During last year’s American presidential campaign, John McCain laid out his plan to jump-start the electric car industry with a US$300-million reward for whoever could build a better battery. His then rival, Barack Obama, roundly mocked the scheme, calling it a “gimmick.” But it turns out that Obama’s biggest problem with the plan may have been there weren’t enough zeros in the prize.

Any day now, the U.S. Department of Energy is expected to announce the winning recipients of grants to foster a domestic automotive battery industry, and this time the pot is worth US$2.4-billion. Washington has already handed out US$8 billion in loans to Ford, Tesla and Nissan to promote cleaner vehicles—which the latter plans to tap to build an automotive battery plant in Tennessee. And just last week Ontario jumped in to pledge incentives of as much as $10,000 per car to lure drivers into buying electrics. With such vast sums sloshing around, it’s no surprise that companies and investors are rubbing their hands over the prospect of a boom in the market for lithium. This unique metal, so soft you can cut it with a knife and so reactive it can become explosive when it comes in contact with water, is a key ingredient in the next generation of car batteries, and as plug-in hybrids and electric cars hit the mass market, some are wondering where all that lithium will come from. “There have been a lot of worries out there that all this money that is being spent on lithium-ion battery technology is going to create shortages,” says Jacob Grose, an analyst at Lux Research. In other words, if the fear now is Peak Oil, could the crisis next decade be Peak Lithium?

Lithium-ion batteries are far from new. For two decades they’ve increasingly found their way into iPods and laptops, which now account for 20 per cent of the lithium market. (The rest goes to ceramics, glass and pharmaceuticals.) For the same reasons gadget-makers use them—lithium-ion batteries are lighter than other types, and kick out twice the power—more and more car companies plan to put them into their plug-in hybrids and electric cars.

Along with the environmental benefits, a key driver in this push is to reduce the West’s dependence on Middle East oil. But it turns out that with lithium-ion batteries, the U.S. will still be forced to rely on foreigners. China is a major source of the mineral, as are Chile and Argentina, where it is extracted from brine pools. The world’s largest undeveloped lithium deposit is located in Bolivia, which has already indicated it won’t let foreign companies mine its reserves, and that could be a problem. Bolivia is hardly a friend to the U.S.—the government of President Evo Morales recently accused America’s ambassador of trying to break up the country and expelled him. In a report to Congress last month, the U.S. Government Accountability Office warned that by switching from gas-powered cars to lithium battery cars the U.S. could simply “substitute reliance on one foreign resource for another.”

This could be a major concern if supplies become strained—and some say they will be as electric cars catch on. Obama aims to have one million electric cars on U.S. roads by 2015, while JPMorgan predicts hybrid sales will reach 9.6 million three years later. Japanese carmaker Mitsubishi has said demand for electric cars could surpass supply by 2015, and a commonly-cited 2006 report by William Tahil of Meridian International Research, entitled The Trouble With Lithium, suggests the lithium supply could eventually be tighter than oil is today.

“People who argue we’ll have peak lithium make huge assumptions about the size of the market,” says Kent Furst, an analyst at the Freedonia Group. The U.S. Geological Survey’s lithium analyst, Brian Jaskula, agrees. Should electric cars become wildly popular, he says, there is still enough supply to meet demand for the next decade. That doesn’t include the lithium in Bolivia, a large Nevada lithium mine proposed by Vancouver-based Western Lithium, or potential deposits in Canada.

Besides, while engines constantly consume oil, a lithium battery can power a car for years. If lithium supplies do become an issue some day, by then other battery technologies may have taken over, says Bob Kruse, an executive with GM’s clean energy vehicle program. While the Chevy Volt electric car debuts next year, the company is already working on the second- and third-generations of the car, testing other types of batteries. “I don’t think we’re in danger of running out of lithium any time soon,” he says.