Invest more or risk supply: Lithium producer warns electric vehicle industry

The electric vehicle industry must pay more for lithium in order to spur investment and prevent future supply crunches of the battery metal, the chief executive of lithium producer Livent Corp said on Friday.

Demand for EVs is expected to surge in coming years, spurred in part by government mandates, rising concern about climate change and other factors.

But the coronavirus pandemic has paused that trend, causing a short-term oversupply of lithium, pushing down prices more than 10% this year and forcing producers of the white metal to halt expansion projects.

Sensing an opportunity to pay less, the EV industry has pushed to renegotiate supply agreements while at the same time demanding higher production later this decade, a dissonance that Livent CEO Paul Graves labeled "voodoo economics."

"If you don't have a rational conversation with me about what the (lithium) price needs to be for me to invest, then I don't invest," Graves told Reuters.

Livent has, for example, halted a multiyear expansion project in Argentina. Restarting construction there would take at least six months due to regulations and other factors, and it would be several years before any new production came online, Graves said.

Livent and rival Albemarle Corp, which has also delayed expansions, reported sharp drops in sales earlier this week.

"If every EV company took their 2023 plans and went to the lithium market today, they'd probably only get about 15% of their needed supply of lithium," he said.

Historically, battery makers like Panasonic Corp have contracted with lithium producers, though automakers are mulling deals.

While lithium prices are low today, longer-term contracts should be signed at higher prices in order to incentivise the industry to build new mines, Graves said.

"Otherwise, when this does turn, and it will, this will flip the other way and lithium producers will demand higher prices," he said.