What would you say if we told you lithium prices have fallen around 30 percent. Good news, right? Not necessarily so, especially in a long term perspective. That is happening because production is currently above demand. In other words, the promised EV boom, especially from China, is taking longer to happen.
This is what Bloomberg allowed us to know. And there is more: Australia is the biggest producer of this metal in the world and it has seen six new mines emerge since 2017. That's clear preparation for a demand that promised to be huge, but has not met expectations as of yet.
The main problem is with China, which has seen its demand for new cars decrease by 17.5 percent. Even if EVs’ mission there is to replace combustion-engined cars, such a plunge also affects their market. And any hiccup in the biggest car market in the world will affect the auto industry worldwide.
On top of that, it is worth to remember that China has recently claimed to have lowered lithium production costs to a fraction of what they currently are. That puts more pressure on the lithium mining business.
Generally speaking, lower battery production costs are something to celebrate, but when we get to the specifics, that may have a huge cost. In this case, they can prevent the EV expansion at the rate we would expect.
With lower prices, mining companies will probably also lower production. Some of them may even go bankrupt, according to Bloomberg’s original article.
As long as we have no idea how big the world EV market will ever be, it is all a guessing game. Companies will fight to find the right balance between offer and demand. If they are not able to supply, they may lose market to competitors that are. If they invest too much, prices may get so low it will not pay off to produce anymore.
Do you remember that Volkswagen was having a hard time convincing suppliers to invest more in battery production for its EVs? That is a clear reflex of this uncertainty. One of the reasons Tesla wants to rely the least possible upon other companies for fulfilling its plans. And to invest in mining consortiums.