Electric vehicle (EV) adoption has surged in recent years, creating unprecedented demand for lithium, a critical component of EV batteries. Most EVs rely on lithium-ion batteries because they provide the most efficient, dense and rechargeable form of energy storage currently available. With lithium demand expected to rise substantially in the years ahead, lithium miners are at the nexus of the global EV transformation.
To pave the way for more EVs, the world is making massive investments in electrified transportation and charging infrastructure, which reached a global record of $466 billion in 2022, an increase of 54 percent relative to 2021 levels. This capital investment may likely continue, with the International Energy Agency expecting 350 million EVs on the road by 2030, representing an annual growth rate of nearly 38 percent for the rest of this decade.
Although there is enough lithium on earth to support energy transition goals in terms of EVs, only 25 percent of the rare earth metal is presently accessible. Increasing the annual lithium supply will be challenging, as new mines can take a decade or more to begin producing. Governments are providing support as they seek to regionalize lithium supply chains to enhance security and sustainability.
With the building of new lithium mines years away, existing mines are expanding to meet the increased demand. For example, the Silver Peak Mine, run by Albemarle (located in Nevada), is currently the only U.S. source of lithium and has historically provided a modest amount of lithium annually. In 2021, however, Albemarle announced it would invest $30 million to $50 million to double the mine’s output by 2025. Albemarle is not alone; most major lithium producers worldwide are working on expanding and looking to shuttered plants to return to the production line, especially if they were initially closed for economic reasons.
New mines and capacity expansions are forecast to boost global lithium production to 304,000 tons in 2030, up from 118,000 tons in 2022, with Australia expected to originate much of the growth.
Australia leads the world in lithium mining. Unlike other countries that extract lithium concentrate from brine, Australia extracts lithium directly from hard-rock mines, which are easier to explore, mine and process. The other top lithium producers, including Chile, Argentina and China, extract lithium concentrate from brine waters, which involves evaporation in large ponds in unique climates and geography, and can take more than a year. These four countries largely control the lithium mining space and accounted for 97 percent of the lithium produced in 2022.
The success of the EV revolution invariably hinges on the ability to increase the supply of lithium, and unearthing the investment opportunity inevitably leads to lithium miners.
While the price of lithium has retreated from its November 2022 record high, it remains above its historical average and surpasses the production costs of many lithium miners. Miners’ prospects are not tied to the fortunes of specific EVs or battery makers. Instead, they benefit from the broader surge in lithium demand and its price. With lithium prices remaining strong and demand rising, the long-term growth potential of lithium miners may likely provide a compelling investment opportunity.
This article was excerpted from a report written by Steven Schoffstall, director of ETF product management at Sprott. Read the full report here.