The critical metal used to make electric vehicle batteries, once described as “the new oil,” has been crashing in price amid a slowdown in EV demand.

Lithium prices are down more than 80% from their 2022 peak — the same year in which Tesla’s (TSLA) CEO Elon Musk noted the metal has gone to “insane levels!”

The critical silvery-white soft metal is bought via contracts between buyers and sellers, which are typically kept private. However, prices in China, the largest refiner and consumer of lithium, are public. Those plummeted from an all-time high beyond $80,000 per metric ton in 2022 to below $14,000 this month, according to Fastmarkets data.

“We’re in another bear market,” Piedmont Lithium CEO Keith Phillips told Yahoo Finance. “I really think we went from euphoria two years ago to despair today. Someone described it … as peak pessimism.”

The US government’s aim has been for 50% of all new vehicle sales to be electric by 2030. Along with incentives for EVs and domestic critical metals production, that has prompted an influx of investments across the industry.

Last year, energy giant ExxonMobil (XOM) announced plans to become a major lithium supplier for the electric vehicle industry, targeting production in 2027.

The company aims to produce enough lithium to supply the manufacturing needs of automakers for more than 1 million EVs per year by 2030.

‘Shifting into surplus’

“A lot of supply that could come online cheaply came online and added a lot of product to the market to the point where the market this year is shifting into surplus for the next three to four years before demand finally catches up the supply response,” Frank Nikolic, analyst at CRU Group, told Yahoo Finance.

In response to the oversupply, producers have cut head count and scaled back on projects. Piedmont Lithium recently announced it will slash 27% of its workforce.

Producer Albemarle (ALB) also said it will cut jobs and scale back spending on a major refinery project as part of a wider strategy to cut costs.

“At today’s prices, the economics for new greenfield projects, particularly in the west, are not supported,” Albemarle CEO Ken Maters said after the company’s quarterly results last week.

“You see that adjustment starting to happen with the recently announced production curtailments and project delays, including our own,” he said.

“Financing is more expensive, debts more expensive,” added Piedmont Lithium’s Phillips.

Is the death of the EV industry ‘greatly exaggerated?’

Long term, analysts and industry participants expect EV demand to pick up, especially if the Federal Reserve cuts rates later this year.

“Prices will rebound, I think, and go to very high levels,” said Phillips. “I think the demise of the EV industry is greatly exaggerated. … The business is still growing strongly,” he added.

Global EV sales declined 26% month over month in January, but grew 69% in the first month of 2024 on an annualized basis, according to data compiled by consultancy firm Rho Motion.

EVs are expected to make up about half of new car sales worldwide by 2035, according to Goldman Sachs research. That means continued demand for lithium.

“Maybe [in] 2027, 2028, we’ll start to shift back into [supply] deficits,” said CRU Group’s Nikolic.

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