The cost of electric cars could start to fall as the price of a basic component of EV batteries is expected to fall, according to market analysts at Credit Suisse.
Key points:
- Lithium is a key component of batteries that go into electric cars and home energy storage
- Lithium prices hit record highs as demand outstrips supply
- But now the supply is increasing and this could lead to lower prices for battery manufacturers
Lithium is not only used in electric vehicle batteries, but also in home solar storage and large batteries.
The market price of raw ore ore has soared to around US$6,000 ($8,300) a tonne as the shift to renewables gathers pace at a time when supply is still trying to catch up.
“Prices have exploded,” Saul Kavonic, head of energy resources research at Credit Suisse, told ABC News.
“The scarcity we’re seeing in lithium right now is fundamentally not a good thing.
But now many more lithium mines are being built, including in Australia.
“We have seen a lot of new mines come into production, encouraged by the high prices,” Karovic said.
And the cumulative effect of all those mines running after a boom can see them getting a lot less for the hard white mineral they’re digging up.
Credit Suisse is among several companies that have just lowered their price forecasts for lithium as supply increases in the market and demand for batteries does not take off as quickly as expected while key markets like China are grappling with an impending economic downturn.
By the end of next year, Credit Suisse now expects the spot price to fall by half to US$2,500 ($3,470) a tonne.
“We could actually see the market return to equilibrium or even a surplus within the next 18 months,” Karovic said.
What does this pose for the viability of lithium mines?
Credit Suisse is not the only market analyst predicting lower lithium prices.
Last week, shares of lithium miners on the ASX plunged as a series of big companies, including Bell Potter and Goldman Sachs, released revised price forecasts.
Goldman Sachs predicts a “strong correction” in lithium prices, according to media reports.
Macquarie Group’s forecast is less optimistic, with its analysts believing prices will stay higher for longer as demand for electric cars continues to rise. However, he also believes lithium prices in China have peaked.
Lower prices have big ramifications for the Australian economy and mining revenue taxes.
We are already the world’s largest exporter of lithium and production is expected to triple within four years, according to the federal government’s March forecast.
Core Lithium is one of the new mines here under construction.
The ASX-listed company made the call to go ahead with the mine near Darwin late last year when lithium prices were starting to really take off.
Chief Financial Officer Simon Iacopetta believes that price decline forecasts from Credit Suisse and Goldman Sachs are overstated.
“We expect that the lack of supply or the arrival of new products on the market will result in a continuous strengthening of [prices] in the short term,” Mr. Iacopetta said.
However, Mr. Iacopetta told ABC News that the feasibility of the mining project was based on a long-term price forecast of as low as $1,000 for the concentrated spodumene lithium ore he sells on the market.
“We should be selling in a fairly positive pricing environment and generating healthy margins,” he said.
Core Lithium has found two buyers in China. It is also one of many mines in Australia that signed early deals with one of the biggest names in batteries, Tesla.
“There were many occasions to celebrate and this was one,” Mr. Iacopetta said.
“I think the decarbonization shift is gaining momentum and will continue to do so.”
Falling mineral prices could make electric vehicles more affordable
Credit Suisse’s Saul Kavonic said no miner could count on an ongoing boom and those that continued to hit should assess their future viability.
“For miners that are still in pre-production, there is clearly a risk profile going forward,” Kavonic said.
“Australian lithium miners are doing absolutely fantastically. They are seeing record margins beyond the wildest dreams the industry could have had just 12 months ago.
“These margins are not sustainable. They will shrink over time. We can debate the quality of this timing, but they will have to shrink.
“But it’s important to remember that Australian lithium miners are very productive, low-cost mines that should be able to survive through the cycle.”
Lower prices are a good thing, Kavonic added.
“Any [price relief] will drive down the cost of batteries and drive down the cost of electric vehicles, which will help drive the deployment of electric vehicles around the world,” Kavonic said.
“[That’s] will finally have positive moves on the trajectory towards the goals of decarbonization, and net zero by 2050, which many countries around the world have signed up to.”
Australia’s electric car lobby group agrees.
“We expect this decline in mineral prices to contribute to the decline in the price of electric vehicles,” said Electric Vehicle Council chief executive Behyad Jafari.
“As we have seen the price of these lithium-ion batteries come down, we have seen the price of electric vehicles come down accordingly. It had slowed down somewhat and we expected it to slow down because there was a bit of a shortage of mineral supply.
“But again, as the capacity to extract and refine these minerals has increased, we are now seeing prices starting to come down again.”
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