Energy insecurity is driving the take up of EVs faster and that means lithium for batteries is in demand
Since last I wrote in late April about the end of oil, the supply shock of Russia’s war in Ukraine has only intensified. The projections for oil demand have fallen further for this year as the price has spiked. Meanwhile, demand for electric vehicles (EVs) is booming. Crazy numbers are coming in from around the world. This includes 7% of all new cars sold in the U.S. in March going electric!
Source: EV Hub
Quelle surprise! Why? Because the U.S. has been the laggard in EV uptake compared to Europe and China, the other big global car markets. There the story is even more incredible. In Europe, Scandinavians like Norway and Sweden are now majority electric for new car buyers. In China, despite all the stories of Shanghai COVID shutdowns and economic slowdown, EV adoption has grown from 13% of new cars sold last year to over 20% in 2022 to date. While that’s in a depressed car market, this growth represents a structural decline of fossil fuel vehicles. EVs are becoming more and more of the cars on the road that ruin prospects of a return to growth for oil.
EVs are becoming more and more of the cars on the road that ruin prospects of a return to growth for oil.
This brings me to lithium, which some call the new oil. It is not exactly an apples-to-apples comparison since lithium batteries can be used and reused and recycled, whereas oil is a once-through input. Nonetheless, lithium as a material is what will drive our cars, buses and bikes and probably anything else we ride around on for a long time to come. It is in many ways what oil has been to transport over the last century. So, where does it come from? And what’s happening in the global lithium market?
Consider the number of factories churning out Li-ion batteries. In 2015, there were three factories on Earth capable of producing one gigawatt-hour of batteries per annum — a building known as a gigafactory. In 2017, Tesla opened its gigafactory in Nevada — the first and one of only a few in the U.S. today. Globally, there are now 285 gigafactories either in operation or under construction. Not surprisingly with demand for the raw material input rising, the price for lithium has risen by about 700% since 2017. Australia, more often known for its coal and gas and also an EV laggard, produced more than half the world’s Lithium supply in 2021.
Towards a fully circular, carbon-free system
Aussie lithium mostly comes from a rock known as spodumene. The way the lithium metal is extracted from the rock has issues, like Iron. Big rocks are pulverized and shipped to China to be baked at high temperatures, often in coal-fired furnaces. This is akin to the problem of silicon sourcing for solar, which involves making ingots from sand — again mostly in Chinese furnaces. But the overall footprint of a lifestyle powered by silicon and lithium is a tiny percentage of the material and carbon required for a fossil-fueled lifestyle. And that’s with no recycling, which is on the rise around the world. If we capture all the Li and Si from our batteries and solar panels, which is not only possible but is the economic thing to do, we can reduce the impact further. Once we’ve brought enough lithium and silicon into the economy for our needs we can run a fully circular, carbon-free system.
The overall footprint of a lifestyle powered by silicon and lithium is a tiny percentage of the material and carbon required for a fossil-fueled lifestyle.
And there are better ways to produce lithium that will give the current industry a challenge unless they innovate and clean up their act. In Australia, I can see using abundant clean energy to make the lithium products from the spodumene rather than shipping it to China to be processed. In California, we’re working on a whole region dedicated to lithium opportunity that will be a byproduct of the geothermal power sector. Over 5% of electricity in the golden state comes from hot water underground. When this water is pumped to the surface to take the steam out of it, there are also salts including lithium that can be recovered. Berkshire Hathaway Energy, which is the main power plant operator in the geothermal precinct of California’s Imperial County, is on the cusp of commercial production of lithium. And the California state budget currently being debated by state government officials has a huge allocation for backing a Lithium Valley there.
Lithium deal of the month
This brings me to the startup deal of the month, even though it was announced in April (apologies, I was busy with a new podcast):
A startup in Imperial County, California, called Controlled Thermal Resources Ltd. announced a deal with Statevolt from Europe to provide lithium and power to a 54 GWHr factory in the state. It is a $4 billion capital expense to build such a factory and at this stage there is only a letter of intent but such is the demand for lithium that I think they’ll get it done. The co-benefit of selling lithium powder and electric power makes it a sweet arrangement. And as well as the California state government wanting this to happen, the Feds are also game, with the loan program office of the Department of Energy looking to support the financing and any other means to increase domestic production. Indeed, President Biden has already been mulling the use of the Defense Production Act to boost supply of EV materials. Watch this space as there’s much more fun to come.
Worth noting a deal by car and mobility company Stellantis that makes their proposed $4B factory all the more likely. Stellantis, the company that combined PSA Peugeot and Fiat Chrysler, is also working with Controlled Thermal Resources Ltd. to receive up to 25,000 metric tons per year of battery-grade lithium hydroxide over ten years for its EVs in the U.S. Locking in a solid supply of lithium is what it’s all about for EV makers so it is this kind of a deal that can put manufactures in the sweet spot of being able to fill demand.