Tesla (TSLA) CEO Elon Musk this past week reminded investors of a growing challenge in the US when it comes to the electric vehicle industry — securing refined lithium for EV batteries.

"The choke point is much more on refining capacity than it is on mining. Lithium is actually is very common throughout the world, including in the US," Musk said on Tesla's earnings call. "It's much more a question of where is the refining capacity and can the refining capacity keep up."

Musk highlighted Tesla's plan for a lithium refinery near Corpus Christi, Texas which breaks ground in May.

Musk also took the opportunity, as he's done in the past, to call on other entrepreneurs to refine more of the mineral used in batteries to power electric vehicles.

"Like, instead of making a picture sharing app, please refine lithium. Mining and refining, heavy industry, come on," said Musk.

'Where is all the material going to come from?'

Currently, much of the world's lithium refining happens in China and is directed at the country's own growing EV market.

But the Biden Administration's push towards greener technologies is about to create massive demand for lithium here in the US.

"We currently in the US produce around 20,000 tons of lithium hydroxide refined in the US. We think we need over 700,000 by the second half of this decade. So, 35 times more," Keith Phillips, CEO of Piedmont Lithium, whose customers include Tesla and LG Chem, told Yahoo Finance in an interview.

"All of this is a little more future facing — and the question I think is — where is all the material going to come from?"

Piedmont Lithium is the process of building an integrated mine and refinery in North Carolina, as well as a refining facility in Tennessee. The company is also involved with projects in Quebec and Ghana.

"We need more of both," said Phillips. "We need more refinery capacity, obviously. Because you can't make a battery with [rocks]. You need refined chemicals. And the desperate need — I think — is for more raw material out of the ground. And the more of that we can produce in the US the better."

Lithium reserves have been identified in the US. However mining projects last about a decade to complete. Refineries take about two years to bring online.

"You can't just flick a switch and bring more metals to the market," Bank of America analyst Michael Widmer recently told Yahoo Finance Live.

Widmer's research shows countries around the world must address numerous metals and mining shortages, including lithium, copper, nickel, and aluminum.

"Bottom line ... for a lot of the commodities, we are just not sinking enough money into the ground at the moment," Widmer said.

'Lithium has dropped a lot'

Lithium prices peaked in 2022 and have since fallen more than 50%.

Musk — who last April highlighted lithium prices had risen to "insane levels!," made note of their decline this past week.

"Lithium has dropped a lot. It's worth mentioning that price of lithium has dropped significantly," Musk said on the call.

Falling commodity costs are expected to help Tesla's margins as moves from the EV maker to slash the price of its cars in China and the US weighed on profits in its latest quarter.

Despite lithium's decline, however, prices are up about three times from two years ago, and comes at a time when the transition to EVs continues to be a focus for most automakers.

Ford (F), for instance, recently announced plans to build a new $3.5 billion EV battery plant in Michigan in partnership with a Chinese supplier.

"I think in the very long run, when more mines are discovered, when more refineries are built, when recycling becomes a factor, you know, 10 plus years from now, I think this market will look a lot more like a copper or an oil where the supply demand balance is more in sync," Piedmont Lithium's told Yahoo Finance.

“Right now. Fundamentally, there aren't nearly enough mines and refineries built to serve all the battery plants that are being built. The lithium industry is really playing catch up."

Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre

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