The surge in lithium carbonate prices can be interpreted as a reflection of the acute tension between supply and demand dynamics within the marketHowever, the recent irrational spike in prices raises significant concerns regarding economic sustainability and market health.

As the new year commenced, the price of lithium salts began to escalate rapidly, prompting intense scrutiny on the electric vehicle (EV) supply chain's balancing act between demand and supplyReports of reduced production and speculation of order boycotts from battery manufacturers emerged, further fueling controversies surrounding stockpiling behavior from tradersThis turbulence has led to notable price increases for various electric vehicle models, adding pressure to consumers and the broader market.

In a bid to mitigate these challenges, a conference was held on March 16-17 by the Ministry of Industry and Information Technology of China

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The meeting underscored the necessity for upstream and downstream entities in the lithium supply chain to enhance their collaboration and to establish a long-term and stable strategic partnershipTogether, the aim is to guide lithium prices toward a more rational equilibrium.

At the core of the ongoing price increase lies a significant transformation in demand representative of the burgeoning electric vehicle and renewable energy storage sectorsThis shift, compounded by supply-side constraints in resource expansion, has raised alarms regarding mismatches in supply and demand, propelling the center of lithium pricing upward.

Interestingly, despite the price hike, the sales trajectory for electric vehicles in China remained seemingly unaffected in the immediate termHowever, foreseen longer-term repercussions indicate that continued price increases may dampen consumer demand, thereby hindering the sustainable development of the EV sector in China.

The rapid rise in lithium prices has not gone unnoticed

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According to data from Wind, the price for battery-grade lithium carbonate and lithium hydroxide has accelerated since the beginning of 2022. Raw material prices have reached unprecedented highs, shaking the stability of the lithium-ion battery industryFor instance, the price of battery-grade lithium carbonate rose dramatically from 277,500 yuan per ton in January to 366,500 yuan per ton by the end of the month—a staggering increase of over 30% in just one monthFebruary saw another spike of 100,000 yuan per ton, bringing the price to 472,600 yuan per ton within a mere 20 days.

By March 23, the average price of battery-grade lithium carbonate soared to 504,000 yuan per ton, manifesting an increase of 226,500 yuan from the beginning of the year—an astonishing 81.62% rise.

The economics of electric vehicles is heavily influenced by the costs associated with their key components

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A significant portion of these costs stems from the battery system, specifically the lithium battery, which accounts for a staggering 30% to 45% of the overall cost of an electric vehicleThe lithium battery itself constitutes approximately 75% to 85% of the costs associated with the battery-driven system.

Within the production cost framework for batteries, cathode materials represent roughly 40% of the total expense, and lithium carbonate is a primary component of these cathode materialsCurrent assessments suggest that a single kilowatt-hour (kWh) lithium battery requires between 0.6 to 0.8 kg of lithium carbonateConsequently, the recent surge in lithium carbonate prices translates into an increase of 16,000 to 22,000 yuan in production costs for a 60kWh lithium battery pack.

As the costs of essential raw materials rise, total vehicle production expenses have followed suit, leading to instances where vehicle prices have fallen below production costs

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Notably, in February 2022, models such as the Ora Black Cat and White Cat publicly declared a halt to new orders due to these pressures.

Recently, several electric vehicle manufacturers have begun to raise their sales prices in an effort to offload some of the increasing production costs onto consumers.

Research report findings from Yindong Securities indicated that nearly 20 electric vehicle manufacturers began announcing price increases by early March, with notable brands like Tesla, BYD, Xiaopeng Motors, NIO, SAIC Roewe, GAC Aion, Great Wall's Ora, Nezha Auto, and Geely Geometry among themFor instance, Tesla implemented three consecutive price hikes within the span of one week, affecting prices for the high-performance versions of Model 3 and Model Y by 18,000 to 20,000 yuan; meanwhile, the standard range version of Model Y saw its price raised by 15,100 yuan for the second time this year.

Supply issues remain a significant concern in the current lithium market

Analysts broadly agree that the recent surge in lithium prices is driven by supply and demand interdependencies, highlighting a changing structure characterized by expanding requirements in electric vehicle manufacturing and renewable energy storageCoupled with production bottlenecks on the supply side, these trends have intensified fears surrounding supply shortfalls.

Since the acceleration of the development of China's electric vehicle sector starting in 2014, the sales figures have continuously climbed, with annual growth rates surpassing 70%. In 2021 alone, China produced a cumulative total of 3.545 million electric vehicles—an astonishing 2.179 million more than the previous year, marking a year-on-year growth of 159.52%. Similarly, the total number of electric vehicles sold reached 3.521 million, an increase of 215.4 million units, representing a year-on-year growth of 157.57%. This significant growth translates to an impressive 13.4% market share of total vehicle sales, an increase of nearly 8 percentage points.

The rapid expansion of the electric vehicle industry in China has fundamentally transformed the terminal demand structure for global lithium resources

From 2014 onward, the corresponding need for lithium in industries related to electric vehicles has burgeoned from 16% to nearly 49%, while traditional sectors such as ceramics, glass, and lubricants have seen a steep decline to just 27%.

Driven by surging vehicle sales, battery manufacturers have ramped up their expansion plans significantlyAccording to Yindong Securities, companies such as CATL, BYD, EVE Energy, and Gotion High-Tech have issued substantial plans for capacity expansionBy 2025, the cumulative production capacity of the top 10 battery companies in China is expected to exceed 3TWh, with goals set for individual companies ranging from 100GWh to 670GWh, culminating in a total target of 3,070GWh.

In a broader context, 2021 saw global production levels of lithium-ion batteries peak at 296.8GWh, with China's contributions amounting to 154.5GWh—approximately 52% of the total

Based on these trajectories, the future capacity goals propose an ambitious target of more than tenfold compared to the global production sums seen in 2021.

Currently, China stands as the world’s largest consumer of lithium, accounting for roughly 54% of global consumptionHowever, the supply landscape reveals a stark contrast, as approximately 70% of lithium raw materials are imported, presenting a pronounced challenge in fulfilling the expanding capacity ambitions of Chinese battery manufacturers.

As of late 2020, the global distribution of lithium resources reveals 8.6 million tons of lithium resources globally, of which approximately 5.8 million tons exist as brine—primarily found in the lithium-rich areas of South America and AustraliaThis uneven distribution poses significant implications for supply chain stability, particularly as China's share of global lithium resources stands at only 6%.

In terms of production statistics, a report by the Zheshang Bank Research Institute noted that worldwide lithium production outside the United States totaled around 82,800 tons in 2020. Australia emerged as the largest contributor with 40,000 tons, followed by Chile at 18,000 tons and China at 14,000 tons, highlighting a significant dependence on a few key countries for lithium supply.

In the years 2019 and 2020, global lithium carbonate demands were reported at approximately 307,000 tons and 369,000 tons respectively, with supplies outstripping these demands by a narrow margin

By 2021, the demand surged to about 502,000 tons, challenging supply levels that only saw modest increases, aggravating the imbalance between supply and demand for lithium resources.

The stark contrast between the rapid pace of lithium battery production and the considerably longer timeline required for the development of upstream lithium resources poses significant obstacles to demand-supply equilibriumTypically, expansion at the mining level sees timelines of 3-5 years, and when accounting for exploration and design phases, total development timelines stretch to 7-8 years.

The forecast for 2022 and 2023 suggests that global demand for lithium carbonate will reach approximately 728,000 tons and 896,000 tons respectively, while expected supply levels will hover around 690,000 tons and 956,000 tons

This forecast foresees supply gaps in the coming years, with predications of continued shortages.

Despite current market vibrancy, serious attention is directed towards the implications of rising prices and necessary actions to stabilize the lithium supply chainThe total sales figures for January and February 2022 tallied a remarkable 765,000 electric vehicles sold, representing a staggering year-on-year increase of 154.7%. Yet this growth may mask underlying challenges, as price hikes exert pressure on consumer demand.

Recognizing the mounting obstacles in the renewable energy sector, a symposium on March 18 was convened to address the increasing prices of upstream materials in the lithium industryStakeholders were urged to enhance supply-demand alignment, establish stable cooperatives, and collectively steer lithium salt prices towards rationality.

An official from the China Association of Automobile Manufacturers, Chen Shihua, remarked in a media interview that the current unregulated rise in raw material costs diverges sharply from normative supply-demand conditions, voicing concerns over speculative hoarding and price manipulation activities