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Large mining companies' reluctance to invest heavily in the energy transition has exacerbated supply shortages and high prices for key battery metals, pushing electric-vehicle makers to experiment with new battery chemistries and make unprecedented investments in metal production.
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Many miners have taken a conservative approach to investing in new battery metal projects. Despite a strong signal from 196 signatories of the Paris Agreement on climate change in 2015, mining companies have been leery of chasing debt-fueled growth that caught some off guard in the 2010s during a protracted bear market. As the energy transition took hold, large miners took advantage of soaring prices to reward shareholders with stock buybacks and dividends.
EV sales are expected to double from 2023 to 2027, reaching 31.6 million units, according to an S&P Global Commodity Insights research report released May 25, and the hunger for key metals will likely only increase.
Mining companies have recently begun moving toward new battery metal projects, but new mines can take decades to achieve commercial production. So automakers, which can expect shortages of cobalt and lithium through 2027 according to a Commodity Insights analysis, have taken matters into their own hands and begun to invest in their own supply chains, reinventing the vertical integration of the early automotive era. They have been working to replace cobalt in batteries with either additional nickel or by using iron, while pushing boundaries on sodium batteries that use no lithium or cobalt, in an effort to hold down prices, industry experts told Commodity Insights.
Major automakers from the US, Europe and China have poured billions into mines to secure supplies, and they are investing directly into exploration projects. Meanwhile, various governments are doing much the same through energy transition policies and funding.
"I don't think there's ever going to be one solution that's going to solve the problem. It's going to be a long period of juggling multiple problems and just trying to find the right balance between multiple solutions," said Caspar Rawles, Benchmark Mineral Intelligence's chief data officer. "Certainly people alive today have never really seen anything like this. Not only are year-over-year demand growth rates very, very high — we're talking 20%, 25% [compound annual growth rate] for some minerals — but that's going to go on for the next decade and beyond."
Chilly reception
Big diversified mining companies have largely given a cold shoulder to the emerging markets in the battery metals space, with the lithium market historically considered too small for major capital investments, at least so far, according to industry experts.
"It would be nice to see more major activity, even if they are just more of a quiet partner inside of a company," said Kevin Murphy, a Commodity Insights mining analyst.
Exceptions include diversified mining giant Rio Tinto Group, which is pushing to develop the Salar del Rincon lithium project in Argentina while keeping its hopes alive regarding the Jadar lithium project in Serbia. The Serbian government revoked the company's licenses in January 2022 amid opposition from environmental activists.
Mining companies have been increasingly targeting shareholder returns over expensive new mine builds and exploration, slowing production growth. There has been a change in course over the past couple of years, however, with data pointing to a pickup in exploration spending by both major and junior mining companies. Exploration budgets for lithium alone skyrocketed by 87.9% year over year to $467.4 million in 2022 after years of remaining relatively flat.
"The mining industry is trying to respond. But the challenge is ... getting [metals] out of the ground in the right time frame," Rawles said, pointing to issues including permitting delays and access to capital.
Lithium headaches, cobalt warning
Minimal investment in new production from the mining sector led to an inadequate supply of lithium in recent years. High demand from the EV sector and bottlenecks in the supply chain resulted in the global average price of lithium carbonate jumping to $56,812.50 per metric ton on April 30, 2022, a 167.2% increase from $21,263/t as of Dec. 31, 2021, according to S&P Global Market Intelligence data.
The lithium price stayed high until 2023, decreasing by 37.8% to $35,333/t as of May 3 compared to the April 2022 high. The sector will fall into deepening supply deficits starting in 2023 through 2027, according to Commodity Insights forecasts.
The cobalt price has jumped even more in recent years. The blue metal is largely produced as a byproduct of larger nickel and copper mining operations, which are concentrated in the Democratic Republic of the Congo and have been plagued by labor and environmental problems.
With a sudden surge in cobalt demand knocking up against inelastic supply, London Metal Exchange cobalt cash prices reached a 10-year high of $94,800/t, or $43 per pound, on March 21, 2018, as purchases increased from investment funds and investors amid a tight market.
The cobalt price climbed again in 2022, increasing to $81,900/t, or $37.15/lb, on March 3, 2022, jumping 220.1% from a low of $25,584/t, or $11.60/lb, on July 30, 2019, according to Market Intelligence data. Concerns of restricted access to non-Russian cobalt after the country invaded Ukraine factored into the price increase in early 2022.
The cobalt price dropped in 2023, down 64.5% to $29,083/t, or $13.19/lb, as of May 31, compared to the March 2022 high. However, the price is still higher than historical norms, giving EV makers even more impetus to decrease consumption of the metal.
"That's good. You don't want prices to go higher and higher and higher," Ken Hoffman, global co-leader for the EV battery materials group at McKinsey & Company, said March 5 during a keynote address at the Prospectors and Developers Association of Canada conference in Toronto. "You want good pricing. You don't want ever higher pricing. And that's really important for the industry."
Nickel challenges
Cobalt is also difficult to extract and more expensive compared to nickel and lithium, which is one of the main reasons major battery- and automakers such as Tesla Inc. are "committed to cobalt-free batteries" that are more nickel-rich, according to Jay Hwang, a senior analyst at S&P Global Mobility.
However, when nickel started to replace cobalt, battery-makers and engineers realized they now had a nickel problem, said Gerbrand Ceder, senior scientist in materials sciences at the Lawrence Berkeley National Laboratory.
"We may need seven [million] to 10 million tons of nickel produced per year," according to Ceder. The world produced 3.2 million metric tons of mined nickel in 2022, according to Commodity Insights estimates.
Rising EV demand would require large amounts of high-quality, Class 1 nickel. But "most nickel resources are not Class 1" and require nickel refinement of Class 2 feed, which is energy and carbon intensive, Ceder said. As a result, experts forecast manganese-rich versions of both iron-based and nickel-based batteries will be released in the short- to medium-term.
Funding, securing supply
Fearing that supply deficits for metals such as lithium will strangle EV ambitions, automakers are increasingly taking the lead by backing new lithium supply through a series of upstream partnerships, experts said. That includes General Motors Co.'s recent $650 million investment in Lithium Americas Corp.'s Lithium Nevada project, also known as Thacker Pass, and Tesla's planned lithium refinery in Texas.
In this respect, automakers are filling the funding void left by inactive big miners.
"I don't think you can really ignore it for much longer," said Chris Berry, an independent analyst and president of House Mountain Partners, which focuses on critical minerals. "I think you're likely to see the [original equipment manufacturers] and the battery manufacturers really fund the lithium market, first, before you see larger mining companies get involved."
Automakers can leverage massive balance sheets as compared to those in the mining sector, according to experts. And in picking up shovels, they are taking a page out of a century-old playbook.
"When Ford came out with a Model T and they realized their suppliers could not supply them, they started a steel mill, they started a glass facility," Hoffman said. "They had to do it themselves."
IHS Markit is now part of S&P Global.
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