked for bilateral and international organizations, he has an intimate knowledge about international metal markets and the exploration industry. He has set up Explorado to promote the knowledge of aspiring investors about the exiting investment opportunities in the metals and exploration industries.  

Part 1 of 3: What is driving the demand for lithium, and how much will be needed until 2030?

Lithium the new oil: Fact or myth? We will find out in this 3-part series


To answer this question, I have compared the major research reports and their figures to see what makes sense - and if it makes sense. The result is a three part series that looks at the present and future of lithium, at supply and demand - and the different ways how you can take advantage from this. 

This is what we will discuss in those 3 parts:

  1. 1
    What is lithium - and what is it used for?
  2. 2
    How climate politics will influence the lithium market?
  3. 3
    How to invest in Lithium

That might seems like a bit of material, and yes, it actually is. But I believe the lithium market is a special one, and it is important to get a thorough picture in order to understand which forces are at work. And how much they can possibly influence the market.

The overall question I will try to answer over these three parts is:

IS THE LITHIUM BOOM A REALITY  - OR IS IT A HOAX?

PART 1: The future of lithium demand 


In this first part, we're going to check which role lithium is supposed to play, and what that means for supply and demand dynamics.

This will serve to get you a clear understanding about the dynamics which we are going to discuss in the second part

1.1 Powering Future Mobility

Lithium is part of the group of the ‘lightest metals. As we don’t want to delve too deep into chemistry, let’s agree that this metal can without doubt be counted among the new high-tech metals, also referred to as battery metals. Many prefer this categorization, as it sounds more like 'tech' and less like ‘mining’. In any case, it is also useful for bragging-purposes to keep in mind that lithium is indeed the lightest, or the least dense elemental metal. But lithium also impresses with its high heat resistance and conductivity. This is a good moment to be awed about nature. Think about these characteristics, and how this serves our modern society. And it is all INSIDE this metal! Its prominence then has not come as suddenly and explosively as that of cobalt, for example. Rather, lithium-ion batteries have been around for a while, at least since the advent of mobile phones, digital cameras and other portable consumer electronics.

Inside look into the batteries of a modern electric vehicle (EV)

What is a bit more recent is the idea, and the fact, that with these batteries you can also power whole cars. You may imagine that this is far off the standard household battery you use for your flashlight: The above is an electronic vehicle (EV), i.e. a car that is propelled by elecricity only. Ok, the seats and tyres are missing. And the stereo 🙁 ...but what is left, is pretty impressive in terms of size. You need massive batteries to get a car with four adults to go anywhere. 

Within these batteries, more lithium is used per unit than is the case, for example, with cobalt, nickel, graphite or other battery metals: lithium compounds are used in all phases of the electrochemical cell, i.e. in both the negative and positive electrode as well as within the electrolyte. It is therefore used in the cathode, the anode as well as for charging and discharging. Wait! What? Electrolyte, electrode…what is he talking about? Ok, I promise I will do a separate blog on just about batteries, for those who like that stuff. Actually, if you want to understand in which areas of the mining industry it is worthwhile to invest, you should know a bit or two about batteries, because these are….kind of the backbone of our future no-fossil fuel economy. 

Hi, my name is Elon Musk, and I wonder...

...if you got any lithium for me? Because for the plans that I have, I need much more in 2030 than is produced today IN TOTAL. And this is just for me, I mean Tesla. The other manufacturers also want to get something (but I am ok if they don't)...

So, because lithium is so ubiquitous within batteries, and since we are going to need many many many, and indeed very very big batteries to propel all our cars of the future, the push for e-mobility will most likely guarantee steady demand for lithium over the next decades. Whether steady also means ‘booming’ or freakish – this is what we are going to discuss in this 3 part series as well. However, lithium is more than just guaranteeing mobility. It is also indispensable in many other areas. While the percentage of lithium that goes into lithium-ion batteries is the largest and growing, a good third of the globally extracted lithium goes into glass and ceramics production. However, that share will sink in favour of the electric vehicle (EV) portion. In other words, if you want to remain involved in the lithium market, watch the developments in the EV and EV-battery markets!

There was quite some movement in the EV markets recently. Apparently consumer have different plans than policymakers. Find out more in this EV- update blog

 But since we actually want to know how to invest in Lithium, we should know a bit about prices, and price developments. But prices are, of course, a product of supply and demand forces. Consequentially, if we want to do this properly, we should talk about what shapes demand. Now and in the next 5-10 years. We will look at supply thereafter. 

1.2 The Demand for Lithium

We mentioned already, that the demand for batteries is a strong driver for producing lithium, and within the battery market, it is really the very big batteries that are needed to allow mobility through electricity.

And how much do we need? So...one EV battery contains around 6-8 kg of lithium, but this is a MINIMUM. Think about that as a 3 cylinder equivalent when converting this to a petrol-fuelled car. But we also do have 8 cyclinders, and the EV equivalent of that is the high range electric cars of Tesla (Model S), Porsche, Mercedes, Maserati etc. For these cars, we can have up to ten times the quantity of lithium per battery, meaning 60kg to 80kg. 

          Ok, so these ones will NOT help you. Even if you put 10,000 of those into your car


     

These figures will be important to derive at meaningful numbers to project future demand, supply, and thus price development. Because remember, this is a blog on investment in lithium, and investment is only good if the price projections point into the right direction.

I have to tell you that if you just type in Google ‘lithium demand’ or ‘lithium supply’, you will get ALL sorts of figures. It is disturbing how much these are varying, often by a 10times figure lower or higher. Usually of course, for any company involved in the lithium production chain, these figures tend to be on the very high side, others are more moderate.

                                This is why I try to provide us with a scenario that hopefully makes sense to my readers.

Therefore, I will look at different approaches how leading market research institutes go about the question to assess future demand. I did not take into account figures from lithium miners, as they would have some vested interests in keeping figures high.


So as a first step, let’s look at production plans for battery manufacturers. I assume that these guys also made some calculations before building multi-billion dollar plants. Therefore, we can be somewhat sure (not 100% of course) that these plans actually WILL MATERIALIZE over the next years. I am by the way no fan of long-term forecasts, but we have to apply some mid-term (meaning 3 to max 7 years) scenarios to allow for some projections.

Uranium is more contested than lithium. But just like the latter, it has the chance to put its very own stamp onto this century - as a provider of clean, affordable and efficient energy. Find out more in my uranium blog

When we look at the plans for upcoming battery production lines (gigafactories, but not only), a growth path seems set. In the next few years, production of battery production plants for EVs will increase, with a foreseen production capacity of 6,000 GW by 2030. Currently, less than 3,000 GW are being produced, according to the EU Joint Research Committee (EU-JRC). Around 50% of the additional capacity will be located in China. Sidenote: CATL, LG Energy, EVE Energy, BYP and SK Innovation will be the leading battery producers by 2030. While not directly relevant for investment purposes, this will showcase a substantial shift from vehicle powering know-how and production capacities from the US and Europe to Asia.

1.3 The Market for Electric Vehicles (EV)

Areal view on Tesla factory Berlin

A gigafactory - the aerial view (Tesla's plant near Berlin) supports the terminus

But, getting from 10% to 100% in another 12 years? I say 100% because this is what politics wants, but….whether this can realistically be achieved is another question. To be honest, I don’t think this will happen anywhere near soon (see also the discussion a bit further down below). This is a political target, and the target is supported by a lot of incentives-firepower, but it will hardly be possible to turn a major market simply around in a few years.


So let’s keep this figure in mind and glance at the development of EV sales. When looking back here over the last decade, one has to admit that EVs were quite successful. One has seen the introduction of new technology fail more dramatically, for sure. Especially the last 5 years before 2023 have seen significant increases in sales. The current 2022 figure of roughly 11 mio new units of EV sold signifies around 10% of the overall automobile market share.


Graphic showing development of EV sales over 12 years

Development of EV sales 2010-2022 Source: VDA

Subsidies did play a role in pushing EV sales forward in most major car markets. But it is unlikely that they will be sustained, especially since more EV sales mean more subsidy costs for the respective national budgets. On the other hand, initial EV shortcomings like very short mileage will most likely be improved.  Also, we will most likely see more models to increase consumer choices, especially for the middle and lower middle price ranges. While I personally do not think that we will get a 100% EV penetration by 2035 (maybe never),

                               I do consent that market share of EVs WILL increase over the next ten years. 

1.4 Comparing Different Growth Scenarios for EVs

According to the International Energy Association (IEA), 2023 should see up to 14 mio units sold. That is good enough to support the ‘lithium prices will raise to due increased battery demand’ story.

Foreign Policy also confirms a sense of urgency. I would not agree that struggle means war, but the big economies are certainly out there for to be first onto new deposits (second gets nothing - only the tailings)


While EV batteries accounted for 15% of total lithium demand in 2017, this figure has risen to 60% in 2022 (again according to IEA). This seems to link lithium prices even stronger to the fates of the EV market, as noted above.  And while the EV market will possibly not develop as smooth as some would like to see it (i.e. with a penetration rate of near 100% somewhere in the early 2030s), a consistent growth pattern could still bring the electric segment up to around 50% market share. I admit that this is just a more or less wild guess, but for the sake of developing future scenarios, we have to start somewhere. The International Energy Association (IEA) calculates with 60%. Now, 50% or 60% of what number?

At the moment, around 70 million cars are being sold annually. Business Research Inside and VDA (the German Automotive Association) apply a 3% to 4% annual growth rate. So let’s assume 95 million cars by sold 2030. At  55% market share (for passenger and light duty vehicles) that would result in 52,5 million EV units, which translates into a growth of roughly 275% (i.e. almost quadrupling).

Let's compare this figure with a few other estimates and research results to see if this is a good number to orientate ourselves to:

McKinsey and the Global Battery Alliance have put out a highly authoritative report about the development of EV battery markets over the next years (McKinsey: Battery 2030 - resilient, sustainable and circular, available here). They come up with a lithium demand growth rate of between 25% and 30% annually. That corresponds to a doubling every 2,5 to 3 years. Applying this growth figure to EV sales, we would have around 18mio pieces sold in 2026 (from 14 mio in 2023), and 56 mio by 2029. In our exercise above, we have estimated 52,5 mio pieces by 2030, so that is fairly close.

Now let’s translate this figure into required lithium production growth. Remember that for 56 million units of EVs sold by either 2029 (as in the McKinsey example) or for 52,5 million EVs in 2030 (as in the VDA example), as in our previuous calculation, we need a minimum of 6kg of lithium per unit. I could not come up with an average lithium use over all EVs on the market. But if we take this 6kg, we have a very conservative figure, which does not need to hurt. Furthermore, we need 5,3 times the amount of lithium extracted at the beginning to derive at the final lithium product (i.e. the metal) that is being used in the battery cathodes. Hence, 56mio x 6 x 5,3 yields 1,780 kilotons of lithium that needs to be mines in order for it all to match up.

In 2022, the world produced around 130kt:

Global lithium production 2010-2022 Source: IEA

When this output increases by 30% per annum (the McKinsey figure, which according to our calculation seem to make sense), we get the following figures: 

                                                   Lithium demand – projection until 2032:

Lithium demand projection until 2030



That means that roughly by 2032, we would need to produce around 1,774 kilotons of lithium to propel the fleet of 55 mio EV units on the streets by then. Again, what we have shown, based on comparison with the analysis and figures of top quality research products, seems to hint into the same direction: We need to have around 30% annual growth over the next ten years or even beyond for all these estimates to end up, a roughly 1250% overall increase. Also remember that for this calculation, we have used a rather low figure of 6kg, but that leaves space for all sort of mishappenings that might occur over the next years. That is a lot of pressure on the supply side. Such growth figures are also supported by other heavyweights in market research such as S&P.  

1.5 Conclusion

In this first part, my objective was to provide you with growth figures for the lithium markt from now until roughly 2030. We did some cross-checks to see if these figures make sense. I wanted to do so because far too many figures exist, and it is difficult to analyse which are crap and which are serious. Of course, I am also not the Master of the Universe, so my method was to compare figures and analysis of a few leading organizations and see if they are comparable.

This is what we have found:

1) Battery production will increase by 100%, from 3,000 GW to 6,000 GW

2) According to the EIA, the share of EVs on the total automobile market (in terms of annual sales) is going to be around 50% by 2030. Applying the estimated growth rate of this market yields around 52 mio units,roughly a 270% increase in total, or 25% per year increase. Such figures are supported by McKinsey and the Global Battery Alliance, which calculate 25% - 30% annual raise. We argued in the text that EVs will become better over the years, and more models will also result in cheaper models, supporting the market share thesis. 

3) In order to power these many EVs, we have taken a conservative figure of 6kg of lithium per EV, but since we need much more raw lithium to be mined in order to get 6kg of lithium metal, have multiplied this figure with 5. The result is roughly 1,780 KT of lithium which need to be produced just to power EVs (but that market will account 90% of the total lithium market).

4) Finally, we have applied the 25% - 30% figure to the growth in lithium production. Taking 130Kt that was produced in 2022 as a starting point, and annual 30% increase yields almost 1,780 KT in 2032, which is more or less what is needed as minimum to propel the EV fleet of that time.

      5) Hence, the 25% - 30% annual growth in lithium production required seems to make sense!

What that means in terms of investment opportunities will be the subject of part 3. But before we talk about that, we will need to see how politics influences this market. This is the content of the next part

If you have liked this analysis, please share it with more readers, or provide comments below

In part two, we are taking a look at demand/supply patterns, climate politics and its influenec on these patterns, and the outlook from all of this on the global lithium markets.

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