The lithium price had been averaging around $10,000 per tonne from 2016 to 2021, floating primarily between $6,000 and $16,000. As electric vehicles started to gain significant traction in late 2021, the lithium carbonate price shot from $6,000 per tonne to a high around $70,000 per tonne by the start of 2023, more than a 10-fold increase!
The lithium price spike was driven by a combination of surging demand, constrained supply, and market dynamics, particularly in the electric vehicle (EV) sector. Here’s a breakdown of the key causes:
Surging EV Demand: Global EV sales doubled from 3.3 million units in 2020 to 6.6 million in 2021 and added another 55% to 10.5 million in 2022. This rapid rise, especially in China (the world’s largest EV market), significantly increased demand for lithium-ion batteries, which require substantial amounts of lithium (about 9kg per EV battery). The push for electrification, driven by government policies and consumer preferences, outpaced supply growth.
Limited Supply Growth: Lithium supply couldn’t keep up with demand due to the time-intensive nature of bringing new mines online, often taking 5 or more years. In 2022, global lithium production was still catching up from earlier underinvestment, leading to a supply deficit.
Supply Chain Constraints: Pandemic-related disruptions, including labor shortages in Australia (a major lithium producer) and plant maintenance issues in China, tightened supply further. Geopolitical tensions and China’s dominance in lithium processing (handling most of the world’s lithium) added to supply chain vulnerabilities.
Speculative Market Dynamics: High demand and tight supply led to speculative fervor, with lithium prices soaring as miners and buyers rushed to secure contracts. For example, lithium carbonate prices in China hit a record high of nearly 600,000 CNY per ton in November 2022, up from 87,000 CNY in July 2021—a 590% increase. Auctions by major producers like Ganfeng Lithium and Albemarle pushed prices higher.
Policy and Investment Frenzy: Government incentives, like the U.S. Inflation Reduction Act of 2022, boosted EV adoption and lithium demand. High prices also made previously unviable mining projects profitable, spurring investment but not immediately increasing supply due to long lead times.
However, the spike was short-lived, as oversupply and slowing EV demand in 2023 led to a sharp price decline, illustrating the market’s volatility. Just as rapidly as the price had done a 10x, it then proceeded to drop by 90% from January of 2023 until today. This was quite the roller-coaster ride for investors trying to profit from the price trends.
Just as prices in volatile markets tend to overshoot to the upside, they also tend to overshoot to the downside. In the case of lithium prices, they have fallen back to pre-mania levels in-line with the longer-term average. This is too steep of a drop in my opinion, given that demand for lithium batteries has continued to rise strongly.
Lithium Supply and Demand Fundamentals
Global lithium-ion battery demand grew from 700 GWh in 2022 to an estimated 1,000 GWh in 2024, with EVs accounting for the majority. Beyond EVs, lithium-ion batteries saw increased use in:
Energy Storage Systems (ESS): Demand for grid-scale and residential storage grew with renewable energy integration. ESS applications are projected to increase significantly by 2030.
Consumer Electronics: Smartphones, laptops, and wearables continued to drive demand, with global mobile internet users expected to reach 5 billion by 2025.
Emerging Sectors: E-bikes, drones, medical devices, and industrial equipment expanded lithium-ion battery applications.
Innovations like solid-state batteries, silicon anodes, and AI-driven battery management improved energy density, safety, and charging speeds. For example, solid-state batteries promise faster charging and higher safety. Mass production is expected to begin over the next few years, which is likely to increase overall adoption of EVs and other devices that use lithium batteries.
In 2025, the market is estimated at $74 billion and expected to hit $145 billion by 2030 (CAGR of 14.5%). Global lithium-ion battery demand is forecast to increase from 700 GWh in 2022 to 4,700 GWh by 2030, a quadrupling driven primarily by EVs (4,300 GWh). Lithium demand for EV batteries alone is expected to exceed current production by up to 8 times by 2040, with deficits projected as early as late 2025.
Last year the EV market share rose to over 20% of global new car sales, with 17 million units sold, a significant jump from 2022’s 14%. This share is expected to increase again this year to over 25% of global car sales. In China, EVs reached nearly 50% of new car sales, with 10 million units sold. So while new production that has come online in the past few years can partially explain lower lithium prices, it is my view that the price per tonne should not have dropped back to 2022 levels when demand was dramatically lower.
I expect lithium prices bottom over the next 6 to 12 months and then start to trend higher once again. The rise is not likely to be as dramatic was it was from late 2021 to early 2023, but I would not be surprised to see the lithium price double or triple over the next few years.
Profiting from Lithium Mining Stocks
Mining stocks typically offer leveraged gains and losses to the move of the underlying metals they mine. The prices they can get for the metals rises faster than their costs, leading to expanding profit margins and much higher valuations. Mining stock prices will often increase by 2 to 3 times as much as prices for the underlying metals.
The Global X Lithium & Battery Tech ETF (LIT) mirrored the moves of the lithium price, but offered more modest moves in both directions. During the 2o months that the lithium price climbed roughly 10x, investors in LIT would have realized a gain of 450%. And during the subsequent 90% drop in the lithium price, that same ETF lost 67% of its value.
