Potential EV bubble burst drags Lithium and nickel prices

There are signs that the electric vehicle (EV) bubble is bursting. For one, most EV stocks, including reliable names like Tesla, Rivian, and Lucid have all retreated sharply in the past few months. Many small EV companies like Mullen Automotive, Workhorse Group, Faraday Future, and Fisker are struggling as their cash burn accelerates.

EV bubble is bursting

There are other bad news for EVs. On Thursday, Hertz said that it was selling off over 20,000 EVs in its inventory at a big loss. In a statement, the company warned that the initial cost of buying EVs was high. 

It also noted that there was limited demand for EVs by its customers and that maintenance costs were dramatically higher than ICE vehicles. This was a surprise to many people since EVs have fewer moving parts than traditional vehicles. A likely reason is that a minor EV accident damages the battery, which is still highly expensive.

Meanwhile, in the UK, a country that is hoping to phase out ICE vehicles in a decade, EVs are not selling fast enough. In a statement last week, an industry body said that EV sales accounted for 16.5% of all vehicle sales in 2023, down from 16.6% a year earlier.

In the US, a group of vehicle dealers recently warned that most people were opting for ICE vehicles. As a result, EVs are staying in their shops for double the time it took for ICE cars. At the same time, companies like Ford, GM, and Stellantis are paring back their EV investments.

EV and battery metals plunging

The ongoing EV weakness is having an impact on EV metals that are essential in battery manufacturing. The closely-watched Global X Lithium & Battery Technology ETF (LIT) has retreated to $47.68, a 50% retreat from its highest point in 2022.

LIT ETF chart

Similarly, companies producing these metals are not doing good either. In the US, Lithium America’s stock price has dived to $5.6, its lowest point since September 2020. It peaked at over $25 in 2022. Similarly, companies like Lithium Australia, Liontown Resources, and Pilbara Metals have retreated.

A closer look shows that most of metals used for battery manufacturing have been in a deep dive. This includes metals like copper, lithium, nickel, and cobalt. After surging hard a few years ago, these metals have nosedived recently.

In addition to a slowing EV market, these metals have collapsed because of their abundance. Countries like Zimbabwe, Australia, and Chile have abundant supplies of lithium. Indonesia, the Philippines, Russia, and Australia are all endowed with vast nickel resources.

Most importantly, China has the biggest market share in these metals globally. Its companies saw the potential of EV metals earlier on and acquired them for the cheap. Now, China is doing to these battery metals what it did for steel. 

On the positive side, the falling lithium and nickel prices is triggering some actions that could push them higher in the future. For one, some companies like Core Lithium and Panoramic Resources have halted some of their operations. The same is true with companies like Chemaf Resources and Horizonte Minerals.

At the same time, many companies interested in these metals will likely slow their investments. In most cases, building mines usually takes years or even decades and is a costly exercise. In a recent note, an analyst at Liberium Capital said:

“Investors should wait to see evidence of this type of re-balancing among the world’s lithium and cobalt miners before they think about buying exposure.”

The sharp retreat of these metals puts in question Glencore’s strategy. Glencore, one of the biggest mining companies in the world, is in a strategy to separate its metals business with that of coal. 

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