Soaring gas prices are spurring Canadians’ interest in electric vehicles and federal mandates will mean automakers will have to make and sell a lot more of them. But industry watchers say it will be at least a decade before the supply of lithium-ion batteries can meet demand because Western countries are only now beginning to mine and process the required materials.
The harsh reality is there simply aren’t enough readily available minerals in Europe and North America to build the batteries that will fuel these vehicles, said Steven LeVine, an adjunct professor in security studies at Georgetown University in Washington, and editor of The Electric newsletter. And with China holding what one mining chief executive officer calls a “virtually absolute” monopoly on the supply of lithium, cobalt and rare earth elements (REEs) needed for batteries, soaring prices for these minerals will kick the long-promised can of cost parity with gasoline-powered vehicles well down the road.
“Parity was supposed to happen between 2023 and 2026,” LeVine said. “Now we don’t know when cost parity is going to happen.”
Nickel, lithium, cobalt, manganese and a host of rare earth elements are used in smartphones, computers, TVs, solar panels, light bulbs and the lithium-ion batteries of hybrid and electric cars.
The price of lithium-ion batteries has steadily declined since Sony introduced the technology in 1991. Then, such a battery cost about $3,000 per kilowatt hour of capacity, said Karim Zaghib, a professor of chemical and materials engineering at Montreal’s Concordia University. When Tesla cars first appeared in 2003, batteries cost $1,200 per kilowatt hour, and today they cost roughly $130 per kilowatt hour. (EVs require a battery with about a 90-kilowatt-hour capacity to travel 500 kilometres under ideal conditions. At today’s price per kilowatt hour, the battery alone would cost about $11,700.) To reach cost parity with a gas-powered vehicle, however, batteries would need to come down to $100 per kilowatt hour, but soaring prices for lithium and other key minerals have stalled price declines.
This year, the world’s automakers plan to build 6.4 million EVs capable of travelling around 500 kilometres on a single charge, according to Wood Mackenzie, an energy research firm. And yet there is only enough nickel being mined to produce 5.3 million, according to BATPaC model software. LeVine said the world’s automakers have collectively targeted producing 30 million EVs annually by 2030, and yet Wood Mackenzie estimates there will only be enough lithium produced each year to build 20 million, and enough nickel to make about 16 million.
As the use of these key metals has grown, prices have become increasingly erratic. Zaghib noted that nickel, for example, jumped from $20,000 a ton last fall to $100,000 early this year before settling back down to $30,000.
China’s stranglehold on the supply of these key elements was three decades in the making, said Lewis Black, chief executive officer of Toronto-based Almonty Industries Inc., a mining company with operations in Spain, Portugal and South Korea, and one of the largest producers of tungsten outside of China. He said China priced materials so low in the 1980s, it drove other mines around the world out of business. It became convenient to buy from China and Russia, countries that were not encumbered by the environmental standards common in Western countries. As a result, China has captured an “almost unassailable” market share.
“China spent 30 years building this virtual monopoly and they’re not going to give it up easily,” Black said.
Daniel Breton, chief executive officer of Electric Mobility Canada, a not-for-profit organization that promotes electric modes of transportation, said legacy automakers should have anticipated the increased demand for these materials and acted sooner to secure supply. “I was stunned that they didn’t see this coming,” he said.
Instead, traditional automakers have relied on “catalogue engineering” – buying from third-party suppliers rather than pursuing a vertical integration strategy, as upstart Tesla has done. Black notes that Tesla has aggressively pursued its own supplies of rare earth elements and other metals, although it still must source some elements from China.
Automakers are working in partnership with governments to develop new sources of supply. Canada, for example, is “in a very good position” because it has plentiful resources, said LeVine. The federal government announced in its April budget it would spend $1.5-billion to support the exploration, mining and processing of critical minerals, and the Natural Resources Canada website states the country aspires to be “a leading mining nation.”
Canada is also working with the United States to secure supply chains for critical minerals, and a March, 2021, update of National Security Review Guidelines list critical minerals, including lithium, as priorities.
Yet in January, 2022, the federal government allowed a Chinese state-owned investor, Zijin Mining Group, to acquire Canadian lithium miner Neo Lithium Corp., of Toronto, which is developing a mine in Argentina. Canada has no lithium mines and no lithium processing facilities. Three prominent Republican senators wrote to U.S. President Joe Biden on Feb. 23 expressing concern over the pending sale. The acquisition “raises a litany of questions regarding United States and Canadian understanding of the threat imposed by the Chinese Communist Party,” it stated.
Progress on mining development in the United States is also slow, LeVine said. “There’s a lot of gabbing going on in the States around batteries, and a lot less doing,” he said. “I don’t think Elon Musk forms a committee when he needs something done.”
Black said developing mines in democracies can take “many years” and companies must navigate through dizzying levels of environmental regulations, address concerns from environmental organizations and negotiate with Indigenous communities.
And LeVine said mining is only half the challenge; it takes years to build processing facilities to convert ore into usable products. He predicted it will take a decade to build up supply of locally sourced critical minerals adequate to meet demand.
“That’s a long time,” LeVine said. “Meanwhile, the average price of an electric car [in the U.S.] is $66,000. A lot of people are not thinking of spending that.” (In Canada, EVs range from $37,498 for a 240-kilometre-range Nissan Leaf to premium brands that cost as much as $160,000.)
LeVine predicts that buyers, faced with a $20,000 cost difference for EVs over comparably sized gas-powered vehicles, will choose to buy plug-in hybrid vehicles, whose smaller batteries require much less in the way of these metals, or high-mileage gas-powered cars.
“It’s going to be a bumpy and super-interesting decade,” LeVine said. It could also be a decade in which China, which has been hoarding these metals, will flood the North American market with made-in-China EVs.