Lithium downfall may result in lower Cybertruck prices as major refineries close shop

The ever-accelerating price drop of battery-grade lithium carbonate has caused major refineries in the so-called "lithium capital of Asia" to cease production in the hope they will stem the tide. Two out of four big producers situated in the Jiangxi province of China have now reportedly idled their equipment. The Yichun hub is one of the largest and it's where lithium carbonate for the Chinese battery stalwarts like CATL or BYD comes from.

Lithium prices have dropped drastically this year, coming down from a November peak of US$85,691 per ton of EV battery-grade lithium carbonate, to the current US$32,535 on softening demand and supply increases. While just a few weeks ago the price floor was expected to be about US$30,000, now analysts predict that we may see a further slide to the equivalent of US$14,500 per ton.

This would be an 83% drop from the peak and could result in lithium refinery plans being put on ice for the time being. During the lithium price scare back in the fall, Elon Musk urged investing in refineries as a "license to print money," and Tesla even considered building its own on the Gulf Coast.

It is not clear what will happen with Tesla's refinery plans now that lithium has become so cheap. Federal and state incentives for EV battery-grade raw materials still require investing in the US or its free-trade countries, so it may still happen at some point. The unprecedented lithium price drop would also be a breath of fresh air for all other EV makers which are either operating at a loss or at razor thin margins compared to Tesla's profits.

For Tesla, cheaper lithium could allow further price cuts while preserving its record margins, and, eventually, very aggressive Cybertruck and Model 2 launch prices if the trend holds. When Elon Musk announced the Cybertruck back in 2019, Tesla pegged its starting price at about U$40,000. Four years and one pandemic-induced supply chain inflation later, that's the price of a lowly Model 3 before tax credits.

The battery is typically the most expensive component in an electric vehicle and Tesla recently revealed that its "Large Sedans, SUVs & Trucks" category where the Cybertruck belongs will carry an average of a 100 kWh battery size. 

NIO recently mentioned that each RMB 100,000 (US$14,500) drop in lithium carbonate prices increases its gross margin by the whopping 2 percentage points. Tesla's gross margin is record high already, so hopefully some of the drop in battery material prices would be passed onto its customers, including those on the 1.8-million strong waiting list for the Cybertruck.

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