Elon Musk is right: Getting enough lithium is one of the biggest challenges facing electric-car companies

• Lithium is crucial to automakers' plans to sell more electric cars.
• It's a critical material in electric-car battery packs. But demand will outstrip supply for years to come.

Elon Musk is pleading for more investment in lithium, the silvery-white metal that's crucial to making electric-car batteries. He recently complained about the metal's "insane" costs and said anyone who enters the refining business basically gets a "license to print money."

The billionaire has a point. As the auto industry shifts away from dirty fossil fuels and toward cleaner battery power, lithium is in the spotlight. Demand for the metal has skyrocketed in recent years, as has its price.

Questions still remain about whether the world will manage to mine, refine, and ship enough lithium to support the green revolution set to occur over the next decade and beyond. Here we've laid out the basics of why lithium is so important and what could happen next.

What is lithium and what is its role in electric cars?

It's a critical material in the high-voltage, lithium-ion batteries that make electric cars go. It's also in laptop batteries and the like.

Why is Musk going on about it?

As car companies have ramped up sales of electric vehicles in recent years — and made ambitious promises about their electric futures — demand for lithium has exploded.

As of the start of March, lithium prices had risen 550% over the previous year, according to McKinsey. Demand for the metal will outstrip supply for at least the next five years and the shortage could last through 2030, S&P Global Commodity Insights said.

Against this backdrop, it's clear why Musk is urging entrepreneurs to process more lithium. While raw lithium is abundant, it needs to be purified before it can be put to use in battery cells.

Securing enough battery-grade lithium is one of the biggest challenges automakers face in the near term, Sam Abuelsamid, principal e-mobility analyst at Guidehouse Insights, told Insider. Sources of the metal are still fairly limited because there wasn't much demand for it until EVs started taking off, he said. But the industry is working to grow supply.

"In the next three to five years, we'll probably be okay," Abuelsamid said. "If those other sources of lithium are not developed relatively quickly, in the latter half of the decade we definitely run a very high risk of not having sufficient lithium."

What are car companies doing about it?

Uncertainty around the supply of lithium has pushed automakers to go straight to the source and secure their own supplies. Ford this week announced agreements with lithium companies that will allow it to build 600,000 electric vehicles per year starting in 2023. General Motors has made similar deals.

Both have made a point of inking deals with US-based suppliers. After being burned by the ongoing computer-chip shortage, automakers want to avoid becoming overreliant on imports, Abuelsamid said. Most of the current lithium supply is mined in South America or Australia and processed in China.

Tesla has said it's looking into processing lithium itself. "We're working on lithium refining activity as well ourselves because the best way to learn how to accelerate something is to do it yourself," CFO Zachary Kirhorn said recently.

Are there environmental costs to mining lithium?

Environmental advocates have bashed lithium mining operations for being an excessive drain on local water supplies. Those practices are now in the minority, according to Steve Christensen, executive director of the Responsible Battery Coalition.

One way to make EV batteries more environmentally sound — and shore up the lithium supply at the same time — would be to place greater focus on recycling lithium-ion cells. If battery recycling was expanded, incentivized by the government, and made more efficient, it would drastically reduce the need to mine and refine new lithium, Christensen told Insider.

"I'm with Musk completely that you can print your own money," he said. "I think you can also basically create a money printing machine on the recycled materials, if we could get an incentive for recycled content in batteries."