A Terrifying Truth: How Lithium Shortages Could Obliterate the EV Transition

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Lithium, the silvery-white alkali metal, is as critical to the EV industry as water is to life. EV batteries won’t work without lithium.

So, securing supplies of lithium has become critical to companies attempting to get vehicles out of production and into consumers' hands. In today's article, we discuss this issue with reference to Tata Motors Ltd (NYSE: TTM), Rivian Automotive (NASDAQ: RIVN), Ford (NYSE: F) and Arena Minerals (OTCQB: AMRZF) (TSX.V: AN).

It’s no secret the global EV industry is booming. As oil and gas costs soar, customers are getting their EV orders in, irrespective of a lengthy wait. Lithium prices multiplied five-fold over the past year, and with COVID-19 lockdowns in China causing further havoc on global supply chains, the problem of securing supplies could be set to get worse.

Despite a reality check for many EV stocks in recent months, there's no doubt electric vehicles are the future of domestic travel. That’s why switched-on investors are keeping the bigger picture in mind and keeping a close eye on EV delivery projections.

For the world’s biggest and best auto manufacturers to maintain their status in the EV world, meeting delivery targets is crucial. Their future outlook could be destroyed without guaranteed access to the necessary elements. That’s why lithium demand is soaring, prices are rocketing, and supply tightness endures.

Meanwhile, India’s number one car manufacturer Tata Motors is witnessing battery cell growth soar 20% due to a hike in raw material costs, particularly lithium. This reality could derail the entire EV industry if lithium supplies are not secured and ensured in quick succession.

A PROMISING SOLUTION

One company on a mission to bring high-quality lithium products to the hands of core market participants is Arena Minerals. Arena is a junior developer operating in Argentina. And its lithium brine processing technology is getting the company noticed.

Arena Minerals is advancing its new brine processing technology and de-risked business model to produce more competitive battery-grade lithium products.

Lithium brine deposits are accretions of salty groundwater enriched with dissolved lithium. These lithium brines are only found in certain parts of the world. Indeed, they’re most commonly found in Chile and Argentina. Hence, Arena Minerals' projects in these regions convey a strategic advantage.

Arena Minerals integrated approach to developing lithium brine resources for the battery industry is exactly what the industry needs. Its process is simple, potentially cost-saving and less risky than conventional methods. Consequently, as lithium demand soars, the company is in the right place at the right time.

Arena is redefining the processing of its lithium brines with this new streamlined approach. This will potentially reduce capital expenditures (CAPEX) and operating expenses (OPEX) while also decreasing the time to cash flow and reducing operational risk. Combined, this method dramatically improves Arena's end goal in producing a salable technical-grade lithium chloride.

GANFENG AND LAC ARE BACKERS

Arena Minerals' presence in Argentina hasn’t gone unnoticed. Its acquisition of a significant project here undoubtedly helped attract two of the lithium industry’s most prominent investors.

Ganfeng Lithium Co Ltd and Lithium Americas Corp each own approximately 18% of the company, with Ganfeng also owning 35% of Arena's flagship asset. Ganfeng is the world's largest producer of battery-grade lithium and has also secured a lucrative lithium supply contract with Tesla.

Arena Minerals is led by an outstanding leadership team. Executive Chairman, Eduardo Morales, has been involved in the lithium brine industry for over 40 years, during which time he developed one of today's leading lithium mines in Chile.

Members of the leadership team helped build and sell two prominent companies: Rockwood sold for $6.2bn in 2014 to Albemarle Corp., and Lithium-X Energy sold for $265m in 2018.

Arena Minerals intends to produce technical grade lithium chloride. On-site testing is underway, aiming to produce this compound which contains 6% lithium content (or 35% lithium chloride) directly from solar-powered evaporation ponds. This significantly reduces the capital intensity and operational risk.

Arena's business model, adapted from Mr. Morales' success in Atacama (Chile), dramatically reduces capital requirements compared to other brine operations in Argentina. This is great news for the EV industry when it is so desperately needed.

LACK OF LITHIUM SUPPLY IS DETRIMENTAL TO THE FUTURE OF EVS

The world’s biggest electric vehicle companies are now competing to secure their lithium supply contracts and source crucial raw materials.

Even with contracts and agreements in place supplies are tight and demand is soaring as ever more companies take a shot at success in the world of EVs.

Although lithium is an abundant resource on planet earth, it’s no use buried deep underground. Unfortunately, extraction and refining speed doesn't match the accelerating pace of demand. By 2030, global demand for lithium is expected to exceed two million metric tons of lithium carbonate equivalent (LCE). That's more than double the demand forecast for 2025.

When major EV manufacturers such as Tata Motors, Ford and Rivian must patiently wait to lock in their lithium supplies, it has a knock-on effect on their customer wait time, annual revenues and share prices.

In a world where patience is a thing of the past, consumers risk losing interest in transitioning and revert to buying petrol and diesel cars. But governments, countries, businesses and individuals are so heavily invested in the EV transition that there’s conviction in ensuring the supply chain crisis is better managed.

India’s star EV player Tata Motors now makes over 100 EVs a day but it differs from its western rivals by being more frugal. Rather than investing in an EV plant or production line, it is outfitting one of its prevailing models with a battery pack. Thus, its Nexon EV comes in around $19k, which is much more affordable than its foreign counterparts. However, the rising price of lithium threatens this affordability.

Meanwhile, Rivian intends to manufacture up to 400k vehicles a year from 2024 but is already struggling to hit 55k pre-orders for its R1T and R1S by the end of next year. Furthermore, it has the ambitious target of delivering 100k delivery vans to Amazon by 2030, but preferably by 2025.

Additionally, Ford expects 40% to 50% of its global vehicle volume to be fully electric by 2030. Ford said it would introduce three new electric passenger vehicles and four new electric commercial vehicles in Europe by 2024. It also intends to sell over 600k EVs in the region by 2026. Ford's global goal is to sell more than two million EVs a year and achieve an adjusted operating profit margin of 10% by 2026.

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