The Metal of the Future: Lithium
In this post I want to write about the future of an entire industry: the mining and production of Lithium.
You might have heard about Lithium. It’s a light metal, not really rare and not very expensive either. When you throw it into the water, it reacts violently, zapping around, fizzing wildly.
If it’s not expensive, then what’s the big deal?
Lithium is used in 3 primary ways:
- Glass and Ceramics
- Lubricants and greases
- Portable batteries
It’s the last one that makes it so interesting. Every mobile phone that exists today has a Lithium-Ion battery inside. This type of battery technology is hands down the most effective way to store electric energy if you do not have a lot of space available.
Is the mobile phone market not kind of saturated?
Yes, sort of. Millions of mobile phones are produced every year, but mainly to replace old and broken ones. There is still growth, but it’s not as dramatic as it used to be.
So what has changed?
There are 2 future growth industries starting up…
You must have lived on a remote island without checking the news if you have not heard at some point about Tesla and its electric cars. Tesla is disrupting the existing automobile industry, leading the trend to the switch from petrol to electrical transportation.
And it will not stop there. Once the technology matured it will be just a matter of time until other ways of transportation will do the switch, too.
What about renewable energy? With solar power costs tumbling, new solar plants are popping up frequently and their capacities are constantly increasing.
But renewables have a problem…
They need to store energy because they cannot provide a constant, 24/7 output.
Clouds, seasonal changes, day vs. night makes this energy type more volatile. Electrical grids need much larger storage capacities to cope. That’s where large-scale battery systems are coming in, as well as home batteries.
These two markets are now economically viable and they are on a course to exponential growth!
Lithium demand forecast over the next 5 years is at 20 – 25% increase… PER YEAR! The current yearly production increase is at 4-5%.
But if it’s not a rare mineral… what’s the issue?
It’s neither rare nor very expensive… BUT… it takes time to ramp up production. Similar to oil & gas production, there is an exploration phase (to find new viable resources), and a build-up and production phase.
It takes several years from start to actually bringing additional production online.
The picture above shows a Lithium production site in Chile. It is produced by extracting it from brine (very salty water). It needs a lot of time and money to build such a plant.
Demand will outpace supply for several years, increasing the price of Lithium.
How much more Lithium will we need?
It will depend on the growth rate of the new industries. But let’s look at an example of how much Lithium is needed per product.
- Mobile Phone: 3 grams
- Laptop: 30 grams
- Tesla car battery: 50 kg
- Home battery: 100+ kg
A car battery will need more than 16,500 times more Lithium than a mobile phone battery. Now imagine if everybody with a mobile phone buys an electric car…
So how to invest in Lithium?
No need to buy Lithium by the buckets… you can invest either in companies that are mining Lithium, or simply buy a Lithium ETF. You can buy it like a regular stock (but there is a yearly fee of 0.76% – not cheap but still OK!).
Here is the historical pricing for LIT, an example of such an ETF:
As you can see, a strong uptrend has already been on its way over the last 12 months. The price can drop somewhat but in the long run, Lithium is here to stay.
What about other battery technologies?
17 years ago I wrote my Master Thesis about the electrical subsystem of a lunar satellite. I spent a lot of time doing research about batteries. Guess what was the key battery technology in the year 2000?
But there were some other, “promising” new technologies tested in labs at the time. None of these have since been commercialized! After 17 years!!
The reason is simple. It’s really, really hard to come up with a battery technology that has more capacity, costs less and is as safe as (or even safer than) Lithium-Ion batteries.
And battery technology does not scale well.
I wrote my thesis on a Pentium-II computer with 32 MB of memory. 17 years later, I am using a laptop with 500 times that amount. But my mobile phone battery capacity has not even doubled over the same time interval.
Moral of the story?
Be conservative regarding new battery breakthroughs 🙂
Lithium will dominate the battery landscape for years to come AND two new industries are already starting to create a supply bottleneck.