15 November 2021
As the world transits to a green future, one of the main events that is expected to unfold rapidly is the rise of the electric cars, coined by some economists as the electric vehicle revolution. For the past 100 years, the world has relied heavily on internal combustion engine to power mobility. But as more countries around the world committing to significantly reduce carbon emissions, electric vehicles are seen as the future of mobility.
From a very small base, electric vehicle sales rose exponentially in the global market, reaching 3 million units in 2020. And, the market leader? American electric vehicle and clean energy company, Tesla Inc. It is predicted that overall sales in the electric vehicle market will continue its current upward trajectory and reach 67% of annual total car sales by 2040 according to Bloomberg New Energy Finance, phasing out internal combustion engine vehicles in the process. This structural shift will likely give rise to a whole new electric vehicle industry supply chain. From upstream critical metals to downstream battery packs required to power electric cars. At the very core of this electric vehicle revolution, a critical commodity is needed to power the lithium-ion battery packs in these cars. And, that is lithium.
As the lightest metal, lithium is almost irreplaceable. It has been classified as a critical battery metal, yet it is a common element that can be found in many parts of the world; directly beneath our feet in the ground or in vast water of the oceans and seas. So, why is it so critical then? Well, lithium may be aplenty around the world but being able to extract them economically and in large-scale is no easy feat.
According to Fastmarkets, lithium demand is expected to grow from 345 thousand tonnes Lithium Carbonate Equivalent (LCE) in 2020 to about 2 million tonnes by 2030. That is equivalent to Compounded Annual Growth Rate (CAGR) of more than 30%. According to the recent COP26 Glasgow declaration, 7 million tonnes of LCE would be required annually by year 2040. That is approximately 20 times of that demand in 2020.
Current supply projections considering all existing and probable projects indicate that lithium will enter structural shortage starting from 2022 and supply consistently struggles to catch up with rapid growing demand. The shortfall is expected to grow wider unless a considerably large number of lithium projects could be launched in the market.
And, one of the possible ways for us to participate in this electric vehicle revolution? Investment in upstream lithium miners. Lithium miners typically extracts lithium through brine and hard rock operations. Other sources exist, but so far yet to be proven with achieving results on large commercial scale. The main production for lithium brine comes from the famed lithium triangle in South America and lithium hard rock, harvested mainly from Australia.
Existing lithium producers such as Sociedad Quimica Y Minera, Albemarle. Livent, Pilbara Minerals and Orocobre are most likely to benefit from the evolution of rising demand for lithium.
The demand for lithium will outstrip the supply as the world head towards being electric and the shortage for lithium could become even wider for the many years to come. Investing in upstream lithium producers may be a way to significantly enhance one's overall investment portfolio performance. Well, who knows?