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EV and lithium demand being thoroughly tested

The sudden increase in electric vehicle (EV) demand that stormed the economy over the last couple of years certainly caught the market off guard. A supply chain that was unprepared even before covid, as well as an incredibly tight lithium supply that became extraordinarily exposed, did little to hamper growth in EV sales.
The sudden increase in electric vehicle (EV) demand that stormed the economy over the last couple of years certainly caught the market off guard. A supply chain that was unprepared even before covid, as well as an incredibly tight lithium supply that became extraordinarily exposed, did little to hamper growth in EV sales. Total global EV and plug-in hybrid sales jumped 109% in 2021 to reach 6.768 million cars, followed by another 55% jump to 10.522 million cars in 2022. 2021 saw a year of extremely supportive monetary policy around the world that sparked a significant economic recovery in the wake of the pandemic, and this new breed of transport was no exception. Global subsidies for EV’s reached US$30 billion that year, double that of 2020. There are now over 27 million of these cars on the road, 5 times the amount that were around in 2018. China accounts for more than half of this growth, and until recently have had an extensive EV subsidy program that has heavily spurred on what was already a burgeoning industry. This, combined with lower development and manufacturing costs that come from a domesticated supply chain and smaller vehicle sizes, have resulted in a highly competitive market where the cost of an EV in China is only 10% more than a conventional vehicle. After more than a decade of China’s EV subsidies, they have pulled the plug on the program – leading Tesla and its competitors to discount their cars in the face of softening demand. There were around 450 models of EV’s on the market in 2021, 5 times the amount than in 2015. Tesla had already effectively slashed vehicle prices by 12% since September last year, but proceeded to reduce their more expensive models again earlier this week. The model S and X now start at US$89,990 and US$99,990 in the US – down 5.3% and 9.1% respectively. Elon Musk believes that even a small change in price has a very big effect on demand, so investors will be closely observing the 2023 data as it rolls in. At the same time, the price of the critical mineral needed for EV batteries has spectacularly pulled back after taking a break from a bull run that showed no signs of stopping up until just before the end of last year. Lithium is now down 40% from the high – although it’s still up over 200% from its 2020 low. The future movement in the battery metal’s price is something that none of the world’s biggest investment banks can agree on. Goldman Sachs has rocked the market twice with bearish lithium reports, while the Macquarie research team thinks the electric vehicle staple will average US$62,596/t throughout 2023 and remain steady at US$72,500/t until 2026. UBS gave the sectora boost after they upgraded their lithium price forecasts by 50%, which sent miners like Mineral Resources flying. Morgan Stanley holds a price outlook of 20% below consensus, but they also thought prices would fall to US7,700/t in 2021 – which was right when lithium began the biggest bull run in its history. Australia is the world’s largest producer of the critical mineral, ahead of China and Chile, which is a position they are expected to hold for the time being as they bring on the most new supply between 2023-2025. A flood of Canadian explorers that have listed on the ASX over the past couple of years are expected to become contenders for the top spot from 2026 and beyond. Past performance is not a reliable indicator of future performance.

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