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Elon Musk recently made a prediction that could have EV producers on edge. Musk envisions a likely shortage of lithium, an essential component of EV batteries. In fact, the Tesla CEO isn’t the only person raising a warning about a potential shortage in this area. Another CEO has expressed his agreement with Musk’s opinion as well. 

Elon Musk predicts lithium shortage

Elon Musk at the lithium battery Tesla Powerpack Launch Event at Hornsdale Wind Farm in Adelaide, Australia
Elon Musk at the Tesla Powerpack Launch Event | Mark Brake/Getty Images

Lithium is a key component in the production of EV batteries, and prices for it have been rising significantly in recent years. This rise in prices and the difficulties in extracting and refining lithium have created a potential perfect storm for EV manufacturers.

As Fortune recently recounted, Elon Musk has sounded the alarm on this topic. In a tweet, he commented on the “insane levels” that lithium prices had reached. “Tesla might actually have to get into the mining & refining directly at scale, unless costs improve,” he wrote. “There is no shortage of the element itself, as lithium is almost everywhere on Earth, but pace of extraction/refinement is slow.”

Demand for EVs has increased enormously

Part of what is driving the surge in lithium prices is a large increase in demand for electric vehicles, which has never been higher. The second quarter of 2021, for example, saw consumers purchase 118,233 EVs compared to just 33,312 in the first quarter of 2020. What’s more, in the second quarter of 2021, EV sales increased 201.1% from the first quarter.

Now, the first quarter of 2022 has seen companies such as Tesla, Mercedes, and Volkswagen making record numbers of EV shipments. In addition, more and more companies are pledging to have all-electric lineups within the next decade. The resulting growth in EV production and sales has led to a four-fold increase in the use of lithium over the past decade. That has resulted in a whopping 438% increase in lithium prices year over year. 

Rivian CEO predicts lithium battery shortages

Elon Musk isn’t the only CEO trying to bring attention to what he sees as an impending lithium crisis. Rivian CEO R.J. Scaringe has very similar concerns, which he recently expressed to the Wall Street Journal. In an interview with that outlet, Scaringe referred to the current semiconductor chip crisis that is disrupting the automotive supply chain and said, “Semiconductors are a small appetizer to what we are about to feel on battery cells over the next two decades.”

What especially worries Scaringe about the upcoming difficulties in securing enough lithium to produce EV batteries is what he sees as a complete lack of preparedness throughout the supply chain, combined with the speed with which manufacturers are going to need to transition to more robust EV production. As he explained it, currently, “90% to 95% of the supply chain does not exist” to meet government targets over the coming decade. 

The Wall Street Journal expects that there will be a huge 50% jump in demand for lithium-ion batteries in just the coming year. If that prediction turns out to be accurate, it does seem difficult to see how a sufficient supply of lithium can be secured and maintained in such a short amount of time. 

Though Rivian and Tesla are in many ways rivals, it’s clear they have at least one thing in common, and that’s an awareness of the need to establish better lithium supply chains and extraction practices. If EV manufacturers can’t develop a way to meet the challenges of manufacturing with lithium, the rest of their battles will ultimately be moot. 


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