DEMAND FOR TESLAS POINTS TO LITHIUM DEFICIT

While UK beer drinkers are alarmed by the CO2 shortage and European consumers feel burned by the gas shortage, there is one post-COVID-19 deficit that is getting less publicity but may yet have a far bigger and more strategic impact globally: lithium. This chart from Benchmark Mineral Intelligence pretty much sums up the situation. If the market is not in deficit already, it’s about to be. It appears the sales growth of Teslas and other electric vehicles (EVs) is outstripping the rate at which lithium can be mined and processed for batteries. Lithium prices have, of course, risen and to continue rising. In many markets that would be enough to quickly re-establish equilibrium, quelling demand and stimulating supply. However, even with the largest of possible incentives, it can take five or more years for lithium suppliers to bring new capacity onstream. According to Benchmark’s CEO Simon Moores, these long lags mean that the lithium deficit in 2025 will be bigger than the entire market in 2016, which implies a plus 200,000 tonne shortfall. Ian McLelland, managing director of energy & resources at Edison Research, agrees the risk is far from hypothetical: ‘EV sales growth rebounded strongly in 2020 – up 43% in fact – and are on track for a similar rise this year. Our forecast is for 36 million global EV sales by 2030, a compound annual growth rate of 27%. Given the quantity of lithium these growth rates require, it’s hard to see a way to avoid the lithium market crunch.’ Last year in 2020, reporting suggested that demand for Teslas accounted for 18% of global EV sales. The company’s nearest competitor, Volkswagen, had 6%. It has not been lost on investors that lithium miners and processors stand to make wide margins while the deficit persists. The share prices of many majors, such as Albemarle, are up 100% or more in the last year. Yet constructing a portfolio of lithium stocks can be a tricky business. Investors may feel the need to undertake a deep-dive of the topic, to understand the implications of which type of chemical lithium is ‘right’ and the different methods of production, which have different greenhouse emission, waste management and water use profiles. However, new producers are emerging with a different story. “It’s the less contested mineral supply, low costs and compelling ESG credentials that makes the investment case of Edison Research’s client Lepidico stand out,” says McLelland. “As a vertically integrated developer it has patent-protected tech which it is licensing, while it’s also committed to having best-in-class for CO2 emissions. In addition, other in-demand and strategically important chemicals – including caesium – are delivered via its proprietary processes. “While Lepidico can’t solve the lithium deficit, it certainly is addressing many of the challenges many other lithium producers – and investors – are facing.” Thank you for reading this piece. For more background on the lithium market, have a look at Edison Research’s explainer. To get more insight into demand for EVs, head to Edison Research’s EV series. To discover more about Edison Research client Lepidico, read ‘Seven things every investor needs to know about Lepidico’. For a deeper dive, take a look at Edison Research’s latest report or the full collection of research on Lepidico’s profile page.