Elon Musk Wants Tesla to Mine Lithium Due to 359 Percent Year-on-Year Price Hike

Workers at a factory for Xinwangda Electric Vehicle Battery Co. Ltd, which makes lithium batteries for electric cars and other uses, in Nanjing in China's eastern Jiangsu Province, on March 12, 2021 shows. (STR/AFP via Getty Images)

Billionaire entrepreneur Elon Musk has proposed that Tesla might have to begin mining lithium, a critical element in electric vehicle batteries, given the skyrocketing prices of the chemical element.

In 2012, a ton of lithium cost $4,450. A decade later, in 2022, the price surged to $78,032 per ton, an increase of more than 1,650 percent. In the single year between 2021 and 2022, prices rose by 359 percent.

“Price of lithium has gone to insane levels! Tesla might actually have to get into the mining & refining directly at scale unless costs improve. There is no shortage of the element itself, as lithium is almost everywhere on Earth, but pace of extraction/refinement is slow,” Musk said in an April 9 tweet.

High lithium prices forced Tesla to raise vehicle prices in March. In China—a major market for electric vehicles—manufacturers raised EV prices last month.

During Tesla’s Q1 earnings call on April 20, Musk stated that they are “looking carefully” at all the raw materials involved in manufacturing car batteries and trying to figure out how to “accelerate the total amount of raw materials needed to transition the world to sustainability.” Tesla will make some “exciting announcements” on the matter in the coming months, he added.

Musk encouraged entrepreneurs looking for business opportunities to “get into the lithium business.” The margins on lithium are now “practically software margins,” he argued while stating that he has seen cases where spot lithium prices are 10 times higher than the cost of extracting the metal.

Tesla had earlier bought 10,000 acres of lithium-rich clay deposits in Nevada. The company is building a lithium processing plant in Texas, where spodumene concentrate, processed rock containing the metal, will be converted into lithium hydroxide, which is critical in building EV batteries.

Tesla has also entered into supply deals with China-based Ganfeng Lithium Co., the world’s largest lithium metals producer, and Australia-based Core Lithium Ltd and Liontown Resources Ltd.

Joe Lowry, an expert in lithium, believes that the metal will continue to remain in short supply in the coming years, which could mean that prices might continue to remain elevated. As lithium prices spike, so will the cost of electric batteries. This will make it harder for electric cars to achieve price parity with combustion engine cars.

“In the next two years, even though there will be significant growth in supply, it will be less than demand, so the gap will just continue to grow,” Lowry told Bloomberg.

“It’s simple math. It’s like, the bus in front of me is going 50 miles per hour, I’m going 45 mph, but I’m saying I’m gonna catch it in 2025. I believe there will be a day in the future when lithium is in oversupply, but it won’t be in this decade.”