The price surge of lithium carbonate reflects an objective reality of supply and demand tensions, yet an irrational skyrocket in prices in a short time frame is unwiseAs the new year began, there was a noticeable acceleration in lithium salt prices, sparking widespread concern over the “conflicts” within the lithium battery industry chainRumors circulated about downstream battery producers cutting production and resisting new orders, while traders faced controversy for stockpiling resourcesIn response, several new energy vehicles saw consecutive price hikes.

On March 16-17, a symposium aimed specifically at the lithium industry convened, aiming to strengthen connections between supply and demand across the industry chainThe emphasis was on fostering long-term and stable strategic partnerships while guiding lithium salt prices back to rational levels

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The root causes of this recent spike in lithium prices lie in a transformation and release of demand from electric vehicles and energy storage systems, compounded by supply side bottlenecks in resource expansion, resulting in persistent concerns over supply-demand mismatchesConsequently, the central price of lithium has continued to rise.

Despite the fact that the sales volume of new energy vehicles in China has not yet shown signs of decline due to rising prices, it is feared that over the long term, price increases will dampen consumer demand—an outcome that could hinder the healthy development of the Chinese new energy vehicle industryThe dramatic surge in lithium prices is indeed alarmingData from Wind reveals that since the beginning of 2022, the prices of battery-grade lithium carbonate and lithium hydroxide have sharply ascended

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The prices of raw materials frequently hit new highs, creating turmoil within the lithium battery supply chainFor instance, the price of battery-grade lithium carbonate skyrocketed from 277,500 yuan per ton in January to 366,500 yuan in February—a staggering monthly increase of over 30%. In a matter of 20 days in February, prices further surged by another 100,000 yuan to reach 472,600 yuan per ton.

As of March 23, the average price of battery-grade lithium carbonate had reached 504,000 yuan per ton, marking an increase of 226,500 yuan since the beginning of the year—an impressive jump of 81.62%. A significant portion of the cost of new energy vehicles is derived from their battery systems, comprising the battery, motor, and electronic control systemsThe battery drive system can account for 30% to 45% of the total vehicle cost, with the power lithium battery making up roughly 75% to 85% of that battery drive cost

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Therefore, fluctuations in battery costs have a profound impact on the overall prices of electric vehicles.

Within the cost structure of batteries, cathode materials comprise about 40% of the total cost, with lithium carbonate being one of the key materials used in cathodesEstimates suggest that approximately 0.6 to 0.8 kg of lithium carbonate is needed for every kWh of power batteryDue to soaring lithium carbonate prices, the production cost of a 60 kWh lithium battery pack is projected to rise by between 16,000 to 22,000 yuanThe increase in raw material costs ultimately leads to higher production costs of complete vehicles, forcing some models even into situations where prices do not make senseFor example, in February 2022, the Ora Black Cat and White Cat openly announced they would cease accepting new orders.

Recently, several manufacturers of new energy vehicles have begun to raise their selling prices in hopes of shifting some of the cost burdens onto consumers

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According to a report by Yingda Securities, nearly 20 new energy vehicle companies have announced price hikes since March, implicating famous brands including Tesla, BYD, Xpeng Motors, NIO, SAIC Roewe, GAC Aion, Great Wall Ora, Neta Auto, and Geely GeometryNotably, Tesla raised its prices multiple times within a week, with Model 3 Performance and Model Y Long Range versions seeing price increases ranging from 18,000 to 20,000 yuan, while the Model Y Standard Range version experienced two price hikes within the year, marking a recent increase of 15,100 yuan.

The current market analysts generally agree that the new surge in lithium prices is fundamentally driven by supply-demand dynamics, with the core logic resting on structural shifts in demand brought about by electric vehicles and renewable energy storage systemsCombined with bottlenecks in supply side resource expansions, this situation has spurred worries about mismatches in supply and demand, pushing lithium prices higher.

Since 2014, the development of new energy vehicles in China has accelerated dramatically, with rising sales figures and increased market share, recording annual growth rates of over 70%. In 2021 alone, China produced a staggering cumulative total of 3.545 million new energy vehicles, which was an increase of 2.179 million over 2020, translating to a growth rate of 159.52%. The total sales reached 3.521 million vehicles—a jump of 215,400 vehicles from the previous year, resulting in new energy vehicles accounting for 13.4% of total automobile sales, nearly 8 percentage points higher than before.

Such rapid expansion in the new energy vehicle industry chain has dramatically altered the terminal demand structure for lithium resources globally

From 2014 to now, the proportion of lithium resource demand attributed to sectors like new energy vehicles in China has escalated from 16% to 49%, while traditional industrial demand for lithium, such as in ceramics, glass, and lubricants, has plummeted from 60% to just 27%. As sales of complete vehicles have surged, battery manufacturers are continuously expanding their production capacity.

Battery manufacturers such as CATL, BYD, EVE Energy, and others have announced expansive production plans as of 2021. Reports indicate that by 2025, the combined production capacity of China’s Top 10 power battery manufacturers will exceed 3 TWhSpecifically, production capacity targets for companies like CATL and BYD aim for 670 GWh and 600 GWh respectively, with an overall target of 3070 GWhNotably, in 2021, global power battery installation reached 296.8 GWh, with China’s power battery installations accounting for 154.5 GWh

Given this data, the targeted battery production capacity for 2025 is expected to be more than tenfold compared to global installations in 2021, approaching 20 times the volume observed in China.

China is currently the world's largest consumer of lithium, accounting for around 54% of total global consumptionHowever, from the supply perspective, lithium resource distribution worldwide is uneven, with 70% of China's lithium salt materials relying on importsThis places significant strain on plans for large-scale battery production in China due to a pronounced supply gapAs of the end of 2020, global lithium resources were approximately 8.6 million metric tons with reserves at about 1.352 million metric tonsThe primary source of lithium resources is brine lakes, accounting for 58%, while hard rock forms, mainly spodumene and lepidolite, make up 26%. The majority of lithium resources are concentrated in the South American triangle—Bolivia, Argentina, and Chile—accounting for 57%, while Australia contributes 8% of the hard rock lithium landscape

Conversely, as of 2020, China's lithium resources constituted only 6% of global totals, largely from brine sources.

Data from the China Merchants Bank Research Institute reveals that in 2020, excluding the United States, global lithium ore production totaled around 82,800 tons, with Australian lithium mines producing 40,000 tons (48.31%), and Chile and China contributing 18,000 and 14,000 tons, respectively, representing 21.74% and 16.91%. These three countries accounted for nearly 87% of global production, firmly establishing them as the top producers.

In 2019 and 2020, global lithium carbonate demand reached approximately 307,000 and 369,000 tons (LCE equivalent), respectivelyDuring this period, global supply saw increases to 385,000 and 403,000 tonsBy 2021, demand surged again to 502,000 tons (LCE), reflecting a year-over-year increase of 36.04%, with supplies lagging behind at around 490,000 tons, marking a growth rate of just 21.59%.

The development timeline for upstream lithium resources is significantly longer compared to the rapid pace of lithium battery production

The expansion cycle for mining typically spans 3 to 5 years, but when considering exploration, design, and other phases, the complete development timeframe is likely to stretch out to 7 or 8 yearsThough there was a slight increase in global lithium ore supply in 2021, the growth rate remained slower than demand, highlighting a mismatch in upstream and downstream development timelinesThis has posed significant challenges in relieving the supply-demand imbalance for lithium raw materials.

Research from China Merchants Bank forecasts global lithium carbonate demand to amount to around 728,000 and 896,000 tons (LCE equivalent) for 2022 and 2023, respectively, with anticipated supply figures of 690,000 and 956,000 tons, indicating gaps of 38,000 and -59,000 tonsSimilarly, Huashan Securities projects demands of 729,000 and 922,000 tons (LCE equivalent) for 2022-2023, projecting supplies of 715,000 and 914,000 tons

Meanwhile, Northeast Securities estimates demand will be around 739,000 and 969,000 tons (LCE equivalent) for the same years, while anticipating supply levels to be near 730,000 and 963,000 tons.

Numerous measures have been taken to promote development within this sectorSales data for January and February in 2022 indicate that China's new energy vehicle sales reached a remarkable 765,000 units, showcasing a year-on-year increase of 154.7%. The high growth trends observed in the previous year continue unabated, confirming that the sales volume of new energy vehicles hasn’t yet declined despite rising prices.

However, in the long run, the price escalation of new energy vehicles is likely to suppress consumer demand, posing challenges to the sustainable growth of the industryTherefore, the concerns surrounding rising raw material costs and the stability of the industrial chain are receiving heightened attention from regulatory authorities

In response to the emerging issues facing the renewable energy sector, a lithium industry symposium was called on March 18, alongside discussions about price increases affecting upstream materials in the battery sectorIt was emphasized that all parties involved in the industry chain must enhance supply-demand coordination and foster stable, long-term strategic partnerships that collectively steer lithium salt prices towards a reasonable normalization and promote the healthy development of both the new energy vehicles and the power battery sectors.

In an interview with media, Chen Shihua, deputy secretary-general of the China Automotive Industry Association highlighted the unusual surges in raw material prices, stressing that these increases deviate from normal supply and demand relationsHe described the situation as an irrational escalation, highlighting concerns that speculative behaviors are preying upon the last opportunity for lithium capacity expansion, leading to unfair competitive practices such as hoarding and price manipulation