If you’re in the business of mining lithium — which is used in lots of batteries, especially the ones in electric vehicles — it’s been a rough few months. 

Prices of the metal have fallen about 80% in the past year, and two U.S. lithium companies have cut jobs and pulled back their capital spending recently. The latest is a company called Piedmont Lithium, which announced cuts Tuesday.

But just a couple years ago, demand for lithium was soaring, as carmakers rushed into the EV business and utilities built out battery storage systems. So why the price roller coaster?

We’ve all heard this story: Coming out of the pandemic lockdown era, demand for certain products and materials went way up, and suppliers were caught off guard.

“They were not as prepared for this big pull as fast as it happened. It actually surprised everyone,” said Scott Sklar at George Washington University. He could be talking about lumber or used cars or semiconductors, but he’s talking about lithium.

A bunch of companies suddenly became hungry for it starting around 2021. They were investing in electric vehicles and energy storage systems for utilities. But when they went looking for lithium suppliers, they found the market to be a bit limited, said Ian Lange at the Colorado School of Mines.

“It’s not like natural gas. It’s not like oil, right? It’s not like iron ore, where you have lots of suppliers, pretty easy to figure out where to get it from,” Lange said.

So companies quickly locked in contracts for lithium wherever they could to make sure they had enough supply. And that jacked up the price.

But then, Lange said, “High prices induced more people to get into the industry to try to find more supply.”

At the same time, demand for EVs didn’t meet the perhaps overly optimistic expectations of some carmakers, said Tony Alderson, an analyst at Benchmark Mineral Intelligence.

“We really saw throughout the start of 2023 subdued downstream demand, and it’s really translated through to prices,” Alderson said.

More supply, not as much demand, and there you have an 80% price drop.

And that could actually be a good thing for consumers looking to buy EVs, since batteries are their priciest component, said Sklar at George Washington University.

“Those battery prices will go down, making these cars more affordable,” he said.

On the flip side, investors are watching these lithium prices, and they might pull out of mining operations. And that could raise lithium prices again in the long term, Sklar said.

“It’s a chicken-and-egg situation, and it will be for the rest of this decade,” he said.

Still, he’s optimistic that the industry will keep growing and sort itself out along the way.