Keep Your Ion the Prize

THE COWEN INSIGHT

Cowen projects electric vehicle (EV) penetration to grow to 35% by 2030. This will create significant opportunities for lithium producers and the associated EV supply chain. We examine the opportunities and pitfalls ahead while looking into lithium intensity over the next decade.

Demand for lithium presents a backdrop to incentivize transformative investment in new production along with solutions such as recycling and mining technology. Our expectation for 36m EVs sold globally in 2030, or 35% of sales, equates to over 2mm tonnes of lithium chemicals vs. ~400k tonnes currently.

Investment in Lithium

We see an underappreciated investment case for lithium producers and suppliers even with lithium pricing up over 350% since early 2021. Cowen expects a 35% EV penetration rate by 2030, and we note that 2021’s rate of 7% was ultimately double initial expectations.

In our lithium supply model, we do not see visible project supply growth keeping up with demand (26% average deficit relative to demand through 2030E on average). Given lithium’s 3-4% overall contribution to EV costs and presence in all visible battery chemistry scenarios, we see supply surety for OEMs furthering the lithium supply investment case and challenging the pace of EV deliveries.

Lithium Supply / Demand Analysis

Our note combines our proprietary lithium supply/demand analysis that identifies individual mine production and incorporates our team’s EV forecast to quantify demand. We also include Cowen’s proprietary battery recycling TAM model. Our view on battery chemistry evolution and materials intensity informs our demand inputs and provides a fully rounded holistic view of where the lithium and EV markets are headed.

We forecast EV penetration to rise from 7% in 2021 to 17% in 2025 and 35% by 2030, or 4.7m battery electric vehicles (BEV) in 2021 growing to 31m by 2030. This demand outlook suggests a requirement for lithium chemical supply of 575 ktpa in 2022, up 16% YoY, 1.2 mmtpa by 2025 and 2.1 mmtpa by 2030, or an 18% CAGR.

We model an average undersupply of 22% through 2025, expanding to 28% from 2025-2030, or the equivalent of 9m BEVs that may be at risk of delay from 2023-2025, or ~25% of our model. In some cases, EV demand may cannibalize other portions of the lithium ecosystem, but scarcity of resource creates significant risk for OEMs that have not secured adequate materials supply to hit EV goals.

Upcoming Catalysts for the Lithium Industry

Upcoming catalysts include

  1. new lithium offtake agreements in 2022 that are more indexed to spot pricing
  2. continued M&A and potential upstream partnerships from major OEMs
  3. EV delivery timing as supply struggles to keep up with EV demand, particularly in the next few years
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