A surging demand for electric vehicles has emerged, with the industry seeing immense growth as new players enter the field and established ones, like Tesla, Inc. (TSLA), soar to formerly unimaginable valuations. This expansion has been fueled in part by falling battery costs, driven by the mineral used to make them, Lithium. However, as demand has risen, prices per kilowatt-hour of the chemical element have as well.
This shift in macroeconomic reality can be interpreted as a challenge for EV companies, particularly the ones with less operating leverage. While EVs are largely anticipated to dominate the automotive industry in the coming decades as OEMs adopt their pipelines and investment into their tech, the path upward may not be as smooth as it has been in the last few years.
In addition to companies like GM (GM) and Ford (F) targeting the EV industry, Chinese companies have also increased manufacturing, further straining the metal’s supply. Also significant in the battery supply chain, the prices of cobalt and nickel have risen considerably since the pandemic began.
The issue for companies like Tesla is that ramping the mining of these metals is time-consuming and highly costly, and will certainly take time before the supply/ demand finds an equilibrium. Furthermore, local communities are not typically fond of giant metal mining operations, creating another bureaucratic hurdle to pass.
A shortage in Lithium is bad news for EV companies, and thus EV investor sentiment. While no crisis has been declared yet, it is certainly an issue to keep an eye on.
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