Lithium prices, a key input for electric vehicle batteries, may rise further this year after surging nearly 50 per cent to a two-year high, raising concerns about battery costs and the pace of India’s electric mobility transition. The trajectory will depend on geopolitical developments in West Asia, particularly the Iran conflict, and the evolving demand-supply balance in global markets.
According to a report by BMI, a unit of Fitch Solutions, lithium prices are expected to remain range-bound in the near term. However, stronger-than-expected demand from electric vehicles and clean energy sectors could push prices higher if supply constraints persist.
The agency has revised its 2026 average annual lithium price forecast to USD 17,000 per tonne for Chinese lithium carbonate and USD 16,700 per tonne for lithium hydroxide monohydrate, after an earlier upward revision this year. Lithium carbonate is currently trading at around 177,000 Chinese yuan, or nearly USD 25,600 a tonne, while lithium hydroxide is quoted at over USD 20,000 a tonne.
The World Bank, in its latest Commodity Markets Outlook, said rapidly rising investment in clean energy technologies, digital infrastructure and defence-related industries will continue to support demand for critical minerals such as lithium. Industry observers said the expansion of artificial intelligence-linked data centres and stationary energy storage systems is adding a fresh layer of demand pressure beyond the traditional EV market.
Supply Constraints
Lithium markets had seen a prolonged oversupply phase after prices corrected sharply over the past two years. However, reduced production, delayed mining projects and geopolitical disruptions are beginning to tighten availability again.
Samrath S Kochar, Founder and Chief Executive Officer of Trontek Electronics, said the market shift is more structural than cyclical. “Multiple factors are converging, and it would be an oversimplification to call this just a short-term rebound. After years of suppressed prices, producers cut output and shelved new projects and that supply rationalisation is now feeding through into tighter availability,” Kochar noted.
He added that demand from EVs, grid-scale storage and AI infrastructure continues to rise, while geopolitical uncertainty is adding pressure on global supply chains. “For Indian manufacturers, foreign exchange exposure on imported inputs adds a layer of cost sensitivity that purely global price indices do not capture. Domestic manufacturing helps with supply chain resilience, but as long as lithium remains an imported commodity, global price movements will continue to influence what manufacturers pay and ultimately what consumers pay,” he said.
The World Bank has also warned that mining and processing of critical minerals remain concentrated in a handful of countries, leaving supply chains vulnerable to disruption and geopolitical stress.
BMI noted that ongoing tensions involving Iran could strengthen demand expectations for low-carbon industries, especially electric vehicles, amid elevated fossil fuel prices. Higher energy costs and risks to supply routes through the Strait of Hormuz could also squeeze margins for lithium producers.
Impact On EV Costs
Industry executives said sustained increases in lithium prices will eventually feed into battery and vehicle pricing, though with a lag.
Kochar said the impact on battery cell and pack costs is typically felt after two to three quarters due to forward supply contracts. “The industry has managed recent pressures reasonably well through LFP adoption and smarter procurement. But if elevated input costs persist, that buffer runs out and pricing adjustments become inevitable,” he added.
Pratik Kamdar, Co-founder and Chief Executive Officer of Neuron Energy, described the recent movement as a broader market reset. “What we’re seeing now resembles more of a market reset than a short-term spike. Lithium prices had softened significantly over the past couple of years, and the recent firming indicates a shift away from that phase,” Kamdar noted. He added that while the market is not yet structurally tight, battery makers will have to prepare for higher volatility in sourcing and pricing.
Kamdar said lithium price movements directly affect battery economics, as batteries account for nearly 30 to 40 per cent of an EV’s total cost. “The impact is not immediate for end consumers. OEMs typically absorb short-term fluctuations through inventory buffers and existing supply contracts. If prices remain elevated over multiple quarters, the effect begins to reflect in vehicle pricing, particularly in cost-sensitive segments such as two- and three-wheelers,” he added.
Price Parity Concerns
Higher battery costs could also delay price parity between electric vehicles and internal combustion engine vehicles in India, especially in the mass-market segment.
Kamdar underlined that the industry has long viewed battery costs below USD 100 per kWh as a key affordability threshold. “If lithium prices rise in a sustained manner, it could slow this transition, especially in mass-market segments where price sensitivity is high. However, this does not alter the broader trajectory,” he said.
He noted that battery costs have already fallen nearly 85 to 90 per cent over the past decade due to scale, technology gains and operational efficiencies. “The more likely outcome is a moderation in the pace of cost reduction rather than a reversal. Price parity may take longer in certain segments, but the long-term shift toward EV adoption remains firmly intact,” Kamdar added.
The developments come as India continues to push its electric mobility targets while seeking to reduce dependence on imported fossil fuels and strengthen domestic battery manufacturing capacity. |
