Most Western governments are focused on the development and adoption of electric vehicles (EV) and have set deadlines for phasing out petrol and diesel-fuelled cars as part of their pledge to reduce carbon emissions.
However, the move to greener forms of transport could be hampered by rising costs for the lithium-ion batteries used in EVs, warned data and analytics company GlobalData.
EV production is expected to reach 12.76 million per year by 2026, with over half coming from China, which also dominates the lithium-ion battery supply chain.
Lithium prices are set to rise over the next decade, which means the EV sector in the West will face rising battery costs. If these costs are passed on to the consumer, EV adoption may accelerate at a slower rate than previously expected, GlobalData said.
It urged governments at the COP26 climate summit to incentivise investment in new lithium mines, noting that it takes around seven years to establish a mine.
“You can’t just click your fingers and make a fully working lithium-ion battery supply chain appear – it takes time,” said GlobalData thematic analyst Daniel Clarke.
He noted yesterday’s announcement that chemicals group Johnson Matthey PLC (LSE:JMAT) has decided to exit from UK battery manufacturing due to high capital costs, .
Johnson Matthey’s decision “demonstrates just how hard building a supply chain can be”, said Clarke.
He said Western economies are far behind China already, with the country holding an 80.5% share of lithium-ion battery capacity in 2020. Although this share is expected to fall to 61.4% in 2026, Chine will still dominate, leaving the US and EU vulnerable in this market.
“The rising price of lithium demonstrates what many in the industry have warned about for some time: the growing divergence between supply and demand for lithium. Ultimately, this will lead to an increase in the price of EVs, as automakers pass the cost onto the consumer,” Clarke said.