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An evaporation pond used to measure lithium and other mineral levels sits in the Uyuni salt desert in Bolivia in this 2010 file photo. Lithium is enjoying its moment in the spotlight – and at least some of the enthusiasm is solidly grounded in reality.Dado Galdieri/The Associated Press

Over the past few months, it has been touted as the "new gasoline," hailed as the vital ingredient in the electric-car revolution and billed as a great investment opportunity.

Lithium is enjoying its moment in the spotlight – and at least some of the enthusiasm for the once-obscure silvery-white metal is solidly grounded in reality.

If sales of electric vehicles from Tesla Motors Inc. and other manufacturers take off in years to come, so too will sales of a new generation of lithium-ion batteries. Increased use of lithium-ion batteries will propel "staggering growth in lithium demand" over the next five years, writes Julia Ralph, a Hong Kong-based principal consultant for CRU Group, a metals and mining research company.

Lithium lust is already fuelling big gains in some Canadian-listed junior miners, such as Nemaska Lithium Inc. and Lithium X Energy Corp., both of which have quadrupled in share price this year.

In China, where government is aggressively encouraging the transition to electric vehicles, prices for lithium carbonate have rocketed from around $6,400 (U.S.) a tonne in 2015 to more than $20,000 a tonne today, according to Asian Metal, a metals research firm.

Gains in the rest of the world have been more modest but still impressive, according to Citigroup. Its analysts calculate that lithium prices outside of China are on track to rise from below $5,900 a tonne last year to more than $7,600 this year.

So should investors jump aboard this rising trend? Unfortunately for those who have only recently come to appreciate lithium's virtues, the fundamentals of the market urge caution. While demand for lithium is likely to multiply over the next few years, it's not clear that increased consumption will result in persistently higher prices or in vastly increased profits over the long haul for lithium miners.

The problem can be summed up in one word: supply.

Headlines focus on the battery-producing "gigafactory" that Tesla is constructing in Nevada and its gigantic appetite for lithium. Few stories, however, dwell on the enormous amounts of the metal that can potentially be produced in places such as the so-called lithium triangle that sprawls across Bolivia, Chile and Argentina, or in the hard-rock deposits of Australia.

Around the world, deposits containing about 14 million tonnes of the metal are ripe for economic development, according to the U.S. Geological Survey. The known reserves are equal to more than four centuries of last year's global mine production.

Factor in less well-defined resources and the world appears amply supplied with lithium, even assuming an enormous burst of new demand.

"We conclude that even with a rapid and widespread adoption of electric vehicles powered by lithium-ion batteries, lithium resources are sufficient to support demand until at least the end of this century," wrote Paul Gruber and colleagues at the University of Michigan in a 2011 paper.

To be sure, there can be short-term mismatches between supply and demand. But given the enormous known reserves of lithium ore, it's questionable how long big price gains can be sustained.

The market's upward momentum is likely to continue this year but will stabilize in 2017 as new production comes into play, according to Matthew Schembri of Citigroup. By 2020, Chinese prices will plunge nearly in half to around $10,187 a tonne, he predicts. Meanwhile, prices in the rest of the world will ease back to $6,685, about a thousand dollars a tonne below this year's expected levels.

CRU Group also sees price gains in the short term, and even midterm, as new consumption creates a supply gap. However, it agrees that new supply will eventually exert a dampening effect.

"We expect lithium prices to continue to rise this year as demand growth continues to outstrip supply," Ms. Ralph said. "Prices will eventually fall to more sustainable levels when [the] new supply gap has been filled but we see a tight market until 2020."

One big wild card over the next few years will be the price of petroleum. Investors who hope for sustained gains from lithium stocks have to count on electric cars winning customers at a rapid pace – and that depends in part, on the cost of gas.

Goldman Sachs, which hung the "new gasoline" label on lithium late last year, argued that market penetration of electric vehicles (including hybrids) will swell from less than 3 per cent now to about 22 per cent by 2025.

However, it noted that lower oil prices could slow this transition if it makes the old gasoline look like a deal compared with the new gasoline. For all the fuss over lithium and electric vehicles, "costs still favour incumbent internal combustion engines," it wrote.