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Oil is sometimes called "black gold", while cotton is often called "white gold". Today, with the global fight against climate change taking off, a similar interest is developing for specific natural resources that are essential for environmentally friendly technologies such as electric vehicles. Lithium and cobalt, essential for the production of batteries, have experienced a particularly spectacular increase in demand. However, the production costs of these metals fell by nearly 30% in 2019, which could mark a turning point for the widespread adaptation of electric vehicles, which are increasingly competitive with internal combustion vehicles.
Growing demand
Environmentalists have warned for decades of the effects of climate change, which has had little impact on the adaptation of specific technologies. In recent years, however, sales of hybrid and all-electric vehicles have taken off strongly due to rapid technology improvements, increased government subsidies and reduced production costs. In some cases, countries are struggling to install enough charging facilities, such as Norway, which has the highest concentration of electric vehicles per capita in the world.
China, on the other hand, is the largest market for car manufacturers. In 2018, more hybrid vehicles and electric vehicles were sold in the Asian country than in the rest of the world. Chinese companies have a solid hold on the global supply chain of essential components of the battery. To strengthen its global position, Beijing is given as a top priority to play a dominant role in the technologies of the future. Electric vehicles are among the ten key areas identified in the "Made in China 2025" industrial strategy, which has given a new impetus to demand. Related: Will China cut off rare earth exports?
Mining activities, however, have a devastating environmental and social impact in certain areas where lithium and cobalt are found. Cobalt extraction is particularly problematic, with most of it concentrated in a single region in southern DRC where more than half of the world's production is produced. Due to political instability and weak institutions, illegal mines are common in the region where 35,000 children participate in the activities. Unfortunately, the electrification of companies and the growing demand for batteries are not a good omen for the future of the mining industry in DR Congo.
Demand up but prices down
In contrast, soaring sales of electric vehicles in China, Europe and the United States did not have the expected effect on commodity prices. According to some badysts, the market is in surplus as producers have responded to forecasts of insufficient production of lithium and cobalt. The current situation is expected to continue until 2020 and perhaps even more.
Francesco Venturini, CEO of Enel X, predicts a decisive moment for electric vehicles, as general production costs are also decreasing. He compared recent developments with the experience of the photovoltaic industry in 2010, when prices had dropped by 84% due to a sharp drop in basic polysilicon, used in photovoltaic cells, from $ 450 / kg to $ 70 / kg in one year.
Uncertainty to come
From an economic point of view, the drop in prices of some products is a boon for EV producers. In 2015, battery accounted for about 57% of the total cost of vehicles. The lower prices mean that the share of batteries in overall expenses has fallen to 33% this year and that it could have reached 20% in 2025. This forecast does not include a sustained reduction in lithium prices and cobalt, which could further reduce costs and improve the competitiveness of electric vehicles compared to the internal combustion engine. Related: Is propane clean?
However, it is more likely that market forces will keep supply and demand in balance and prices in check. Lower prices will lead to increased demand for electric vehicles, which will affect commodity prices. In addition, producers are looking for alternative methods and metals to produce batteries to avoid excessive dependence on lithium and cobalt. This would influence long-term demand and, therefore, suppress prices. For the moment, the world depends on a limited number of metals to move away from fossil fuels, and the fall in prices could not have come at a better time.
By Vanand Meliksetian for Oilprice.com
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