Lithium and the Great Deglobalization

By Steve Schoffstall, Director, ETF Product Management, Sprott Asset Management

Lithium’s role in clean energy storage and the rechargeable batteries used for hybrid and electric vehicles make it vital to achieving global net-zero decarbonization goals. While there are an estimated 16.5 million EVs currently on the road, that number is anticipated to rapidly increase through the end of the decade—possibly reaching 350 million vehicles and 60% of all vehicles sold globally by 2030.[1] As demand for lithium continues to grow with this shift to EVs, countries and companies are working to secure their supplies of this critical mineral—and may potentially create a lithium bull market.

A New Arms Race

Developing countries are controlling their supplies of lithium and using lithium resources as a way to grow their economies.

Lithium-rich Chile, along with Bolivia and Argentina, is discussing the creation of a lithium cartel akin to what OPEC represents to the oil industry.[2] Both Chile and Mexico are developing plans and have taken steps to nationalize the lithium mining industry in their countries.[3] In June 2023, Namibia and Ghana announced plans to ban exports of unprocessed critical minerals, including lithium. This follows a similar announcement made by Zimbabwe in late 2022.[4]

Meanwhile, China, which refines approximately 60% of the world’s lithium[5] is moving to secure about one-third of the global lithium supply by 2025. China has invested $4.5 billion to acquire stakes in nearly 20 lithium mines over the last two years, most of which are in Africa or Latin America.[6]

However, sovereign nations aren’t the only ones keen on securing vast amounts of lithium. Automakers are busy in their pursuit to secure future access to lithium as the demand for EVs continues to grow. Automakers like GM, Ford, Tesla, and Volkswagen are investing hundreds of billions of dollars and are moving up along the supply chain by investing directly in lithium mining projects, lithium refiners, and EV battery manufacturing projects.

Friend-shoring is Becoming Increasingly Popular

Russia’s invasion of Ukraine put on full display the need for countries to control the supply chains that are vital to healthy economies. In the United States, the Inflation Reduction Act of 2022 and the Infrastructure and Investment Jobs Act of 2021 provide investment and incentives for companies to source critical battery metals from the United States or other friendly Western countries. To qualify for these subsidies and tax credits, a minimum of 40% of the critical minerals value in an EV must be sourced from the United States or countries that have a free trade agreement with the U.S. That threshold is set to increase by 10% annually to reach 100% by 2029.

Fearing being excluded from the pending green-tech boom, the European Union passed the Critical Raw Materials Act (CRMA) in early 2023, with the goal of securing access to a supply of critical minerals to power the energy transition. While the goal of the CRMA is the same as the U.S. policies, there are differences in metrics. By 2030, the EU is targeting domestic sourcing for at least 10% of strategic raw materials and 40% of refined and processed metals consumed, while no more than 65% of consumption can be imported from a single non-EU country.

Early Stages of the Lithium Bull Market

We believe we’re in the early stages of a lithium bull market. According to the International Energy Agency (IEA), demand for lithium may increase 42 times by 2040, relative to 2020, due to the expected demand growth from the energy transition.[7] Governments are driving the demand for lithium as they start to mandate the sale of EVs as soon as 2035[8], and many major automakers have plans to go fully electric as soon as 2030.[9]

Meeting this demand will be a challenge, as the expected supply of lithium from existing mines and projects under construction is estimated to meet only 50% of the projected lithium demand by 2030.[10] The highly regulated nature of the mining industry means there isn’t a quick fix to increase the lithium supply. Once discovered, new lithium mines may take 10 to 15 years to start producing, which sets the table for potential lithium shortfalls over the short term, while sustained investment in the energy transition from governments and corporations may likely drive demand over the longer term. This may drive up lithium prices and position lithium miners, developers and explorers for growth.

This presentation is intended solely for the use of Sprott Asset Management USA Inc. for use with prospects, investors, and interested parties. Investments, commentary and statements are unique and may not be reflective of investments and commentary in other strategies managed by Sprott Asset Management USA, Inc., Sprott Asset Management LP, Sprott Inc., or any other Sprott entity or affiliate. Opinions expressed in this presentation are those of the presenter and may vary widely from the opinions of other Sprott affiliated Portfolio Managers or investment professionals.

The intended use of this material is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances.

Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.

The investments discussed herein are not insured by the FDIC or any other governmental agency, and are subject to risks, including a possible loss of the principal amount invested.

© Sprott 2023

[1] Source: International Energy Agency (IEA), September 2022. [https://www.iea.org/reports/by-2030-evs-represent-more-than-60-of-vehicles-sold-globally-and-require-an-adequate-surge-in-chargers-installed-in-buildings]

[2] Source: “China’s Risky Strategy to Control One-Third of the World’s Lithium Supply,” The Wall Street Journal, May 24, 2023. [https://www.wsj.com/articles/china-spends-billions-on-risky-bets-to-lock-down-worlds-lithium-39e174e8?mod=Searchresults_pos6&page=1]

[3] Source: Reuters, April 21, 2023. [https://www.reuters.com/markets/commodities/chiles-boric-announces-plan-nationalize-lithium-industry-2023-04-21/]

[4] Source: Reuters, June 8, 2023. https://www.reuters.com/markets/commodities/namibia-bans-export-unprocessed-critical-minerals-2023-06-08/

[5] Source: “’Net-Zero’ Will Mean a Mining Boom,” The Wall Street Journal, April 12, 2023. https://www.wsj.com/articles/net-zero-will-mean-a-mining-boom-electric-cars-minerals-oil-fossil-fuels-climate-change-policy-cb8d5137

[6] Source: “China’s Risky Strategy to Control One-Third of the World’s Lithium Supply,” The Wall Street Journal, May 24, 2023. https://www.wsj.com/articles/china-spends-billions-on-risky-bets-to-lock-down-worlds-lithium-39e174e8?mod=Searchresults_pos6&page=1

[7] Source: “The Role of Critical Minerals in Clean Energy Transitions,” International Energy Agency (IEA), May 2021.

[8] Source: Reuters, December 8, 2021.

[9] Source: “Which brands are going fully electric and by when?” Car Expert, August 14, 2021.

[10] Source: “The Role of Critical Minerals in Clean Energy Transitions,” International Energy Agency (IEA), May 2021.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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