Why Elon Musk is asking for more investment in lithium

• Lithium is critical to automakers’ plans to sell more electric vehicles.
• It is an important material in electric vehicle battery packs. But demand will outstrip supply for years to come.
• Elon Musk from the Tesla company called on entrepreneurs to get into the lithium business.

Elon Musk is calling for more investment in lithium, a silvery-white metal that is crucial to the production of batteries for electric cars. He recently complained about “crazy” metal costs and said anyone who gets into the refining business is basically getting a “license to print money.”

The billionaire is right. As the auto industry moves away from dirty fossil fuels to a cleaner battery, lithium is in the spotlight. In recent years, the demand for the metal has increased dramatically, as has its price.

Questions remain about whether the world will be able to mine, refine and ship enough lithium to support the green revolution that is set to take place in the next decade and beyond. Here, we’ve laid out the basics of why lithium is so important and what might happen next.

What is lithium and what is its role in electric vehicles?

It is a critical material in the high-voltage lithium-ion batteries that make electric cars. It’s also in laptop batteries and the like.

Why is Musk talking about this?

As car companies have ramped up sales of electric vehicles in recent years — and made ambitious promises about their electric futures — demand for lithium has exploded.

According to McKinsey, at the beginning of March, lithium prices rose by 550% compared to the previous year. Demand for the metal will outstrip supply for at least the next five years, and the shortage could continue until 2030, S&P Global Commodity Insights said.

Against this background, it is understandable why Musk is urging entrepreneurs to recycle more lithium. Although raw lithium is abundant, it must be purified before it can be used in battery cells.

Securing enough lithium for batteries is one of the biggest challenges facing automakers in the near term, Sam Abuelsamid, principal e-mobility analyst at Guidehouse Insights, told Insider. Sources of the metal are still fairly limited because there wasn’t much demand for it until electric cars took off, he said. But the industry is working to increase supply.

“In the next three to five years, we’ll probably be fine,” Abuelsamid said. “Unless these other sources of lithium are developed relatively quickly, we will certainly face a very high risk of not having enough lithium in the second half of the decade.”

What are car companies doing about it?

The uncertainty surrounding lithium supplies has prompted automakers to go directly to the source and secure their own supplies. Ford this week announced deals with lithium companies that will allow it to build 600,000 electric vehicles a year starting in 2023. General Motors has made similar deals.

Both have made deals with American suppliers. Abouelsamid said that to avoid a permanent shortage of computer chips, automakers want to avoid over-reliance on imports. Most of the current lithium supply is mined in South America or Australia and processed in China.

Tesla has said that it is considering the possibility of self-processing of lithium. “We’re also working on a lithium recycling activity, because the best way to learn how to accelerate something is to do it yourself,” CFO Zachary Kierhorn said recently.

Are there environmental costs in lithium mining?

Environmentalists criticize lithium mining for overusing local water supplies. According to Steve Christensen, executive director of the Responsible Battery Coalition, these practices are now in the minority.

One way to make electric vehicle batteries greener—and increase lithium supplies at the same time—is to focus on recycling lithium-ion cells. If battery recycling is expanded, incentivized by the government and made more efficient, it will dramatically reduce the need to mine and refine new lithium, Christensen told Insider.

“I totally agree with Musk that you can print your own money,” he said. “I think you can also create a machine to print money from recycled materials if we can get an incentive for recycled content in batteries.”