The plummeting price of battery-grade lithium carbonate has prompted major refineries in China’s “lithium capital of Asia” to halt production in an attempt to stem the tide. With two out of four major producers in Jiangxi province reportedly idling their equipment, the future of lithium refinery plans is uncertain. The Yichun hub, one of the largest, is the source of lithium carbonate for Chinese battery stalwarts such as CATL and BYD.
The price of lithium has dropped drastically this year, from a November peak of US$85,691 per ton of EV battery-grade lithium carbonate to the current US$32,535, due to softening demand and supply increases. Analysts predict that the price could drop even further to around US$14,500 per ton, an 83% drop from the peak.
This unexpected drop in lithium prices may cause refinery plans, such as those previously suggested by Elon Musk, to be put on hold. Musk had urged investing in refineries as a “license to print money,” and Tesla even considered building its own on the Gulf Coast. However, federal and state incentives for EV battery-grade raw materials still require investing in the US or its free-trade countries, making the future of Tesla’s refinery plans uncertain.
Cheaper lithium could enable Tesla to make further price cuts while maintaining record margins, potentially allowing for aggressive launch prices for the Cybertruck and Model 2. Tesla’s gross margin is already at a record high, and passing on some of the drop in battery material prices to its customers could benefit the 1.8-million strong waiting list for the Cybertruck.
The battery is typically the most expensive component in an electric vehicle, and Tesla recently revealed that its “Large Sedans, SUVs & Trucks” category, which includes the Cybertruck, will have an average battery size of 100 kWh. NIO has reported that each RMB 100,000 (US$14,500) drop in lithium carbonate prices increases its gross margin by 2 percentage points, indicating potential savings for Tesla and other EV manufacturers.
While the unexpected drop in lithium prices has caused major refineries in China to halt production, it could provide opportunities for Tesla and other EV manufacturers to reduce costs and improve margins. The future of refinery plans remains uncertain, but the impact of cheaper lithium on the EV market is yet to be fully realized.
