Soaring electric car popularity sees price surge for key metals

The rising popularity of electric cars is leading to rapid increases in demand for key metals used in the industry such as lithium, cobalt and graphite.

Governments have been keen to push growth in electric cars in a bid to meet their carbon emissions targets and are tempting consumers with perks like subsidies, free parking and tax breaks.

Germany introduced a discount scheme to encourage electric vehicle buyers earlier this year that saw almost 2,000 people take advantage in the first month alone. 

But predicting how much of any metal will be needed to meet demand for electric vehicles in the longer term is tough and advances in battery technology could alter the mixture.

Getting drivers to adopt electric cars remains a challenge, the need to charge them up frequently and time taken to do so have put off many potential buyers.

Still, concerns over the pollution created by diesel-powered vehicles mean that electric car prototypes dominated the Paris car show last week.

Although the number of electric and hybrid vehicles on the road worldwide finally surpassed one million last year, according to the International Energy Agency, this falls significantly short of earlier predictions. In January, Ernest Moniz, the American energy secretary, admitted that the US will not see one million electric vehicles on its roads until 2020 at the earliest despite Obama previously saying that he hoped this figure would be reached in 2015. 

While estimates vary, IHS Automotive expects electric vehicles to represent nearly four per cent of all light vehicles worldwide by 2020, equivalent to 3.9 million cars, up from just over 14,000 in 2010.

Most electric car batteries use lithium nickel manganese cobalt oxide (NMC) cathodes and graphite anodes. "Rare earth" metals dysprosium, neodymium and terbium, chiefly mined in China by companies including Xiamen Tungsten and China Minmetals Rare Earth Co, are used in some electronic components of the motor.

"It's clear that electric cars from today's point of view will have lithium ion-based batteries," said Horst Friedrich, director of Germany's Institute of Vehicle Concepts.

"We're talking about lithium, and... metals like cobalt, iron phosphate, rare earth elements."

Much of the world's lithium comes from an area called the "Lithium triangle" in Chile, Argentina and Bolivia. Mining it is an increasingly lucrative business.

Prices of battery grade lithium in China, the biggest lithium ion battery producer, surged to above $20,000 a tonne this summer, nearly three times higher than a year earlier, as demand grew.

"The lithium industry is going from 160,000 tonnes of LCE (lithium carbonate equivalent) today to at least 260,000 tonnes by 2020," said Simon Moores, managing director of Benchmark Mineral Intelligence.

Chemicals company Albemarle is investing an undisclosed sum to boost its production of battery-grade lithium salts to try to supply half of that projected demand growth, said John Mitchell, the president of Albemarle's lithium unit.

Australia's Lithium Power International is preparing its Maricunga Salar project in northern Chile to be able to ship lithium directly to China for use in electric vehicles, and aims to be in production by 2019-2020.

Among South American companies, Chile's SQM announced this month that it was investing $30m (£24m) to boost its lithium hydroxide capacity by 7,500 tonnes.

"The market penetration of electric vehicles in the automotive market will have a significant impact on lithium demand," it said.

Critics caution against expecting shortages of lithium as there is an abundance of it in the earth's crust. Others warn against jumping too quickly into smaller companies that may not produce the high grade lithium needed for the batteries.

"It's very much buyer beware, it's a fast-moving market, and there is a large degree of ignorance about it," Finntech analyst Martin Potts said, adding that graphite could be more interesting for investors.

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