One of our concerns with the Lithium hype has been what we perceive to be very low barriers to entry – coupled with significant momentum from lithium ultimate end-users to encourage more production. If we look at the linked GM announcement, the company is making exactly the right strategic move. Providing some funding, but more importantly, high-level credibility for a new US-based project that could dwarf other US initiatives. While GM may have contracted all of the lithium volumes from this project, it is unlikely. GM’s interest, which should be aligned with all the other automakers is to ensure an ample to surplus availability of lithium long-term to keep pricing low. Investing a few million to give legitimacy to a new large project may have huge potential longer-term benefits if the capacity helps maintain a longer-term surplus market. While there may be some special sauce in the technology required to make the lithium grades for higher-end and higher density batteries, the bulk of the auto market is likely to trade range for cost in its battery decisions – and at the less expensive end, the lithium barriers are very low, with other brine-based projects under consideration and likely to find funding.
Source: Bloomberg, C-MACC Analysis, July 2021
The exhibit above shows the recent price history for lithium and given the recovery it is clear why we are seeing automakers invest to encourage supply – GM is not alone. The chart also shows silver and copper prices – both metals are also critical for electrification but more critical to renewable power than EVs. One of the major disconnects in the energy transition markets today is the unlimited amount of funding that appears to be available for lithium (essentially a mining process for many projects) and the negative ESG stance with regard to silver and copper, also critical and also produced through mining. Given the divergent views on the funding, we would be much more concerned about the longer-term pricing implications for silver and copper than for lithium. See more in today's daily report.