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Steven Glass, portfolio manager from Pella Funds Management, highlights that the primary markets for lithium are EV batteries, other batteries, ceramics and glass. EV batteries are the fastest growing segment by a considerable margin and is the key driver of the lithium market.

There are two types of passenger car EVs – battery EVs (BEV) and plug-in hybrid (PHEV). The former are powered entirely by a lithium battery and don’t use petrol. The latter are powered by petrol and a lithium battery that is recharged via an electric socket.

Investors may be surprised that China is the largest consumer of EVs, followed by Europe and then the US.

Glass says most people understand that EV sales are likely to grow considerably but don’t appreciate how much the average amount of lithium per EV is likely to increase. This is the key reason lithium demand is likely to exceed current expectations.

Glass explains there are two primary types of lithium batteries: NMC, made using nickel, manganese and cobalt; and LFP, using iron and phosphate. NMC batteries offer superior performance and dominate the EV battery market outside of China.

LFP batteries are considerably cheaper than NMC, and the performance differential between them has narrowed. LFP batteries are popular in China and are starting to take market share in other countries. Glass calculates that LFP batteries need 15 per cent more lithium than NMC batteries.