Lithium import demand and electric vehicle market growth in Europe: Perspectives on economic policy uncertainty and geopolitical turbulence

Electromobility plays a pivotal role in enhancing sustainability within the global transportation sector, with a significant reliance on lithium-ion batteries for the operation of electric vehicles (EVs). The concentration of lithium resources and the challenges posed by geopolitical turbulence and fluctuating economic policies are major concerns affecting the smooth trade of lithium. This study investigates the dynamics between EV market growth in 25 European countries and the import demand for lithium, considering factors such as lithium price, geopolitical unrest, and economic policy uncertainties. Utilizing quarterly data from 2013q1 to 2023q1, we employ the quantiles via moments (QvM) method to examine the relationship between the variables within the spectrum of cross-sectional heterogeneity. Our findings confirm that the expansion of the EV market significantly increases lithium import demands within Europe across all quantiles (q.15-q.95). The adverse impact of lithium price on its import demand, observed from lower to higher quantiles, validates the Marshallian demand proposition. More importantly, the demand for lithium imports is further impeded by the interactive effects of lithium price, economic policy uncertainty, and lithium price-geopolitical tensions. Our findings remain robust across the linear models with multi-way fixed effects (ML-FE) and IV regression techniques while addressing the issue of endogeneity. However, our findings underscore the critical need for robust governance frameworks to mitigate the risks associated with price, economic policy, and geopolitics, thereby promoting a stable lithium trade environment conducive to the growth of the worldwide EV sector and smart transportation.