30% of Lithium Producers are in the Red: Who is to Blame?

The world’s efforts at energy transition depend on lithium. With EVs grabbing the spotlight, the global demand for this metal has been rapidly growing. And yet, the global lithium market is expected to remain oversupplied till 2028. As a result, lithium carbonate, a key component of energy storage batteries, is likely to stay priced below $20 per kg, at least through 2027. The price of lithium carbonate plunged from a record high of more than $72,000 per metric tons in 2022 to around $10,254 by the end of 2024. With prices hitting a record low of around $9,000/t in mid-2024, almost 30% of lithium producers likely ended the year with losses.

Take the world’s largest lithium producer as an example. Albermarle Corp reported losses of more than $1 billion. No, that’s not for the year. The company accrued these losses in just one quarter. The company also announced its intention to cut its capital budget due to a 71% decline in lithium prices.

How Lithium Oversupply Reached This Level

The Devil on the Demand Side

So, what’s behind this global lithium glut? The main culprit is misguided government policies. With climate change taking the spotlight, governments around the world took it upon themselves to promote electric vehicles (EVs). While Europe was a frontrunner in offering incentives, the US also encouraged EV adoption through tax credits and grants. India soon became the provider of the highest subsidies among major economies to drive EV purchase.

These incentives led to an exponential growth in the demand for EVs. In 2022, around 10% of the passenger vehicles sold globally were all-electric, representing 10X growth in just five years. By December 2022, the percentage grew to 23%. The rapid growth in EV adoption fueled the demand for lithium batteries. In response, lithium producers greatly expanded their supply.

As always, taxes and subsidies succeeded in distorting market mechanisms, leading to inefficient allocation of resources.

That’s the reason the market went out of balance. So, when the subsidies suddenly dried up, it caused a market shock. Here’s how things played out:

The German government ended its subsidy program for EVs in mid-December 2023. By July 2024, the sales of new EVs in Germany plummeted by nearly 37%. By August 2024, EV sales were down almost 69%. France, which lowered subsides by almost 50%, suffered a 33% decline in EV sales. These leading economies and other countries like Sweden trimming EV subsidies resulted EU’s EV sales declining by 49% in August 2024.

Such steep declines in demand, after EV incentives were rescinded, caused the demand-supply imbalance in the lithium market. The dip in EV adoption appears to have continued in 2025, with Tesla noting a 63% drop in sales in Europe alone in January. So, the situation could get worse.

Satan on the Supply Side

Lithium producers were stuck stockpiles and were unable to contract production capacities as rapidly as the plummeting demand. They also wanted to avoid any labor issues resulting from mine closures.

On the production side too, government intervention played a role in worsening the glut. The US reaffirmed the Section 301 tariffs on lithium imports from China in September, which directly impacted battery suppliers by increasing their costs.

China, being the world’s largest producer of the metal wanted to hold onto this position, despite trade restrictions placed by the US and EU. Backed by government support, Chinese mines maintained their production targets regardless of weakening lithium prices.

Even as EV demand started declining, global lithium production rose from about 737,000 tons in 2022 to nearly 1.2 million tons in 2024.

What to Expect in 2025 and Beyond

S&P Global expects demand to remain rangebound through Q1 2025, with a modest increase around mid-March. However, analysts remain cautious about the price recovery being sustained in the longer term.

Production cuts were announced by lithium producers worldwide in the last quarter of 2024. In fact, Australia-based producers Pilbara Minerals and Mineral Resources have announced to keep one of their production assets closed in 2025 due to the oversupply and low price. As market forces begin to play out, the balance will be restored.