Fact or Fiction: A Shortage of Lithium and Cobalt for EVs?
As demand for electric vehicles increases, so does fear of a shortage of raw materials for its batteries. But does such a shortage really exist, and what is the impact on EV prices?
The electrification of transport will increase the demand of raw materials used in batteries, especially lithium and cobalt. It is feared that this rapid growth will cause shortages, followed by rising prices of the raw materials, and eventually by rising prices of the EVs.
Rising Prices - Fact
Even though the production costs of lithium-ion batteries have fallen significantly over the last decade (from about $1,000/kWh in 2007 to $300/kWh in 2015 and below $200/kWh this year), the prices of the raw materials have actually been rising. Since 2015 the price of lithium has tripled, that of cobalt has doubled. Even though the total price of the batteries is supposed to keep on decreasing, to about $150/kWh by 2020 according to a Rabobank Quarterly report, the prices of the raw materials are estimated to go up even further.
Shortages - Fiction
The abundance of lithium, and the lack of production restrictions should not cause fears considering supply shortages, nevertheless prices jumped to $19,500 per ton in 2017 from $5,000/t in 2016. Still, McKinsey Global Institute assumes that it is unlikely to see price spikes continue because new capacity is readily available and will be brought online to rebalance supply and demand.
For Cobalt as well, McKinsey Global Institute estimates sufficient supply until 2025, even though the pace at which additional cobalt mine capacity reaches the market will be crucial to keep up with rising demand. A high volatility for cobalt prices will rather be caused by supply uncertainties and lack of transparency.
Almost 70% of cobalt is produced in the Democratic Republic of Congo (DRC), where supply disruptions already occurred in the past and where ethical and ecological concerns created a demand for the traceability of cobalt. The latter can result in rising the standards in practice, or by lowering supply because of not being able to meet the standards. Furthermore, by 2025 about 95% of cobalt production will be a by-product of copper or nickel mining, making cobalt more dependent on the performance of copper and nickel.
Both Rabobank and McKinsey suggest all actors, such as OEMs, mining companies, financial institutions and battery suppliers, should collaborate in order to create a sustainable (economic, ecologic and ethical) and transparent supply chain of the raw materials. This kind of collaboration could also be used to enhance recycling methods, and to build up strategic reserves in order to ensure a stable supply of lithium and cobalt. Additionally, the recent price spikes already made battery producers look for the reduction of the raw materials needed per kWh, such as less cobalt-intensive chemistries.
At the end of the day, the role of increasing prices of raw material would probably only increase the overall vehicle costs by $100 per vehicle, according to McKinsey. More concerning is the availability of the materials, especially cobalt. To secure the supply, all actors of the EV market – from mining to recycling companies – should understand the mechanisms and risks of the market, and collaborate in order to make the chain sustainable in all senses of the word.