Lithium & The Future, page-3185

I have also accepted the short term oversupply with the concurrent secondary issues; economic surplus moving from carbonate to hydroxide and constraints on hydroxide conversion capacity.

There does seem to be this belief that if we overcome the short term constraints we will not see another oversupply situation in 2025, it is simply too early to make the call. There is too much we do not know.

The way I see it the biggest obstacle to achieving the rates of penetration required to achieve 2025 EV demand is and will remain price parity or very close to price parity. Without price parity large scale penetration of EV's simply will not occur and 2025 targets will get blown out. There are only really three ways around that;

1. Technical innovation to bring down the cost of battery production. This may or may not involve removing much of the economic surplus from the production process including raw mineral producers. There is also the question of at what level of the production process will most of the economic surplus exist.

2. Demand side government intervention. VAT and toll exemptions, charging stations, use of bus lanes etc. This would not be enough without imposing a real cost burden on the drivers of ICE vehicles which will have political ramifications in free western countries, not so much in authoritarian dictatorships like China. An additional issue is that demand side intervention does not foster local production.

3. Supply side government intervention. Massive government subsidies for the production of electric vehicles. Under this scenario governments will declare that EV manufacturing is an employment stimulus measure and a national security issue and use these two factors to gain political cover to pump billions of dollars into subsidizing the construction of manufacturing plants and the low corporate and labor tax rates to encourage manufacturers ongoing regional production. The net effect of this battle for EV manufacturing capacity will drive down the cost of EVs for consumers due to transnational taxpayer subsidies into the EV production process. This is already occurring in China but may expand to Europe and the US in particular.

There are also issues that may impact on the effectiveness of these measures being implemented such as a debt trap in China, continued Sino-US hostility or any number of other factors that may extend of reduce the 2025 targets. It is too early to call 2025 EV production but both the bulls and bears have valid arguments and we will have to see what happens.

My operating assumption is that ramp up over the next 10 years will create a series of over supply AND under supply situations. In fact the more rapidly the entire supply chain ramps up the more likely we are to see overcapacity at various stages of the production process and the real question is how quickly will the masses adopt electric vehicles and what will it take to get them to do that. Most people are not altruistic, most will not adopt a new technology that costs more for the same functional utility.