Why, and what does it mean?
In the past year, the price of lithium has dropped by more than 80 percent. Meanwhile, nickel is down more than 40 percent. Both minerals are key components of electric vehicle (EV) batteries.
The plummeting prices have pushed WA’s major industry players to mothball their mines, workers to lose jobs and the government to all but panic. Last week, the world’s largest lithium producer, Albemarle, said it would cut jobs and pause expansion at its Bunbury refinery in the south of WA to reduce costs and optimise cash flow.
In Australia
A growing number of Australians are “excited to get their hands on” an electric vehicle (EV) as sales surged across the country last year. EV sales more than doubled, with 87,217 vehicles sold in 2023, according to figures by the automotive industry’s lobby group, FCAI. This translates to 7.2 percent of the market, which is a jump from 3.1 percent of sales in 2022. Electric, hybrid and plug-in hybrid vehicles accounted for 196,868 sales overall, which is 16.2 percent of the market. Beyhad Jafari, the Electric Vehicle Council (EVC) chief executive, said the figures were promising.
Meanwhile, in the US
EV sales pace is running short of power going into 2024. Sales of battery-electric vehicles in the U.S. may have climbed above the 1 million unit mark in 2023, but there’s evidence they’re stalled at base camp rather than sprinting to new sales summits. The proof is a combination of hard numbers and harder decisions by some of the major automakers. Those decisions include General Motors Co. slowing plans for new EV introductions and delaying the rollout of a new generation Chevrolet Bolt EV and EUV until 2025 and Ford Motor Co. cutting production of its F-150 Lightning electric pickup truck by 50% at the start of 2024.
The perfect storm played out –
- Destocking
- Deceleration in EV demand
- Sky High prices made projects that were not viable now viable. These plants came online quicker than expected.
Result: There is an oversupply.
The Future
The lithium and nickel markets are now working their way through previous excesses. As the capital cycle diagram above suggests, the end of a cycle is normally characterised by business investment declining, firms exiting, industry consolidation, and investors being pessimistic. That describes exactly what’s currently happening in these markets.
The industry is starting to get the attention of more fund managers. Tribeca’s Jun Bei Liu described lithium stocks as ‘interesting’ given recent developments of production cutbacks and consolidation. Other funds, such as Pella Asset Management, have recently invested in the sector. Pella believes that lithium demand will exceed supply by 2025 as EV sales grow and there’s a shift to larger EVs, while lithium supply may struggle to ramp back up.
Written by
Alastair Kennelly
Sources:
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