President Joe Biden’s electric vehicle agenda could be in for a roller coaster ride, but this time it can’t be blamed on thorny politics, range anxiety or the effect of falling temperatures on chargers.
Instead the focus now is on the price of lithium. The price of the key EV battery ingredient plummeted in recent months, not because of any policy action but due to the simple laws of supply and demand. Sagging prices have prompted one major producer to slash jobs and defer investment on a U.S. project.
While the plummeting cost of a major component might seem like a boon for EVs — potentially lowering car prices — it’s a complicated equation. That’s because the federal government is trying to help create a domestic mining and processing sector for critical minerals needed for EVs and other renewable technology, but rock-bottom prices could keep companies from investing.
Ian Lange, director of the mineral and energy economics program at the Colorado School of Mines, said the lithium price decline shows the difficulty of making policy when the mining sector’s boom-and-bust reality is constantly shaking things up.
“This is how the mining industry often is, this big fluctuation and supercycle … but there’s never been so much of an interest in these minerals, there’s never been so much more discussion of how awful permitting is and how hard it is to make something happen,” said Lange. “Most of the market seems to be exposed to volatility.”
Lithium last year fell by 80 percent to the lowest level since 2020, with the price on Jan. 24 at $14,431 per ton compared to a January 2023 high of around $71,000, according to Benchmark Mineral Intelligence. Other critical minerals used in batteries — like cobalt and nickel — have been on similar rides.
At the same time, the Biden administration through the Inflation Reduction Act is trying to juice the energy transition with lucrative consumer EV tax credits, along with increasingly firm requirements that those materials are mined and processed in North America or allied countries. The idea is to help build out supply chains to break China’s stranglehold on EV batteries and their components.
But Lange said the commodity markets don’t always match the fanfare of expectations for minerals. Lange noted that prices for lithium not too long ago were shooting up on the sentiment that demand would skyrocket, and have since fallen as more lithium production comes online.
The most recent knock-on effects emerged this month when Albemarle, the world’s largest lithium producer, announced plans to cut jobs and defer spending on projects in the Carolinas — part of a larger effort to cut costs. The company didn’t confirm a report that 300 workers had been laid off.
At the same time, Lange and others say lithium prices are also along for the ride with the fluctuating demand for EVs across the globe.
Adam Webb, a director at Benchmark Mineral, said the decline in lithium prices has been driven by lower-than-expected EV sales, particularly in China, which then drove lower-than-anticipated lithium demand and a build-up of in-process inventories in battery supply chains. Webb, however, also asserted the prices in early 2023 were unsustainably high when compared to the cost of lithium production, and have since returned to more “normal” levels.
Prices seem to be bottoming out, said Webb, and now could move up again.
“Lower lithium prices will eventually feed through to lower battery cell, and therefore EV, costs,” said Webb. “This could eventually provide some upside to EV demand.”
Lithium ups and downs
The downturn in battery material prices is being felt around the globe, even as companies remain bullish about the long-term outlook for EVs.
Miners in Australia have said they’re poised to reduce production and cut jobs. Some nickel mines are being halted.
In the U.S., Albemarle, which is based in North Carolina, said it would cut jobs and defer investment at sites in the Carolinas in response to declining lithium prices. The company, which supplies automakers like Tesla, had previously warned about falling lithium prices last year, but said demand would remain strong.
The company said it plans to spend up to $1.8 billion this year — compared to $2.1 billion last year — and still plans to commission a lithium conversion facility in China, complete work on a lithium conversion facility in Australia and prioritize permitting at its Kings Mountain lithium mine in North Carolina.
Jennifer Zajac, a spokesperson for Albemarle, said the company’s investment in the Silver Peak lithium mine in Nevada — the only lithium mine currently operating in the U.S. — will continue as planned, as will the company’s investments in directly lithium extraction in Arkansas’ Smackover formation.
But the company will defer spending at its Richburg mega-flex lithium conversion facility in Chester County, South Carolina, as well as investment for the Albemarle Technology Park in North Carolina. Albemarle also said in its news release that it will “limit sustaining capital spending to the most critical health, safety, environmental, and site maintenance projects.”
Albemarle declined to comment when asked for more information about how the budget cuts would affect staffing and layoffs, but has said it will provide more details next month during a conference call.
“The actions we are taking allow us to advance near-term growth and preserve future opportunities as we navigate the dynamics of our key end-markets,” Albemarle CEO Kent Masters said in a statement.
“The long-term fundamentals for our business are strong and we remain committed to operating in a safe and sustainable manner,” added Masters.
Conor Bernstein, a spokesperson with the National Mining Association, said shifts around lithium pricing are a reminder of why the U.S needs “smart policy” that looks beyond market fluctuations and supports building out reliable, domestic capacity.
“Securing our mineral supply chains, meeting the mineral demand we know is on the horizon and addressing our alarming overreliance on imports requires long-term focus,” said Bernstein.
Webb with Benchmark Mineral said those kinds of announcements are normal in a commodity down-cycle, when producers commonly look to cut costs to preserve margins.
But Webb also said such project deferrals in the lithium market will have future implications for the future and could have ripple effects in the EV market.
“We are expecting an oversupplied market in the short term, but there needs to be investment in capacity now in order to meet growing demand from the EV sector in the longer term,” said Webb. “Project deferrals, such as Albemarle’s, mean that it is more likely that the market will be undersupplied in the longer term, which could lead to another up-turn in lithium prices.”
