Lithium can be produced from brine, hard rock or clay, and each method requires its own set of conditions and extraction processes. Silver Peak produces lithium from brine tapped from the Clayton Valley basin.

Salty brine that contains lithium is pumped from between 300 and 2,000 feet underground to the surface. Then, over the course of 18 to 24 months, solar evaporation concentrates the lithium.

Lithium has garnered significant attention in recent months due to a sharp price spike, surging more than 700% since January 2021, according to Benchmark Mineral Intelligence. In some places, including the Chinese spot market, prices are up even more.

In a boom-and-bust cycle of sorts that mirrors other commodity markets, prices rose over the course of 2017 and into 2018 before cratering halfway through the year and falling throughout 2019. At that point the market was oversupplied, which led to a lack of investment in new production. The effects of that slowdown are still being felt. Today, supply is racing to catch up with demand, and some are warning that it simply won’t.

According to forecasts from Benchmark, 600,000 tons of lithium carbonate equivalent will be mined this year — that’s 10,000 tons less than needed. By the end of the decade, the firm envisions annual supply reaching 2.15 million tons of LCE, which will lag demand by a whopping 150,000 tons.

The surge in lithium demand comes from countries and companies doubling down on climate goals in the past few years. That includes automakers, which are announcing ambitious all-electric fleets.

Lithium isn’t the only mineral in these batteries — they also require cobalt, graphite and nickel. Each has its own limitations, and scientists are experimenting with different battery chemistries.

But while it’s possible to swap out some materials, at this point there’s no viable alternative to lithium.

Although lithium is not a scarce resource, getting a new mine up and running can take about seven years. These projects are capital intensive and require many permits, all of which means the industry is slow moving.

Lithium Americas has been trying for more than a decade to get production going at its Thacker Pass clay mine in Nevada, against opposition from environmentalists and Native American tribes. Piedmont Lithium is in the process of developing a spodumene mine in North Carolina, which it hopes will begin producing by 2026.

Albemarle is working on its own North Carolina mine at Kings Mountain. It’s a brownfield mine – meaning it was previously producing – which the company hopes will help it speed past the hurdles that delay new projects. Albemarle also has processing facilities in the state.

Extractive industries are resource-intensive by their very nature and can be highly disruptive to local ecosystems. But it’s hard to see how the world can move away from fossil fuels without new lithium production. An electric vehicle requires more than six times as many mineral inputs relative to internal combustion vehicles, according to the IEA. Under the Paris-based agency’s most ambitious climate scenario, it forecasts 230 million electric cars, buses, vans and heavy trucks on the road by 2030.

Still, some believe these forecasts are far too ambitious, and the world should instead focus on existing resources rather than developing new sites.

Recycling could also become an option – Albemarle is one of the companies working on this – but the market hasn’t yet reached critical mass. Technologies are also being developed to make operations more efficient so that mines yield as much as possible.

Silver Peak is Albemarle’s largest U.S. lithium production site at present, but it constitutes only a small portion of the company’s overall lithium production. Silver Peak produces about 5,000 metric tons per year of lithium carbonate equivalent (LCE), while Albemarle’s Chile operation – in the Salar de Atacama region – has the capacity to produce 85,000 metric tons per year. The operation there uses the same brine production process that was first developed in Nevada.

The company also co-owns two mines in Australia, and operates a number of processing facilities, including in China.

Albemarle is also increasing its footprint at Silver Peak. In Jan. 2021 the company announced plans to double capacity to 10,000 metric tons a year, which the company said is enough to power around 160,000 electric vehicles.

Albemarle’s Narwold said the expansion, initially slated for completion in 2025, is ahead of schedule. The company spent the last year and a half constructing 22 new brine-pumping wells, completing the first stage of the expansion.

By the end of this year Albemarle will be pumping at 20,000 acre feet annually, which is equivalent to roughly 18.5 million gallons of water per day. That represents the full extent of Albemarle’s water rights, which is also the entirety of the rights available in the Clayton Valley.

Albemarle is not just a lithium company: it also has bromine and chemicals divisions. But the lithium segment has grown in importance following the price spike and Albemarle’s expansion plans. Lithium now accounts for about two thirds of the company’s revenue, according to Meredith Bandy, vice president of investor relations and sustainability at Albemarle. That’s up from a few years ago, when each division was about one third of overall revenue.

“We’ve been investing in the lithium market for the last couple of years, and that’s starting to pay off in terms of volumetric growth as well as price performance,” she said.

Traditionally Albemarle had long-term, fixed contracts with customers. But this year the company restructured some of those contracts in an effort to capture upside from rising prices. It seems to be paying off.

During the second quarter, Albemarle said net sales from its lithium division jumped 178% year over year. The company raised its full-year guidance three times between May and August, when Albemarle posted second-quarter results. The company will report third-quarter earnings on November 2.

For the full year, Albemarle now expects adjusted EBITDA for its lithium division to grow between 500% and 550% on a year-over-year basis. That’s up from prior expectations of a 300% jump.

“There’s a tremendous amount of demand. The industry really is having to work hard – Albemarle is having to work hard – to keep up with that demand,” said Bandy.

Investors have rewarded the company’s performance. The stock climbed to an all-time high on September 14, during a rocky period in the broader market. Shares have since fallen 18%, but the stock is still up about 8% for the year, with a company valuation around $30 billion.

By comparison the S&P 500 and Nasdaq Composite are down 25% and 33%, respectively, for 2022.

While the vast majority of battery production takes place outside the U.S. — China is a key player, currently refining 56.5% of global lithium, according to Benchmark — the Biden Administration is trying to change that.

In February, the White House announced funding for domestic production of materials and minerals critical to the energy transition. Then, in March, Biden invoked the Defense Production Act for these materials.

“To promote the national defense, the United States must secure a reliable and sustainable supply of such strategic and critical materials,” a March statement from the White House read, citing lithium as among the “critical materials.”

But the most meaningful initiative, by far, is the recently passed Inflation Reduction Act. The bill, which is the largest climate funding package in U.S. history, focuses on incentives and credits aimed at accelerating the U.S.’ shift towards renewable energy while also jumpstarting domestic manufacturing.

The bill includes measures that will help battery companies on both the supply and demand side. Over time, a greater portion of an electric vehicle’s battery materials must be sourced from the U.S. or one of its free-trade allies in order for consumers to qualify for the tax rebates. Producers can also take advantage of the manufacturing tax credits.

Narwold called the Inflation Reduction Act a “great step forward.”

“It really does give the impetus to start focusing domestically on building that supply chain. No reason why the United States can’t be a significant contributor to that supply chain with the right support, both from the government – state and federal – as well as from the industry,” she said.

– CNBC’s Katie Brigham contributed reporting.