Electric car industry faces a looming supply storage

“Lithium is the new oil,” goes the saying in electric vehicle (EV) circles.

If you haven’t heard the catchy maxim, it means that new-age batteries made from elemental lithium are the energy world’s “in-thing.” By extension, a tank of gasoline containing a cocktail of carbon and hydrogen atoms is passé.

Think back to the early 1900s: It’s like an oilman wearing spats and a fedora walking into a cowboy bar saying, “Oil is the new horse hay.”

 Fast forward to today: I’m a believer that lithium-ion batteries are going to power a lot of cars going forward. It’s a nascent trend that’s just getting started.

But my head hurts when running the numbers. The equivalent of 15 thousand cell phone batteries are needed to make one battery for an 80 kWh electric car. So, ramping up raw material inputs to build millions of car batteries a year fills the back of the envelope with scalability issues.

Lithium, like oil, is found in the earth’s crust. So are other raw materials—like cobalt and graphite—that are needed to build a typical rechargeable battery. Supplying these for cars, home storage and other potential high-growth markets will require vast global supply chains of extraction, refining, distribution and recycling, not to mention the financial infrastructure to trade the commodities.

Yet, the many raw material supply chains for larger-scale batteries are immature relative to the potential market pull. Every few weeks the projections for EV sales steepen. Everyone talks about car and battery plants. Amidst the hype few talk about upstream mines and processing facilities. It’s like being bullish on gasoline cars and refineries, but dismissing the importance of scaling up oil to meet the demand.

We can look back to the history of oil and early cars to understand scalability.

Consider this: By the time Henry Ford’s fledgling auto company launched the mass-market Model T in 1908, John D. Rockefeller’s Standard Oil Company had an estimated market capitalization of $1 trillion (in today’s dollar terms). An equally formidable global supplier of oil at the time was the Royal Dutch Shell Group.

There was no shortage of oil when the gas-powered car came out. Already fueling lamps, ships and trains, the oil industry of the early 20th century was a ready-to-go, rapidly scalable supply chain waiting to fuel the adoption of millions of horseless carriages.

The reverse is the case for the EV business today. Battery powered cars are potentially coming to market far faster than the back-end resource industries needed to supply them. Batteries need many different raw material supply chains to ramp up; petroleum cars only needed oil.

Battery bulls tend to trivialize the issue of resource supply. A common, don’t-worry-be-happy refrain comes with a broad wave of the hand: “There are vast deposits of lithium in the world.”

Written for Oilprice.com by Peter Tertzakian, Chief Energy Economist and Managing Director at ARC Financial Corp., Canada’s largest energy-focused private equity firm.