How will Europe meet future lithium battery demand?

Europe is joining the ‘white gold’ rush in a bid to challenge China’s control over the lithium market and ensure the continent’s automakers can secure enough supply to meet future demand.

• Savannah Resources and European Lithium have key lithium assets in Portugal and Austria, respectively.
• The need to onshore critical mineral supply chains is fuelling a commodities supercycle, argues asset manager Sprott.
• EV makers comprise 21% of the Amplify Lithium & Battery Technology ETF portfolio.

Registrations of new battery electric cars in the EU jumped 51.9% year-over-year in April, accounting for 11.8% of the overall market, according to European Automobile Manufacturers Association figures. Many EU markets saw double-digit growth, including 34.8% in France and 34.1% in Germany.

Despite signs of strong demand in Europe, the UK, for one, could see electric vehicle (EV) demand soften as a result of high energy costs and poor charging infrastructure, the Society of Motor Manufacturers and Traders (SMMT) warned last month. The industry body has downgraded its expected 2023 market share for EVs from 19.7% to 18.4% as a result.

“The new car market is increasingly bullish, as easing supply chain pressures provide a much-needed boost. However, the broader economic conditions and chargepoint anxiety are beginning to cast a cloud over the market’s eagerness to adopt zero emission mobility at the scale and pace needed,” commented SMMT CEO Mike Hawes.

When EV demand does pick up the pace again, there’ll need to be enough lithium to meet it. The question for EV makers in Europe is whether they can successfully reduce — or even eliminate altogether — their dependence on lithium from China.

“[EV makers] will need a lot of lithium. Not only the lithium may not be enough, but the concentration of the mining of lithium may create other geopolitical issues,” said Stellantis [STLA] CEO Carlos Tavares at the automaker’s annual Freedom of Mobility Forum held in March, as reported by the Detroit News.

Europe’s lithium hopes accelerate

Europe’s EV industry got a major boost last week as Savannah Resources’ [SAV.L] plans for a lithium mine in Portugal were given the green light, despite opposition from locals. It will be the largest spodumene lithium — a hard rock form of the critical mineral — resource in Europe, and production is flagged for 2026.

Australia-listed lithium start-up European Lithium [EUR.AX] is currently in the process of merging with the SPAC Sizzle Acquisition Corp [SZZL], which will see the miner list on the Nasdaq. Once completed, European Lithium will receive $750m-worth of shares in the newly-formed entity Critical Metals Corp, which will help it to advance its Wolfsberg lithium mine in Austria.

“In order to support the rapidly growing EV supply chain in Europe, [Wolfsberg] is expected to become the region’s first major source of lithium concentrate, filling a critical gap in the European EV battery supply chain,” stated the miner in a press release.

Automakers scramble to lock down future supplies

Investing in the lithium supply chain will be vital if automakers are to achieve and grow their EV production goals.

Last month, Ford [F] inked long-term deals with Albemarle [ALB], Sociedad Química y Minera de Chile [SQM], and Nemaska Lithium. Albemarle, for example, will provide Ford with more than 100,000 tonnes of battery-grade lithium hydroxide, which it is estimated will power approximately three million EV batteries.

“Working together helps Ford strengthen our plans to help secure the lithium we need and to de-risk our production plans for millions of EVs over time,” commented Lisa Drake, the automaker's vice president of EV industrialisation, in a press release regarding the SQM partnership.

Securing long-term supplies and shortening the lithium supply chain should also help automakers to make their EVs more affordable and, in turn, more accessible.

Battery-grade lithium supply could be tight

Despite the EV industry outside of China working hard to lock down future lithium supplies, demand for EVs could stall in the near term. If this happens, then lithium prices could pull back in the second half of the year after rallying in May. Allan Pedersen, research director at Wood Mackenzie, has forecast the lithium price will “enter a period of controlled decline”.

Pedersen believes we will see a tight battery-grade lithium product market in the short-term as well, despite an overall lithium supply surplus. This is because battery-grade lithium products need to be “of the highest quality and purity”, making them complex to produce.

“New refineries will tend to start by producing lower quality, technical-grade lithium, which is not directly usable in batteries,” wrote Pedersen.

Partnerships will fuel the lithium industry

Despite near-term challenges, critical minerals, like lithium, are at the forefront of a commodities supercycle that is only just at its beginning, according to analysts at ETF provider Sprott.

“Geopolitical tensions and conflict are prompting global powers to reshore their supply chains and production to ensure industrial security — an about-face after many decades of offshoring,” the analysts wrote in a May research paper titled How Critical Minerals are Driving the Global Energy Transition.

In order to keep up with future lithium demand, Pedersen expects there to be plenty of partnerships between stakeholders in the lithium supply chain.

“Partnerships between miners and refiners make sense, since they can share both the risk and the huge capital requirement involved in new projects,” he wrote, adding that by working together they can “leverage each other’s expertise to improve margins and capture more market share”.

Funds in focus: Amplify Lithium & Battery Technology ETF

The Amplify Lithium & Battery Technology ETF [BATT] has allocated 21% of its portfolio to EV makers, 20% to battery technology, 15% to lithium companies and 14% to nickel. The rest of the portfolio goes to battery components, cobalt, energy storage, charging infrastructure and manganese as of 31 March. The fund is down 14.9% in the past year and down 2.8% in the past six months.

The Global X Lithium and Battery Tech ETF [LIT] is weighted in favour of the materials sector (44.1%), followed by consumer discretionary (20.6%), information technology (17.9%) and industrials (17.3%) as of 30 April. The fund is down 14% in the past year and down 4.6% in the past six months.

 The Sprott Lithium Miners ETF [LITP] is a pure-play on the lithium theme, which holds European Lithium. The fund is down 10.5% since its launch at the beginning of February this year.