Increasing lithium prices may present new challenges for electric car manufacturer
Electric car maker, Tesla Motors Inc. (NASDAQ:TSLA), started its gigafactory in Nevada, which is set to increase the global battery production for the company. The lithium-ion batteries produced in the factory will be used in its Model 3 along for its energy storage systems.
Elon Musk has partnered with Panasonic for the factory and plans to provide more than 4,000 jobs at the new factory. Tesla has estimated to produce 35 gigawatts of batteries per year from 2018. This figure is equal to the global production of other manufacturers per year.
The production of such batteries have been led by producers out of the US. In 2015, an estimated 88% of the battery production was located in China, South Korea, and Japan. Tesla, with this factory, will change the entire dynamics of the industry.
The increase in production of lithium-ion batteries is a good news for the electric car market. However, this will have negative effects on the lithium sector. According to financial times, an electric car uses 4,800 times the amount of lithium used in a smartphone. This will result in a sharp increase in demand for lithium. The supply side of the material will not increase as its demand therefore, the prices are expected to increase drastically.
The prices for lithium increased by 60% last year, and further increased three folds in the last three months. Small miners have also started to come up, mainly in Nevada, which is home to the factory and has lithium reserves. However, they will not be able to meet the supply gap due to technical reasons.
The prices for lithium are expected to increase, leading to a drastic increase in production costs which will result in these vehicles to become expensive. The stock prices for Tesla rose by 1% in the last session and closed at $229.01.