Ford Transit EV.jpg [4]

“The coming boom in lithium” is a phrase that seems to be gaining momentum these days, much to the delight of the dozens of junior companies raising capital to join the rush to find and develop lithium deposits. 

Today’s column summarizes the demand side of the lithium business, which is, of course, based on forecasts that approximately 20% of vehicles will be some hybrid and/or electric vehicle using lithium batteries within the next 10 years. 

Monday’s column will talk about the supply side of the lithium business. Although there are several dozens of junior companies exploring for and developing lithium mines and other recovery facilities, the business is dominated by four major companies, three of which are publicly traded.

The story goes that the rapid adoption of electric vehicles with lithium batteries will send the lithium market to the moon, so now is the time to begin buying these lithium stocks.

Lithium is hailed by many as a key to the adoption to electric vehicles because it is allows more energy to be stored in a lighter, smaller space than most alternatives. Lithium batteries are now in laptop computers and mobile phones. 

More than a dozen auto manufacturers have various kinds of electric vehicles headed for the U.S. and global market over the next two years, and all will use lithium batteries, including GM Chevy Volt (EREV), Ford Transit (EV), Chrysler Dodge and Jeep (EV), Nissan Leaf (EV), Mercedes S400m (HEV), Toyota Prius (PHEV), Tesla Roadster and Tesla S (EV), BYD E6 (EV) from China, Fisker Karma (PHEV), and Think City (EV) from Finland. Other big dogs in the hunt include Volkswagen, Mitsubishi and BMW.

Rockwood Holdings, Inc. [5], (NYSE: ROC [6]) claims to be the world’s largest producer of lithium compounds used in lithium ion batteries.

The company’s June 2010 financial presentation [7] forecasts 1.8 million hybrid vehicles around the world using lithium batteries by the end of 2010. Thereafter sales of all hydrid/electric formats will increase by a total of about one million vehicles per year to reach 5.6 million vehicles in 2015 and then zoom to 17.3 million vehicles in 2020.

Here are Rockwood’s numbers for lithium requirements of various electric vehicle formats: 

All-electric vehicle (EV) battery capacity of 25 thousand kilowatt hours (kWh) requires approximately 40 pounds of lithium carbonate equivalent (LCE); plug-in hybrid (PHEV) capacity of 16 kWh requires 20 pounds LCE; and mild hybrid (HEV) capacity of 1 kWh requires four pounds LEC. (Other sources: EVs 25 kWh requiring 15 pounds LCE; PHEVs 12 kWh requiring 7.2 pounds LCE; and HEVs 2 kWh requiring 1.2 pounds LCE).

Pike Research [8] forecasts that annual lithium transportation battery sales will grow more than eight-fold in the next five years with nearly $8 billion in sales worldwide by 2015, up from $878 million in 2010.

Even though vehicles powered at least part-time by battery power only will make up less than 2.5% of the world’s fleet in 2015, Pike Research anticipates that improved manufacturing efficiencies and expanded access to lithium will halve the installed cost of lithium vehicle batteries between 2010 and 2015, to $470 per kWh.

Applying the Pike Research $470 per kWh to the range of capacity requirements from Rockwood and others, we get vehicle lithium battery costs of $11,750 for EVs, $5,500 to $7,500 for PHEVs and $740 to $1,500 for HEVs.

Rockwood says current global demand for battery-grade lithium carbonate is 30 million pounds per year. An additional one million EVs will demand an additional 40 million pounds An additional one million PHEVs will demand an additional 20 milllion pounds.

So, yes there seems little doubt that if the adoption of HEVs and EVs occurs according to these forecasts, the demand for battery-grade lithium will skyrocket. 

That’s a very big “if," in the view of John Petersen at AltEnergy Stocks [9] who writes: 

“Most consumer applications use somewhere between one and ten cells and the cost of the battery is an insignificant sliver of the purchase price. A Tesla Roadster, on the other hand, uses 6,800 cells [10] and the battery pack represents somewhere between one-third and one-half of the purchase price. I don't worry about battery cost when I need five watt-hours for my cell phone or 40 watt-hours for my laptop. When you start talking about 20,000 watt-hours for a vehicle, however, it's an entirely different ballgame.”