How Will Lithium Ion Shortages Affect the Auto Industry?

As fuel prices have risen this year, many consumers have flocked to all-electric vehicles as a direct response. This massive increase in demand, combined with the fact that lithium ion is now becoming increasingly more rare, has had an impact on the electric vehicle industry. The price of lithium is now on the rise as manufacturers have begun experiencing a shortage, in combination with the increased demand.

While some may not see this as a big deal, the current lithium ion shortage may have big repercussions for electric vehicles and the auto industry as a whole; here’s why. 

Lithium ion Prices are High, Supplies Low

Low supply levels have been nothing new for the automotive industry in recent years, with analysts estimating that the semiconductor chip shortage could last into 2024 or later, but it seems that the shortage will likely be the case for all-electric vehicles as well going forward.

Earlier this year, it was reported that lithium– which is the key element needed for EV batteries– is in short supply. Going from being something that was once relatively niche to being absolutely mainstream in 21st century technology, the demand for lithium ion batteries now far outweighs the current supply. In fact, the demand is so high that the price of lithium carbonate has increased 432% year over year, hitting $62,000 per metric ton in April 2022, compared to costing just $11,000 in 2016.

This begs the question – can manufacturers get enough lithium-ion in order to match the increased supply? It’s hard to say. It takes a substantial amount of hard work and time in order to mine the raw materials needed to create lithium ion batteries.

So while it might be possible to match the desired supply eventually, the climbing prices of lithium combined with other factors like inflation, supply-chain issues, and rising labor costs, lithium prices will remain high and supplies low for the better part of this decade.

Electric Vehicles will Increase in Price

The growing price of lithium is causing auto makers to lock up supplies, as there is a rising concern that a battery metal shortage could slow the consumer adoption of electric cars. The Chinese EV market has heavily impacted the price of lithium, as the country’s EV market has just recently taken off after Shanghai eased Covid-19 lockdowns back in June this year. The China Passenger Car Association anticipates that six million new EVs will be sold in the country this year, which is double that of 2021.

Edward Meir of ED&F Capital Markets predicts that the American market will soon be following in the footsteps of China. “Lithium is really following the Chinese EV market and that’s just taking off… this is a preview of what could await us in the U.S.”

The increased demand while combined with the low supply and high price of lithium ion batteries spells bad news for the EVs, as the price will likely be passed on directly to the consumers. Drivers looking to acquire a new EV won’t be getting a discount any time soon, and in fact will likely see higher and higher prices moving forward – at least until something major changes. Even as the semiconductor chip shortage begins to resolve, EVs will likely still remain just as high in price.

EV Auto Transport May Be Farther Away

Previously it was thought that auto transport semi trucks may soon be entering an all-electric future, with models such as Tesla’s Semi being formally announced back in 2017. All-electric semi trucks would forever make a huge impact on the auto transportation industry, changing how drivers operate their businesses.

But while Tesla’s Semi and similar models will likely still become a reality, it’s likely that they won’t be coming as soon as originally anticipated – the vehicles were due out in 2019, but now aren’t seeing a release until sometime in 2023, which is a whopping four-year delay. Additionally, it’s quite likely that Tesla’s stock will be quite limited due to the shortages, so there won’t be a wide adoption of EV semis anytime soon.

Overall, the auto industry has a rough road ahead, and EVs are looking even more rough. Consumers, manufacturers, and auto transport drivers likely won’t be seeing electric vehicles take over the mainstream any time soon, unless something major is done about the lithium ion shortages.

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Published on October 10, 2022