Battery Special Report: Lithium Power

Richard Hemming


The growth rate in giant battery gigafactories around the world is immense. Only 10 yeas ago there were only one or two. Toay there are 180 built or under construction and this growth is only going to continue. Planned production to 2030 by major battery and automotive groups point to a six-fold increase in capacituy to around 3,000 GWh.

This gigafactory trend is a definite investment opportunity for share investors.

In this special report, we show you how much raw material of lithium is required to satisfy the proposed capacity of the battery gigafactories over the next decade. Batteries produced at scale are required for the ongoing rollout of electric vehicles, before we even consider their requirement for energy storage for wind and solar power.

What are gigafactories?

Battery ‘gigafactories’ are large scale producers of lithium-ion batteries, the enabling technology for electric vehicles (EV). In the short-term, five to 10 years, there is also a high probability that these batteries will provide widespread energy storage for wind and solar power.

Gigafactories under construction globally now exceeds 180. Total world battery cell capacity from existing gigafactory production is approximately 500 giga watt hours (GWh) per year. Planned production to 2030 by major battery and automotive groups point to a six-fold increase in capacity to around 3,000 GWh.

China is the largest producer of battery cell capacity by far with over 70% of capacity, but Europe is the biggest game changer with a clear EU strategy for local sourcing and minimising carbon emissions. Based on current plans, Europe’s share of global battery cell capacity is projected to increase to around 17% with China’s share to drop below 70%. North America’s shares will increase, but only to around 12% based on current proposals.

What does this mean for lithium demand?

Based on current technologies, approximately 700 tonnes of lithium, on a lithium carbonate equivalent basis (LCE), is used in the manufacture of 1 GWh of lithium-ion battery cell capacity. This is an indicative figure and may vary between cell types and compositions, but implies current consumption of around 350,000 tonnes a year.

Fast forward to the year 2030 and lithium (LCE) demand increases proportionately by around six times to 2.1m tonnes. These lithium demand numbers are consistent with previous demand forecasts that Under the Radar Report has published.

In previous demand forecasts we looked at lithium demand for EVs beyond 2030, projecting potential lithium demand of 3.5m tonnes in 2035 and over 5m tonnes in 2040. This implies the need for substantial additional investment in lithium production (new mines and lithium brine wells) and more gigafactories beyond 2030.

You would need 48,000 orocobres to satisfy future demand 

By way of understanding the order of magnitude in the numbers, ASX listed Orocobre (ORE) is currently producing at a 15-17k tonnes a year of lithium (LCE), with plans to increase this to 40-42k tonnes LCE in 2025.

You would need 48,000 Orocobres to fulfil the demand for lithium required in just 10 years! That number ramps up to 119,000 if you are looking at 20 years.

Batteries and Electric Vehicles are becoming more affordable  

EVs are becoming more economic, which hastens their adoption in place of internal combustion engines, petrol/diesel vehicles.

The process is self-fulfilling. As EV sales grow, the selling price of lithium-ion batteries has been dropping, principally due to increased scale in manufacturing. The gigafactories are getting bigger.

Lithium is less than 10% of the cost of producing batteries. If the lithium price goes up, batteries will still be economic. Lithium is important because it has one of the highest energy densities of any battery technology. It is crucial in limiting the size of the battery.

Battery prices have fallen over 60% in a decade. Only 10 years ago, in the early days of EVs, a selling price of US$290/kWh of battery storage was typical. This fell to US$110/kWh by 2020. A fall below US$100/kWh is anticipated in the near future. Some observers have said US$100/kWh is a tipping point for EV price parity with internal combustion vehicles.

The price of batteries cannot keep going down  

Raw materials, which include lithium, nickel, copper, cobalt, graphite and manganese, now account for 75-80% of battery cell costs compared with 50-60% of the costs when manufacturing scale was lower. The cost of lithium as a proportion of the total battery cost has been estimated to be less than 10%, depending on the size and composition of the battery. This implies that end product pricing is not too sensitive to lithium product pricing.

Conclusion: Lithium demand is only going to charge up! 

This strong upward lift in lithium demand is expected to keep lithium supply tight as lithium, unlike some commodities, requires a number of metallurgical and chemical refining stages that may differ by end user. Levels of complexity and the need to achieve specific purity levels increases the hurdles for new projects and may lead to lengthier periods for commissioning. This should provide incentive support for higher lithium prices.

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About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

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