SINGAPORE (Oct 21): The replacement of the internal combustion engine with the electric motor makes the lithium-ion battery arguably the most crucial component in an electric vehicle (EV). This has drawn many companies to jump into the manufacturing of lithium-ion batteries, as well as the mining and production of lithium and other related materials. Unfortunately, not every company in the lithium space has done well.

The reason lithium players are suffering can be attributed to basic economics: the law of supply and demand. The number of electric vehicles is seen to increase, driving up demand for and prices of lithium, thereby spurring lithium miners to dig harder and deeper. Lithium exists in abundance in nature, but mining it requires investment. When output increases, prices naturally drop. Between mid-2015 and mid-2018, the price of lithium nearly tripled but it has since dropped more than a third.

Morgan Stanley forecasts that new supply from Argentina, Australia and Chile — the three main lithium producers — could add 500,000 tonnes to the market annually by 2025 — more than twice as much as the 2018 supply of 215,000 tonnes.

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