Lithium, cobalt costs hinder battery-powered car sales, HSBC says

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A metal worker has a mixture of tantalum and lithium on the Bald Hill lithium mining site in Australia. Photo credit: BLOOMBERG

High prices for lithium and cobalt will impede sales growth in battery-powered vehicles in the coming years, according to HSBC Holdings Plc.

Global market share by 2025 for fully electric vehicles will be lower than previously predicted – 9.4 percent, compared to a previous estimate of 10.5 percent, HSBC analysts reported Alexandre Falcao and Augusto Ensiki in a report. At the same time, they doubled their prediction for plug-in hybrid EVs to 5.5 percent of the market in 2025, from 2.4 percent.

"High lithium and cobalt prices – but also limited supply and lower demand for pure EVs – are now more in favor of more plug-in hybrids in the short to medium term versus our previous forecast," said the analysts in the report.

The lithium offer will remain "reasonably tight" amid delays in new production, canceled and suspended projects, robust demand for batteries worldwide and continued pressure from the Chinese government on electric vehicles, the report said. HSBC increased its 2025-demand for lithium products by 88 percent from the last estimate more than a year ago, to 776,000 tons.

The inflection point for EV adoption will be around 2020, when the battery costs have dropped "significantly" and large car companies are selling their new EV models, HSBC said.

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Established lithium producers SQM and Livent Corp. are the best shares to obtain exposure to demand increases, according to HSBC. Glencore Plc and Vale SA will also benefit because they produce other battery materials such as nickel, copper and cobalt, according to the report. HSBC has upgraded SQM's rating to a purchase and increased its price target to $ 55 per share from $ 50. It also started Livent's coverage with a buy rating and a target price of $ 22 per share, and gave Albemarle Corp. a hold rating and a price target of $ 112.50.