Exxon Wants to Be a Leading Lithium Producer for EVs. Here’s What That Would Take.

Exxon stock was up 0.9% Monday while the
S&P 500
and the
Dow Jones Industrial Average
were off 0.2% and 0.1%, respectively.

Shares of lithium miners
Albemarle
(ALB) and
Livent
(LTHM) were down 2.9% and 5.7%, respectively. Fear of increased commodity supply is most likely what’s driving down those stocks. What’s good for Exxon might be bad for existing lithium producers.

Of course, the Exxon project isn’t new. The only thing that’s new on Monday was the news release.

What’s more, how much lithium products from Arkansas will cost also matters for the industry.
Albemarle
and
Livent
produce lithium from some of the lowest-cost salt brines on the earth. New commodity capacity tends to come on at the high end of the global cost curve. Miners tend to use their best assets first.

The Exxon asset isn’t a traditional resource. It will use a new process called direct lithium extraction. How much that will cost isn’t clear. Exxon didn’t immediately return a request from Barron’s for comment about its expected production costs.

Exxon’s process will pump brine from underground, use technology to extract the lithium from the brine, and pump the lithium-less brine back underground. That is a little more processing than traditional brine-based producers have to do today. That adds some cost.

Goldman Sachs
estimates that products coming from assets using direct lithium extraction will cost more than the lowest-cost brine, but cost less than than some other lithium assets. That is theoretical at this point. Direct lithium extraction isn’t in use yet.

The Exxon project is expected to produce enough commercial products by 2027 to power 1 million electric vehicles a year.

That would be, very roughly, 50,000 tons of benchmark lithium product. The global market for lithium products in 2023 is expected to be roughly 1.2 million metric tons, according to Albemarle. More than half of that will end up in batteries for EVs.

The Exxon project represents about 5% of global capacity today. By 2027, it would represent roughly 3%.

The addition is relatively small and the impact on existing producers isn’t certain, but investors don’t appear to be thinking about that right now. Through early trading Monday, Albemarle and Livent shares are off about 64% and 60%, respectively, over the past 12 months. The stocks have followed commodity pricing lower. Benchmark lithium prices are down some 70% over the same span.

Rising lithium production, slowing EV growth, and battery makers working off lithium inventories all have contributed to the drop in lithium prices.

Investor sentiment toward Albemarle stock and shares of its peers won’t turn around until lithium prices are higher.

Fifty thousand tons of lithium products would generate roughly $1.2 billion in annual sales at current lithium prices. That’s fine, but it’s small relative to the size of Exxon—the company is expected to generate $350 billion in 2023 sales.

More capacity is a problem for the lithium industry. It isn’t guaranteed to be good for big oil either. EVs replace gasoline-powered cars. The problem Exxon has is lithium volumes aren’t like oil volumes. Oil is consumed by each car on Earth every year.
Lithium
stays in the batteries and electricity is what gets consumed.

Lithium is more like the gas tank than it is the gasoline.

Write to Al Root at [email protected]