The price for lithium is hitting fresh record highs as the parabolic growth in the electrification of vehicles by major automakers increases demand.

Mining companies worldwide are scrambling to increase production and develop new sources of the world's lightest metal.

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China, the largest battery-producing country, reported last week that the benchmark price of lithium carbonate was about 300,000 yuan (just over $47k per ton), an increase of about six times from January 2021. Soaring prices come as electric-car makers, such as Tesla (TSLA), report exponential growth in the US, Europe, and China.

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Lithium is one of the essential elements in battery technology powering electric vehicles that steadily replace combustion engines. As the share of electric cars increases, demand for lithium will increase; thus, conventional wisdom would suggest lithium prices will remain elevated until the battery industry develops new mining projects to expand output. 

According to Bloomberg NEF, global electric car sales were about 5.6 million in 2021, up from 3.1 million in 2020. The significant increase in sales is due to soaring Chinese demand (as shown in the chart above). Further electric car sales in 2022 will only suggest the demand for lithium will outstrip production and deplete stockpiles, helping to keep prices high. 

Gavin Montgomery, research director for battery raw materials at Wood Mackenzie, said lithium prices would not crash this year as they've done in previous years. 

"We're entering a sort of new era in terms of lithium pricing over the next few years because the growth will be so strong," Montgomery said. 

The good news is that lithium-ion battery packs have become more affordable over the last decade. In 2010, battery packs were $1,200 per kilowatt-hour but had since plummeted to $132 by 2021. However, today's soaring prices could increase battery packs to 135 per kilowatt-hour in 2022. 

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So the pressure is on for the battery industry to secure new lithium supplies to keep battery pack prices low while allowing electric cars to become more affordable for widespread adoption of the green energy revolution.