Lithium Price Drop – Accelerating EV Affordability

The lithium market has seen a recent surge in demand as electrification initiatives have accelerated. Electric vehicle (EV) makers, such as Tesla, have been actively seeking resources due to the fast expansion of EVs and scarcity of lithium. As a result, lithium carbonate prices have shot up by over six times within the past few years. In 2022, lithium prices plummeted significantly, undoing several years of previous increases. In November the same year, lithium carbonate prices in China reached an all-time high before plunging to a new low of 35–40% in March 2023. This decline was triggered by a series of adverse events that ended the longest bull run in the history of lithium.

Lithium prices drop to all-time low due to Chinese EV market slowdown

The unexpected slowdown in electric vehicle (EV) demand in the pivotal Chinese sector has become a focal point for the markets. In January 2023, the China Passenger Car Association reported a 6.3% drop in the sales of new electric cars, both pure battery EVs and plug-in hybrids. This starkly contrasts with the remarkable rise of 90% seen in 2022. Furthermore, as of January 1, 2023, Beijing would no longer provide subsidies to individuals purchasing EVs, ending 13 years of government incentives to achieve price parity between EVs and internal combustion engine vehicles.

The markets have reacted negatively to the recent announcement that China's CATL, the largest producer of lithium-ion batteries for EVs, has begun providing discounts on their batteries. CATL has initiated the practice of providing price reductions to some Chinese automakers it serves with the expectation that lithium carbonate costs would decrease by 50%. CATL, whose major customers include Volkswagen AG, Tesla, and NIO Inc., is also reported to be offering specific discounts.

Concurrently, lithium miners are cutting costs and scaling down their plans to boost output due to weak demand for EVs in China, which largely influenced the price of the battery metal. As per industry experts, the price of lithium plummeted by almost 80% in 2022 to $13,200 per tonne. This marks its lowest decline since 2020 as an overwhelming supply flooded the market. The softening in demand for electric cars has resulted in miners, mostly those in Australia (which account for 40% of the global production), reducing their output. As a result, partially processed materials accumulated across the supply chain.

Lowering lithium prices in long term likely to equalize EV and ICE vehicle prices

The prices of lithium prices could drop significantly further. The global lithium deficit was projected to decrease from 76,000 tonnes of lithium carbonate equivalent in 2022 to 20,000–30,000 tonnes in 2023. Market experts anticipate a 33% annual rise in lithium carbonate supply, surpassing the 25% annual growth in demand. This disparity is set to increase the downward pressure on lithium carbonate prices, with projections indicating a fall to $34,000 per tonne over the next 12 months. This contrasts with the present rate of approximately $53,000 per tonne, suggesting an additional 36% drop.

Fortunately, industry experts view this sluggishness in the lithium and EV sectors as a temporary setback. Major lithium producer Albemarle Corp. attributes the dip in vehicle sales in China to a transient slowdown linked to the early Lunar New Year.

Battery cell prices are expected to rise 22% between 2023 and 2026, reaching a maximum of $138 per kilowatt-hour. This reverses the previous pattern, in which battery pack and EV costs have steadily fallen over several years. Numerous experts have forecast that the cost of electric cars would equal that of ICE vehicles once battery prices decrease to around $100 per kilowatt-hour. This milestone is expected to be accomplished within a few years and would represent a significant achievement for the worldwide transition to clean energy.

In hindsight, the declining costs of lithium carbonate are particularly advantageous for EV enthusiasts since it accelerates the EV revolution. The cost of batteries is the most financially burdensome element of an EV, and the anticipated decrease in lithium carbonate pricing would alleviate a major cost constraint for manufacturers.