My greatest reservation about EVs is metal scarcity.

Take one of the main metals EVs depend on, lithium. Lithium supplies in 2016 amounted to 35,000 metric tons. If completely dedicated to the EV market, that would fuel about 5 million vehicles, which might sound like a lot. But it’s not.

Consider that the current world auto population exceeds 1 billion cars. Torrid growth in the developing world, according to a recent Science magazine article, will push that to 2 billion sometime near 2030. If EVs made up even half the world’s auto population, it would require 70 million metric tons of lithium. And, of course, lithium has many competing uses, including storage for the grid, growing even faster than demand for EV batteries.

RWI currently has just one lithium recommendation, Albemarle (NYSE: ALB). Albemarle is one of the world’s top two lithium producers. (Its ranking depends on how China’s minority ownership of several properties is calculated.) While lithium is its primary business, the company has a cohesive business plan that encompasses refining and specialty metal operations that account for about 50 percent of revenues. While these other businesses are much less profitable than lithium, Albemarle uses them to generate cash flow that funds burgeoning expansion of its lithium assets.

What EV Makers Really Need

After doubling since our initial recommendation, Albemarle shares have been consolidating. Investors were a bit disappointed with the most recent earnings, which beat consensus expectations only slightly despite strong profits from the lithium division. Another concern was supply chain issues in China, which while temporary have crimped demand for the raw product. Most important, just this week, the major Chilean miner SQM (NYSE: SQM) reached an agreement with the Chilean government that will allow it to sharply increase its lithium production.

All three events, however, are temporary, mostly irrelevant, or actually positive. As a result we consider the stock a good buy at current levels – nearly 20% below its high – and a compelling buy on any further weakness to the 105-110 level.

The most important caveat would be if EV manufacturers, unsure if future supplies of lithium will be sufficient, sharply reduce their plans or even abandon the market altogether. I strongly doubt that the world will ever see 1 billion EVs on the road – never mind 2 billion. But EVs still will likely make serious inroads into the auto population, and be a potent source of demand for lithium, as long as EV manufacturers are confident they can rely on getting the metals they need, not just lithium but also cobalt, graphite, and even copper.

Why a Rival’s Gain is Good News

That’s why the recent agreement between SQM and the Chilean government to allow SQM mining privileges for lithium is actually a positive for Albemarle and a step in the right direction. Though investors in Albemarle and other lithium producers reacted negatively to the news, there’s little doubt that the most pressing question for lithium producers isn’t the risk of oversupply. Rather, it’s whether EV manufactures will proceed with their plans.

Even with the agreement, SQM’s production in 2024 would supply enough lithium for only around 5 million cars. That would be about 25% of total EV production, which itself would be only about half of total lithium demand. In other words, SQM’s projected production was sorely needed to give manufacturers the go-ahead to gear up for the next five years. Moreover, production will not come on instantaneously and is unlikely to have even a short-term impact on the lithium market.

Given projections of accelerated production of EVs not just through 2024 but for the 2020s and 2030s, the jury is still out on whether lithium supplies will be sufficient. When it comes to any mining, it is not just a question of potential reserves. Other important considerations include geopolitical factors and the impact on other commodities. In the case of Chile, political pressures and severe water constraints always come into play.

Other issues that have weighed on Albemarle such as supply chain bottlenecks and high expectations for earnings are temporary.

Recommending Glencore

Cobalt is another critical metal. One reason we’re not adding other lithium producers to our RWI portfolio are constraints from the other metals EVs also need, with cobalt front and center. About 50% of cobalt supplies come from the politically fraught Democratic Republic of the Congo (DRC). Only major players have demonstrated the ability to navigate that treacherous political terrain.

This issue we are adding the world’s largest cobalt producer, Glencore (OTC: GLNCY), to our RWI portfolio. (We also recommend it in RWI’s sister publication The Complete Investor.) Glencore not only is the world’s largest cobalt producer, it also is a major producer of copper and a leading oil trader. It is a stock that belongs in any diversified commodity portfolio.

I will discuss cobalt more fully in future issues. The metal does not occur by itself but is always a copper by-product. One unanswered question is whether there are copper producers outside the DRC that can refine their ore so as to produce cobalt. The price of cobalt has been on a tear, and there should be a price at which it will pay primary copper miners to also refine cobalt. That could turn out to be one of the most critical questions in assessing the future of EVs, and I will be exploring it assiduously in coming weeks.