This meteoric rise in price continued until April, which saw lithium carbonate prices reach just shy of US$70,000/t. Another rally starting in September saw Chinese prices breach RMB500,000/t (US$72,000/t) for the first time, indicating that the demand for lithium remained strong in a tight market. By the end of 2022, lithium prices were up over 100% since the start of the year and up nearly 1000% from the start of 2021. 

The EV Revolution

More Subsidies, Better Infrastructure

In Europe, electric and hybrid vehicles (BEV, PHEV, HEV) made up 43% of new vehicle sales during the September quarter of 2022. Fully electric cars accounted for 12% of total new vehicle sales. The adoption of EVs will continue to increase with stronger government policies, subsidies, and a more accessible charging infrastructure. AME estimates that over 12.5m EVs will be sold globally in 2023.

In October, the EU approved the effective ban on new fossil-fuel vehicles as of 2035. The sales ban will force carmakers to achieve a 100% reduction in CO2 emissions. The German government will spend US$6.1bn over three years to expand the EV charging network. 1m EV charging stations will be installed by 2030, up from around 70k chargers currently. Germany targets 15m EV on its roads by 2040.

Some governments are ending or reducing EV incentives as their subsidy budget get used up and the EV market matures. The UK ended its EV grant earlier in June 2022. Instead, the UK government will commit £1.6bn (US$1.9bn) to expand its charging network to 300k public chargers by 2030.Germany will reduce its EV subsidy from US$6,000 to US$4,500 in 2023, and further down to US$3,000 in 2024.

China’s Domination

China is planning to end its EV subsidies at the end of 2023, with the EV market reaching maturity after more than a decade of subsidies, long-term investments, and infrastructure spending. China initially targeted 20% of new car sales to be electric by 2025. The country flew past that target in 2022, three years ahead of schedule. In October alone, over 700k EVs were sold in China, with battery electric cars accounting for 22% of the country’s automotive market.

To manufacture its growing EV fleet, China has invested heavily in battery manufacturing and lithium refining. Over 60% of global lithium is refined in China and then turned into lithium-ion batteries. Chinese companies are also investing outside of China to secure their future lithium supplies. For example, China-based Zijin Mining Group, a leading gold and copper producer, has spent RMB16bn (US$2.2bn) on the acquisition of three lithium projects in 2022 alone.

The company plans to further its investment in the lithium sector. Zijin acquired the 3Q lithium project from Canada-based Neo Lithium for RMB5bn (US$700m). The deal closed in January 2022 and commissioning is expected in 2023. The project, which is under construction in Catamarca, Argentina, will produce 20ktpa of lithium carbonate.

Later in April 2022, Zijin took a 70% interest in the Lakkor Tso lithium project in Tibet for RMB4.9bn (US$695m). The project is expected to produce up to 20ktpa of lithium carbonate in its phase, and further expanded to 50ktpa at a later stage.

Changing the Rules

As lithium becomes a critical metal for energy transition, countries are racing to secure the precious resource. Western countries, who have largely ignored lithium mining, refining and battery manufacturing for decades, are now scrambling to invest and safeguard their supply chain. In November, Canada ordered three companies from China to sell their investments in Canada-based lithium projects.

Investments in Power Metals Corp by Sinomine Rare Metals Resources, in Lithium Chile by Chengze Lithium, and in Ultra Lithium by Zangge Mining will have to be sold under new Canadian government regulations. The new guidelines are designed to prevent foreign state-owned companies from investing in critical minerals projects.

In August, US President Joe Biden signed the Inflation Reduction Act (IRA), a US$369bn bill to address climate change. Under the IRA, up to US$7,500 is available for EV subsidies. This incentive is expected to boost the EV penetration in the US. The bill specifies certain conditions that EVs need to meet in order to qualify for the subsidy.

At least 40% of the battery materials, which includes lithium, must be sourced from the US or a Free Trade Agreement (FTA) partner. By 2026, 80% of the critical battery metals must satisfy this condition. The main lithium mining countries such as Australia and Chile are FTA partners.

This might prove to be a difficult task for US automakers as China currently controls the majority of the global battery manufacturing capacity. South Korea, home to battery companies LG Energy Solution and Samsung SDI, is an FTA partner. The South Korean companies receive over 70% of their lithium precursors from China. It is unclear if Korean-made batteries produced from China-processed lithium will qualify for the IRA subsidy.

This IRA condition will drive a battery metals supply chain in the US. The US DOE will invest up to US$6bn to develop the domestic supply chain under the Bipartisan Infrastructure Law passed in 2021. Additional battery gigafactories are expected to be built in the US. Capacity is expected to increase ten-fold in the next ten years. The IRA EV subsidy scheme will shift the global lithium landscape as automakers and battery makers race to establish a domestic supply chain.

The purpose of the IRA is to drive investments into the US and reduce the reliance on China. It seems that the IRA is working so far, with several billion-dollar projects announced shortly after the IRA’s requirements were revealed.

Japanese automaker Honda and Korean battery supplier LG Energy Solution have formed a JV to produce lithium-ion batteries in North America. The companies will build a US$4.4bn battery gigafactory in the US by 2025. The batteries will exclusively supply Honda facilities in North America, for its Honda and Acura EV models.

Japanese battery maker Panasonic is reportedly planning to build an additional US$4bn battery gigafactory in Oklahoma, US. Earlier in July, Panasonic confirmed plans for a similar US$4bn battery plant in Kansas, US. Panasonic supplies batteries to EV giant Tesla, with the partnership starting over a decade ago. Tesla recently built its gigafactory in Austin, Texas, not far from Oklahoma.

Korea-based battery manufacturer LG Chem will spend over US$3bn on a new battery cathode factory located in Tennessee, US. The plant will help LG Chem meet domestic demand for EV components. At full capacity, the plant will supply around 1.2m EVs with cathode materials each year. LG Chem will presumably supply cathode materials from the Tennessee factory to Ultium Cells, a joint venture between General Motors and LG Energy Solutions.

New Partnerships

With dozens of battery gigafactories announced across the US as well as Europe, carmakers and battery manufacturers are now competing for their lithium supply by partnering directly with lithium miners.

Emerging US-based lithium producer Ioneer signed a binding lithium offtake agreement with Prime Planet Energy & Solutions, a joint venture between Toyota and Panasonic. Ioneer will supply 4ktpa of lithium carbonate for five years. The lithium carbonate will come from ioneer's Rhyolite Ridge Lithium-Boron project in Nevada. The offtake agreement represents one-fifth of the site's annual output. The lithium carbonate will be used to produce batteries for US EV manufacturers.

In July, Ford inked a similar binding deal to source lithium from ioneer's Rhyolite Ridge project. The five-year binding agreement is for a total of 7ktpa of lithium carbonate from Rhyolite Ridge. The mine will produce up to 20.6ktpa LCE as from 2025. Ford plans to use ioneer's lithium carbonate to produce batteries for use in its EVs through its battery manufacturing joint venture with South Korea's SK Innovation.

Mercedes-Benz and Rock Tech Lithium have signed a definitive supply agreement for 10ktpa of battery-grade lithium hydroxide over a five-year period as from 2026. The offtake agreement represents over 40% of Rock Tech’s expected annual production from its planned converter facility in Germany.

Through the deal, Mercedes-Benz secures enough European-sourced lithium hydroxide to supply 150,000 EV batteries. Rock Tech said the offtake sales volume will equal about C$2bn (US$1.45bn) over the five-year term.

General Motors will prepay lithium company Livent US$198m for a guaranteed six-year supply deal. Livent has lithium mining plants in Argentina and processing facilities in the US. Livent will supply an undisclosed amount of battery-grade lithium hydroxide to GM as from 2025. This supply agreement will ensure enough raw materials for GM to produce 1m EVs in North America by 2025.

Ford signed a non-binding deal to buy 25ktpa of lithium from Lake Resources' Kachi project. The deal between Lake and Ford is a major bet on direct lithium extraction (DLE) which promises to produce cheaper, higher quality, and more environmentally friendly lithium than traditional processes

European Lithium signed a non-binding MOU with automaker BMW for the supply of battery-grade lithium hydroxide. This deal secures the company’s first offtake of LiOH from its Wolfsberg Project in Austria. BMW will have the right to purchase 100% of the miner’s lithium hydroxide. If the companies agree to a binding contract, BMW will make a US$15m prepayment. European Lithium will use the prepayment to continue the development of its Wolfsberg Project.

Australia’s Lithium Boom

Australia accounts for around half of global mined lithium supply. Australia’s lithium output is expected to increase by over 50% in 2023 as miners increase production to capitalise on the soaring prices. Several projects were commissioned in 2022, with additional mines and refineries due to begin production in 2023 and 2024.

With an established mining network and recent investments in refineries, lithium is expected to become one of Australia’s most valuable export products after iron ore, coal, and LNG. Due to increased production and sky-high prices, Australian exports of lithium concentrate totalled A$2.63bn (US$1.77bn) in the June quarter of 2022 – up over 700% across the same period in 2021.

In October, Core Lithium officially commissioned the Finniss mine. When fully ramped up, the mine will have a production capacity of 25ktpa LCE of spodumene concentrate. Core already sold its first spodumene direct shipping ore cargo (DSO). 80% of the production from the Finniss mine is earmarked for Ganfeng and Yahua through offtake agreements.

In July, MARBL, a joint venture between Albemarle and Mineral Resources, started lithium hydroxide production at the Kemerton conversion plant in Western Australia. Kemerton 2 is still under construction, with completion expected by the end of 2022 and first production in early 2023. The conversion facility, with a capacity of 44ktpa LCE of lithium hydroxide, processes spodumene ore concentrate from the Greenbushes project.

In May, Tianqi Lithium Energy Australia, a joint venture between Tianqi Lithium and IGO, started lithium hydroxide production at the Kwinana conversion plant. When fully ramped up in 2024, the refinery will have a production capacity of 48ktpa LCE. The Kwinana plant receives its spodumene directly from the Greenbushes mine 250km away.

Construction of Liontown Resources’ Kathleen Valley project is expected to start imminently pending a final investment decision. In 2022, Liontown has signed offtake term sheets with LG Energy Solution, Tesla, and Ford. Under the agreement, Liontown will supply 25ktpa LCE of spodumene concentrate to Tesla and Ford as from 2024.

Liontown’s total offtake commitments now stand at up to 74ktpa LCE of spodumene concentrate, representing 90% of Kathleen Valley’s start-up production capacity. The company plans to eventually expand output to 115ktpa LCE.