Battery Electricity Storage Sparks A Third Lithium Boom

A second significant growth market could make it third-time lucky for investors with an appetite for another roller-coaster ride on lithium, an important battery metal.

Best known for its use in the batteries which power electric vehicles (EVs), demand for lithium used in battery energy storage systems (BESS) is booming.

Battery electricity storage units at a hybrid power plant in Germany. The solar park supplies around 14,000 households with green energy. Photo by Jan Woitas/picture alliance via Getty Images)

dpa/picture alliance via Getty Images

The BESS factor can be seen a 77% rise in the price of lithium over the past 12-month, outperforming most other metals, including gold which is up “only” 73%.

Much of the percentage increase in the lithium price is a result of the calculation being based on a low starting point after two periods of sharp decline.

Between late 2022 and mid-2023 the lithium price crashed by 70% before a recovery and then a second crash which lasted until the middle of last year, dragging the price down by 89% from its 2022 peak.

It’s the potential of lithium to deliver extreme price movements which will have investors wondering whether the rally of the past 12-months can survive or whether there’s a third fall around the corner.

Supply Response Coming

If lithium was relying solely on EV demand a prudent investor would stay away because there are signs emerging of producers rushing to restart mothballed mines in an attempt to catch the recent price spike.

But if BESS demand is a strong as it appears to be then lithium might be able to retain enough of the price increase to justify investment in low-cost miners such as Australia’s PLS (formerly Pilbara Minerals) which has fallen by 15% over the past month after a 90% rise last year.

Industrial and household use of batteries to store electricity, some of which is produced from weather dependent energy sources such as wind or solar radiation, has been growing faster than EV demand which slowed to a crawl last year.

Chinese electric vehicles ready for export. Photo by STR/AFP via Getty Images.

AFP via Getty Images

Consumer reluctance to wholeheartedly embrace EVs because of issues such as range anxiety and low resale value has seen lithium demand from the vehicle sector fall from an annual growth rate in Gigawatt hours of 22% in 2024 to a forecast growth rate this year of 10%, according to a report by the big investment bank UBS.

BESS demand, which was modest until a few years ago, grew in 2024 by 87% and is forecast to grow by 60% this year.

The UBS report headed “Here we go again, for the 3rd lithium price cycle” is the latest in a series of investment bank reports into the latest lithium revival.

Just how fast the lithium recovery is moving can be seen in UBS being forced to sharply increase its price predictions which, in the case of lithium carbonate, has been boosted from an earlier bank forecast for this year of US$16,500 a ton, which is below the current market price of US$19,700/t to US$26,000/t.

Triple Parity

UBS said it was optimistic that EVs were close to achieving triple parity with gasoline powered vehicles, matching on cost, range and charging time.

The bank expects overall lithium demand to grow by 14% this year and 16% next year leading to a modest shortfall until a supply response kicks in.

The challenge for investors is to judge whether this third wave washing over the lithium market will fade as quickly as the first two, in which case the price surge of the last 12-months could quickly evaporate.

Or whether lithium has matured from the status of novelty metal to claim a position alongside better known metals with deep markets such as copper and aluminum.