Lithium: White Petroleum

Lithium, the so-called “white petroleum”, drives much of the modern world. It forms a small but essentially irreplaceable component of rechargeable batteries, used in consumer devices like mobile phones and electric cars like Tesla. It also has pharmaceutical and other applications. Lithium has traditionally been controlled by a handful of major global suppliers, spiking demand is changing this landscape drastically. Chile is world’s no. 1 lithium producer, followed by Australia and Argentina. Over half of the earth’s identified resources of the mineral are found in South America’s “lithium triangle”, an otherworldly landscape of high-altitude lakes and bright white salt flats that straddles Chile, Argentina and Bolivia.

Over 50 percent of lithium used in the United States is produced abroad. The U.S. produces only 28 percent of the lithium used domestically. Chile is the major source of lithium to the United States, followed by Argentina. In North America, Nevada is the only player in this game. The U.S. is home to a single lithium mine controlled by Rockwood Holdings, which was acquired by Albemarle in 2015.

The brine operation is located in Nevada, and accounts for all of the country’s lithium output. The lithium mine is owned by chemical giant Albemarle (NYSE:ALB), which also has much larger lithium operations in countries like Chile. Albemarle is one of four huge conglomerates that control much of the world’s lithium supply. Albemarle’s own lithium mines in Nevada could also be a source for Tesla. Albemarle already sells lithium from its global sites to battery makers like Panasonic, which is a Tesla supplier.

Batteries are the single most expensive component of an electric vehicle, and Tesla has aggressively sought to bring this cost down. The company teamed up with Panasonic to build Gigafactory, where Tesla plans to build enough lithium ion batteries to catapult Tesla’s electric vehicles into the mainstream. The batteries themselves are not being made at Gigafactory yet. Workers are assembling batteries made in Japan into battery packs that then go into Tesla’s Powerwall and Powerpack products.

Tesla Gigafactory

The plant is strategically located about five hours from Tesla’s Fremont, California, factory. That’s where the car batteries will be fitted into Tesla’s new Model 3 sedans. The cost of lithium material for a long-range electric vehicle is around 3.5% of the total battery cost, and therefore the rising price is unlikely to undermine the adoption of electric vehicles. Tesla wants to lower its battery costs at its nearby battery factory by 30%, in order to sell a low cost, mainstream electric car in the coming years. The lower cost batteries produced here will be crucial for keeping the Model 3’s price down to a relatively affordable $35,000 base price. By 2018, Tesla hopes to make enough battery packs here to build 500,000 of the cars each year.

Germany has mandated that all new cars registered in the country will have to be emissions-free by the year 2030. And to make this a reality, the government has cut a deal with automakers to jointly spend $1.4 billion on incentives to boost electric car sales. So they’re subsidizing the EV industry, and giving lithium an automatic boost at a time when it doesn’t even need it. Norway is following suit as well, working on legislation to outright ban the sale of gasoline-powered cars by 2025.

Identified lithium resources in the United States have is 6.7 million tons and total approximately 34 million tons in other countries. Identified lithium resources in Bolivia and Chile are 9 million tons and more than 7.5 million tons, respectively. Identified lithium resources in major producing countries are: Argentina, 6.5 million tons; Australia, 1.7 million tons; and China, 5.1 million tons. In addition, Canada, Congo (Kinshasa), Russia, and Serbia have resources of approximately 1 million tons each. Identified lithium resources in Brazil and Mexico are180,000 tons each, and Austria has 130,000 tons, according to USGS.

Worldwide lithium production increased slightly in 2015 in response to increased lithium demand for battery applications. Production in Argentina increased by about 17% and production in Australia and Chile increased slightly. Major lithium producers expected worldwide consumption of lithium in 2015 to be approximately 32,500 tons, an increase of 5% from 31,000 tons in 2014. Owing to increased worldwide demand, spot lithium carbonate prices increased approximately 10% to 15% from those of 2014. For large fixed contracts, however, Industrial Minerals reported a 4% decrease in average U.S. lithium carbonate prices.