Electric vehicle (EV) adoption has surged in recent years, creating unprecedented demand for lithium, a critical component of EV batteries. Most EVs rely on lithium-ion batteries because they provide the most efficient, dense and rechargeable form of energy storage currently available. With lithium demand expected to rise substantially in the years ahead (Figure 1), lithium miners are at the nexus of the global EV transformation.
Electric vehicles (EVs) are set to play a pivotal role in the coming decades as nations intensify their decarbonization efforts. With 97 countries — accounting for roughly 79% of worldwide emissions1 — pledging to achieve net-zero emissions, EV adoption is gaining momentum. By the close of 2022, the global EV fleet had surged to over 26 million, representing 60% growth from 2021 and quintupling the figures from 2018.2 China is the leader in global EV sales, representing 59% of global EV sales in 2022; approximately 679,000 EVs were exported from China last year.3
Figure 1. Lithium Supply Unlikely to Keep Up with Demand (2022E-2050E)
Source: BloombergNEF Transition Metals Outlook 2023. Data as of 6/30/2023. Figures are for lithium carbonate equivalent. *McKinsey & Company. Lithium Mining: How New Production Technologies Could Fuel the Global EV Revolution, April 12, 2022. Included for illustrative purposes only. Past performance is no guarantee of future results.
Figure 2. Global Net-Zero Emissions Pledges by Region
Source: Climatewatchdata.org at https://www.climatewatchdata.org/net-zero-tracker as of 8/2/2023. Included for illustrative purposes only. Note: The EU set a net-zero target year of 2050. Included for illustrative purposes only. Past performance is no guarantee of future results.
To pave the way for more electric vehicles, the world is making massive investments in electrified transportation and charging infrastructure, which reached a global record of $466 billion in 2022, an increase of 54% relative to 2021 levels.4 This capital investment may likely continue, with the International Energy Agency (IEA) expecting 350 million electric vehicles to be on roads by 2030,5 representing an annual growth rate of nearly 38% for the rest of this decade.
Figure 3. Projected Growth of Electric Vehicles Sales to 2040
Source: BloombergNEF. Data as of 6/08/2023. EVs include plug-in hybrid electric vehicles (PHEV), and battery electric vehicles (BEV). Hybrid vehicles (HEV) are included in ICE. Included for illustrative purposes only. Past performance is no guarantee of future results.
Lithium-ion batteries are the predominant battery type used in EVs because they allow for more battery in a lighter package, with a battery pack for a single car containing more than 16 pounds of lithium.6 In 2022, demand for lithium-ion batteries in the automotive sector increased by around 65% to reach 550 Gigawatt hours (GWh), up from 330 GWh in 2021. These batteries are projected to account for more than 80% of the total lithium demand in 2030.7 To meet this demand, lithium supply would have to increase at a compound annual rate of 16% to 20%.7
Although there is enough lithium on earth to support energy transition goals in terms of EVs, only 25% of it is presently accessible.8 Increasing the annual lithium supply will be challenging, as new mines can take a decade or more to begin producing. Governments are providing support as they seek to regionalize lithium supply chains to enhance security and sustainability.
With governments making electric transportation central to decarbonization goals, many automakers plan to go all-electric as soon as 2030. As a result, automakers like General Motors, Ford and Tesla are increasing their involvement in the supply chain and providing capital to lithium miners by entering into long-term offtake agreements or investing directly in lithium mining.
With the building of new lithium mines years away, existing mines are expanding to meet the increased demand. For example, the Silver Peak Mine, run by Albemarle (located in Nevada), is currently the only U.S. source of lithium and has historically provided a modest amount of lithium annually. In 2021, however, Albemarle announced it would invest $30-$50 million to double the Mine’s output by 2025. Albemarle is not alone; most major lithium producers worldwide are working on expanding and looking to shuttered plants to return to the production line, especially if they were initially closed for economic reasons.
New mines and capacity expansions are forecast to boost global lithium production to 304 kilotonnes in 2030, up from 118 kilotonnes in 2022, with Australia expected to originate much of the growth. Figures are for contained lithium.9
The recycling of lithium batteries is in its infancy, largely because there are few batteries to recycle. China currently dominates the space. However, as EV batteries begin to reach the end of their lives over the next decade, recycling programs are likely to play a small part in providing lithium to fill demand.
Australia leads the world in lithium mining. Unlike other countries that extract lithium concentrate from brine, Australia extracts lithium directly from hard-rock mines, which are easier to explore, mine and process. The other top lithium producers, including Chile, Argentina and China, extract lithium concentrate from brine waters, which involves evaporation in large ponds in unique climates and geography, and can take more than a year. These four countries largely control the lithium mining space and accounted for 97% of the lithium produced in 2022. Additional regions are on deck to add capacity, including Western and Eastern Europe, Russia and other members of the Commonwealth of Independent States (CIS).
Figure 4. Australia is the Global Leader in Lithium Production, Delivering 47% of World's Lithium Supply in 2022
Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2023. Data as of 12/31/2022. Included for illustrative purposes only. Past performance is no guarantee of future results.
The race for lithium has not been without political conflict. With three-quarters of the lithium-ion battery megafactories in the world, China controls more than half of the world’s lithium processing and refining.10 Access to lithium has become another point in strained U.S. and China relations. Higher environment, social and governance (ESG) standards in the U.S. may create roadblocks to catching up quickly with China. For example, the Thacker Pass Mine in Nevada is being planned as the largest lithium mine in North America and has faced strong opposition from Native Americans and environmental activists over the past two years, but a recent federal ruling has approved construction.11
Figure 5. Powered by China
Value of Lithium-Ion Batteries Imported to the U.S. in 2022 by Trade Partner
Source: Statista, UN Comtrade Database. Data as of 12/31/2022. Included for illustrative purposes only. Past performance is no guarantee of future results.
The success of the EV revolution invariably hinges on the ability to increase the supply of lithium, and unearthing the investment opportunity inevitably leads to lithium miners. Pure-play lithium miners — companies upstream in the supply chain and specializing in mining lithium — may likely benefit most from the increased demand for this critical battery metal. We believe that pure-play investments offer a strong potential opportunity for capturing the upside of lithium.
While the price of lithium has retreated from its November 2022 record high, it remains above its historical average and surpasses the production costs of many lithium miners. Miners' prospects are not tied to the fortunes of specific EVs or battery makers. Instead, they benefit from the broader surge in lithium demand and its price. With lithium prices remaining strong and demand rising, the long-term growth potential of lithium miners may likely provide a compelling investment opportunity.
Figure 6. Recent Performance of Lithium Miners (NSLITPT Index)
Source: Bloomberg. Data as of 7/31/2023. Lithium miners are measured by the Nasdaq Sprott Lithium Miners Total Return Index (NSLITPT), which seeks to track the performance of a selection of global securities in the lithium industry. Performance dates from the inception of the Index on 12/18/2020. You cannot invest directly in an index. Included for illustrative purposes only. Past performance is no guarantee of future results.
|2||Source: IEA, Global EV Outlook 2023, “Catching up with climate ambitions”.|
|3||Source: China Association of Automobile Exports; Year 2022.|
|4||Source: BloombergNEF, Energy Transition Investment Trends 2023.|
|5||Source: IEA Technology Report, September 2022.|
|6||Source: US Department of Energy science and engineering research centre Argonne National Laboratory.|
|7||Source: McKinsey & Company – The net-zero materials transition: Implications for global supply chains. July 2023.|
|8||Source: Popular Mechanics.|
|9||Source: Mining Technology, 3/31/2023. New mines and expansions to boost global lithium output over the next decade.|
|10||Source: International Energy Agency.|
|11||Source: Npr.com, Tribes object. But a federal ruling approves construction of the largest lithium mine.|
Past performance is no guarantee of future results. You cannot invest directly in an index. Investments, commentary and statements are those of the author and may not be reflective of investments and commentary in other strategies managed by Sprott Asset Management USA, Inc., Sprott Asset Management LP, Sprott Inc., or any other Sprott entity or affiliate. Opinions expressed in this commentary are those of the author and may vary widely from opinions of other Sprott affiliated Portfolio Managers or investment professionals.
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