Elon Musk's quest for the mass-produced electric car isn't only disrupting the traditional auto market—it's shaking up the markets for the metals that go into cars too.
The trend is most evident in the market for lithium, which is used in the lithium-ion batteries that power electric vehicles. Already, growing demand from the auto industry is starting to outrun supply. According to The Wall Street Journal, prices for lithium carbonate, an intermediate product in the refining of lithium, were up 47% from the average price in 2015 in the first quarter of this year. It cited figures from Benchmark Mineral Intelligence, a data provider, showing that prices for lithium rose 28% last year, in which time the Dow Jones Industrial Metals index and the Platinum and Precious Metals index both fell over 40%.
Given that pure EVs account for less than 1% of all vehicles on the world's roads, the potential growth in demand for lithium is dizzying. The WSJ cites a Goldman Sachs report suggesting that demand could triple within 10 years to 570,000 tons a year. Musk said earlier this week that for Tesla to meet its target of 500,000 cars a year, "we would basically need to absorb the entire world's lithium-ion production."
And Tesla represents only a fraction of the likely demand growth. According to BMI, China will build twice as much new lithium-ion battery capacity as the U.S. by 2020. Tesla's 'Gigafactory 1' in Nevada may be (comfortably) the biggest factory being built, but it is only one of at least 12 such projects across the world, BMI says.
Other metals that could also profit from evolution in the sector could be copper (EVs use four times as much as a conventional car) and aluminum—a material that companies are turning to to replace steel in order to cut overall weight and fuel consumption (think of Ford's F-150, as well as the all-aluminum frame of Tesla's Model S). At the same time, research house Industrial Minerals reckons that Tesla's Gigafactory alone could need some 93,000 tons a year of flake graphite to make anodes for its batteries. That would be the equivalent of six new mines—a powerful incentive for industry to improve the inefficient methods that are the current industry standard (IM reckons up to 70% of raw graphite mined is wasted).
Lithium is relatively abundant in the earth's crust but often hard to get to, and the technology needed to extract it can differ from one deposit to another. The world's biggest resources, in Bolivia, would have to cross the Andes to reach the nearest seaport, or else face a long journey across South America to the Atlantic.
One would think that an almost completely new source of mineral demand ought to be met with enthusiasm in a mining sector that is in near-universal retreat at the moment. But the prospect of raising billions of dollars in capital for fresh projects at the same time as the industry is shuttering earlier ill-judged ventures—some of which were predicated on optimistic new paradigms ultimately based on guesswork regarding future Chinese demand—is daunting. And a number of independent miners have fallen prey to the usual cycle of hype and disappointment around such new dawns (to read Fortune's story from last year on their troubles, click here).
Moreover, the displacement of the combustion engine by the lithium-ion battery has serious implications for the billions of dollars sunk into other mines that extract metals such as platinum and palladium, which end up in catalytic convertors to clean exhaust fumes. The WSJ quoted Graham Kerr, CEO of Australian mining company South32, as reluctant to invest in lithium, something that is "flavor of the month" but which could be rendered obsolete by other, as-yet unknown advances in battery technology.