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There isn’t enough lithium to replace all fossil fuel cars
The global reserves, let alone production, of lithium is nowhere enough to resource the quantity of batteries required if the world is to decarbonise. That’s the view taken by Simon Michaux from GTK research who released a report recently titled Assessment of the Extra Capacity Required of Alternative Energy Electrical Power Systems to Completely Replace Fossil Fuels.
Michaux’s findings highlight a clear shortage of lithium, nickel and cobalt, with only enough to build just one generation of batteries for all EVs and stationary power storage.
“No matter what minerals will be needed, we will need large quantities of them as the renewable power sources like wind and solar, require extensive mineral resources to manufacture the infrastructure for fossil-free energy,” the report states.
Back in 2019 roughly 7.2 million EVs were produced with the global fleet of vehicles estimated at around 1.416 billion. The report suggests that only 0.51 per cent of the global fleet was electric vehicles and that 99.49 per cent of the remainder was yet to be converted.
“To make just one battery for each vehicle in the global transport fleet (excluding Class 8 HCV trucks), it would require 48.2 per cent of 2018 global nickel reserves, and 43.8 per cent of global lithium reserves,” the report reveals.
Each of the 1.39 billion lithium-ion batteries has a shelf life of 8-10 years and will need to be replaced thereafter, rendering the EV battery solution impractical. This does not even consider the lithium-ion battery power banks required to store electrical power generated from solar and wind.
“If a power buffer was delivered with the use of lithium-ion battery banks, the mass of lithium-ion batteries would be 2.5 billion tonnes,” the report states. “This far exceeds global reserves and is not practical.”
To phase out fossil-fuel based internal combustion engine vehicles to be replaced with EVs, the GTK research shows that the current global reserves of raw materials needed to manufacture the renewable energy technologies are not sufficient in quantity to meet the needed supply requirements.
“The existing renewable energy sectors and the EV technology systems are merely steppingstones to something else, rather than the final solution.”
The report suggests the logistical challenges to replace fossil fuels are enormous. It may be easier to reduce demand for energy and raw materials than replacing it.
A report by S&P Global Market Intelligence titled Lithium supply is set to triple by 2025. Will it be enough? highlights the fact that lithium prices are expected to rise as they try and keep up with demand.
“Production of the battery metal is set to almost triple by 2025 to more than 1.5 million metric tonnes, but there are concerns that a fall in upstream investment could flip the market into undersupply further out,” the report continues.
This could present a great buying opportunity for investors. The majority of hard rock lithium (spodumene) production is in Australia where supply has grown rapidly, in contrast to brine projects in South America.
The 5 main lithium producers in Australia are:
- Mineral Resources
- Pilbara Minerals
- Allkem
- Liontown Resources
- IGO Limited
Lithium miners were hit with supply meeting demand concerns which placed downward pressure on lithium prices. But this contraction in share prices has created a great buying opportunity.
Tesla CEO Elon Musk once famously claimed, “lithium batteries are the new oil”, as he defined energy independence for an electric vehicle world being only possible with lithium-ion batteries. Despite Musk’s grand declaration, lithium-ion batteries don’t solve the issue of energy independence, they merely trade the oil problem for a lithium problem.
Nonetheless, lithium is the flavour of the day for the short to medium term. Here are the broker ratings for the 5 lithium producers:
| Company | ASX | Last Price | 1M | Broker | Rating | Target price | % | |
| 1 | Mineral Resources | MIN | $ 60.42 | 39.28% | Citi | Buy | $ 76.00 | 26% |
| 2 | Plibara Minerals | PLS | $ 3.19 | 33.82% | Macquarie | Buy | $ 4.00 | 26% |
| 3 | Allkem | AKE | $ 12.77 | 30.79% | UBS | Buy | $ 15.20 | 19% |
| 4 | Liontown Resources | LTR | $ 1.78 | 87.37% | Macquarie | Outperform | $ 1.85 | 4% |
| 5 | IGO Limited | IGO | $ 12.33 | 33.44% | Credit Suisse | Outperform | $ 13.00 | 5% |
