In recent years, the rapid rise of electric vehicles has made lithium one of the most sought-after commodities globally. According to a report from the *Wall Street Journal*, as the industry anticipates electric vehicles to dominate transportation, lithium prices have more than doubled since 2016. However, Morgan Stanley recently warned that an increase in lithium supply could outpace demand driven by EV growth, potentially leading to market oversupply.
On February 26, Morgan Stanley released a detailed analysis stating that global lithium supply currently stands at around 215,000 tons annually. With new projects in Argentina, Australia, and Chile—where lithium production is concentrated—expected to boost supply by approximately 500,000 tons by 2025, the market may face overcapacity. The two largest lithium producers, SQM and Albemarle, are projected to add 200,000 tons of capacity each year by 2025. This could lead to a significant oversupply, with lithium prices potentially falling by half, dropping from $13,375 per ton to around $7,030 by 2021.
According to Benchmark Minerals Intelligence, the current price for lithium in South America is about $14,500 per ton. When Morgan Stanley’s report was released, the market reacted sharply, with lithium-related stocks plunging. Albemarle’s shares fell over 7%, SQM dropped more than 8%, and Australian firms Galaxy Resources and Orocobre also saw declines of over 4%.
Despite these warnings, many industry experts remain skeptical. Ken Brindstone, CEO of Pilbara Minerals, argued that analysts like Morgan Stanley underestimate the true growth potential of the lithium market. He pointed to recent supply deals with Chinese and South Korean battery and automakers, emphasizing strong demand in Asia.
Andrew Miller of Benchmark Mineral Intelligence called the oversupply forecast "untenable," suggesting that while a small surplus might occur temporarily, there won’t be a clear oversupply in the next few years. Reuters noted that the lithium price surge over the past two years, fueled by optimistic EV demand forecasts, led to numerous new projects, including expansions by Albemarle and SQM in Chile. These developments have raised concerns about future oversupply.
However, Joe Lori, a lithium industry consultant, questioned the feasibility of new production capacities. He highlighted that even though SQM secured approval in January to expand by 50,000 tons, the company lacks incentives to do so. “Morgan Stanley’s projections show a lack of understanding of lithium supply, demand, and cost structures,†he said.
Paul Graves, CFO of FMC, the fourth-largest lithium producer, added that the industry often faces delays in mining and processing. “Supply can be unpredictable,†he said, noting that operating costs are rising and production timelines are frequently pushed back.
Orocobre’s project in Argentina is progressing slowly, and Galaxy Resources recently sold a plant due to limited capacity. Meanwhile, Morgan Stanley still predicts that EVs will account for 31% of global vehicle sales by 2025, which would further drive lithium demand. As the market continues to evolve, the balance between supply and demand remains a key concern for investors and industry players alike.
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