How Crucial is Lithium for EVs & Electrification?

As the world accelerates towards net zero, the question of mineral availability has emerged as a pivotal factor in determining the speed and success of energy transitions. 

Among the essential minerals, lithium is not just indispensable for EV battery production, but it is pivotal in supporting the broader clean energy infrastructure.

Without a reliable supply of lithium, delays in global decarbonisation efforts are likely.

Why does clean energy demand minerals?

The evolution to an energy model based on solar, wind and EVs requires a shift in mineral consumption compared to the fossil fuel-driven systems of the past.

Clean energy technologies depend significantly more on mineral inputs.

EVs require six times more mineral resources than traditional internal combustion engine vehicles.

Since 2010, the need for these minerals has increased by 50%, driven by the adoption of renewable technologies.

For EVs and battery storage, essential minerals include:

• Lithium
• Nickel
• Cobalt
• Manganese
• Graphite

Apart from these, materials like copper and aluminium are integral to electrical grids, while rare earth elements are crucial for turbines and motors.

These components ultimately dictate the longevity, performance, and energy density of batteries.

Lithium’s explosive demand trajectory

Lithium is now the most essential mineral for achieving climate goals, according to the Internal Energy Agency (IEA).

As EV adoption grows and energy storage solutions become more prevalent, lithium consumption is projected to increase by more than 40 times by 2040, according to the IEA's Sustainable Development Scenario.

By then, nearly 90% of mineral demand will focus on clean energy applications.

Even under less aggressive scenarios, the overall demand for essential minerals will double by 2040.

Achieving the Paris Agreement targets would increase demand fourfold, with net zero ambitions upping that to sixfold.

Lithium mining in Chile

In response to escalating demand, countries are investing heavily in scaling lithium production.

In Chile—home to the world's second-largest lithium reserves—a strategic alliance has been forged between the state-owned copper corporation Codelco and lithium expert SQM.

Their collaborative venture intends to exploit lithium reserves from the Salar de Atacama starting in 2025, with Codelco leading operations from 2031 to 2060.

“Just as we have contributed to making Chile the world leader in copper production, we will now contribute to making our country a leader in the production of lithium,” says Máximo Pacheco, Chairman of Codelco.

This partnership is not only a strategic industrial move but also an environmental one. 

Both companies have pledged high environmental standards, local engagement and technological investment to make lithium production more sustainable. 

The initiative is set to strengthen Chile’s role as a key supplier of climate-critical minerals while supporting local development.

Rio Tinto’s Arcadium Lithium

Another key development is the acquisition by global mining giant Rio Tinto of Arcadium Lithium for US$6.7bn.

This strategic move secures Rio access to leading lithium resources and strong market ties with companies such as General Motors, Tesla and BMW.

Jakob Stausholm, Rio Tinto’s CEO, said the acquisition would “create a world-class lithium business” to support the energy transition.

By integrating lithium into its wider portfolio of copper, iron ore and aluminium, Rio is positioning itself as a vertically integrated supplier of materials for low-carbon technologies.

Supply chain risks

Nonetheless, existing plans for supply and investment are insufficient to meet future needs.

In a climate-driven scenario, existing projects will only meet half of the 2030 demand for lithium and cobalt and 80% of copper requirements. 

This risks delays, price volatility and ultimately a more expensive transition.

Several critical challenges persist:

• Geographical concentration: More than 70% of cobalt and 60% of rare earths are mined in just one or two countries, primarily the Democratic Republic of the Congo and China.
  
• Project lead times: It takes an average of 16.5 years from discovery to production in mining, far slower than the pace of clean energy deployment.
  
• Environmental scrutiny: Lithium extraction, particularly from water-stressed areas like the Atacama, raises concerns over local impacts, waste and emissions.
  
• Recycling limitations: Only 10% of demand is expected to be met through battery recycling by 2040, despite the rapid growth of EV waste streams.

The cost of inaction

Mineral inputs account for a growing share of clean energy technology costs. 

For lithium-ion batteries, raw materials now make up 50–70% of the cost, up from 40–50% five years ago. 

A doubling of lithium or nickel prices could raise battery costs by 6%, potentially wiping out efficiency gains from economies of scale.

Meanwhile, electricity grids, where copper and aluminium are critical, would also face higher costs, threatening investment in much-needed transmission infrastructure.