They are not the only ones who suspect the commodity has strategic value. The Australian government – which recently commissioned the world’s biggest lithium-ion battery system to support renewable energy – in June announced plans to invest directly in a lithium mine for the first time. Environment and Energy Minister Josh Frydenberg said lithium is “vital” for the country.
Unfortunately it’s not easy for investors to buy in. There are no futures markets, a handful of producers control a convoluted supply chain, and private pricing mechanisms are opaque. Spot prices may only partially reflect actual demand.
Another conundrum is the disconnect between climbing commodity prices and falling battery costs. The latter dropped by around 80 percent between 2010 and 2016. Analysts say high lithium prices have yet to be passed down. A battery pack cost around $13,600 in 2016, McKinsey estimates, so batteries comprise a major part of EV’s cost. Unless new technology changes the maths, something has to give: battery prices will rise, lithium prices will fall, or profit margins for EV makers will shrink.
Lithium’s racy prices might tempt investors to speed ahead. But they must drive carefully.
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