The Automotive Industry Response to Changes in Lithium Prices

Abstract

Given the particular role lithium continues to play in all forms of battery powered vehicles, I ask the question of what the effect of lithium price shocks is on lithium-based vehicle production quantities. This question is answered by considering the effect on the aggregate production quantities for countries, manufacturers, and carlines using three suitable metrics for lithium prices. I use a series of local projections and accompanying impulse response functions to determine this effect. Data is collected primarily from the UN Comtrade database and the Internal Handling Services Markit’s light-vehicle sales database. In response, I find that shocks to the price of lithium hydroxide result in a lagged negative response in the long term for lithium-based vehicles’ production quantities in both the aggregate country and manufacturer models.