Not wanting to fall further behind Tesla and Chinese automakers, many Western auto executives are bypassing traditional suppliers and spending billions in deals with lithium miners. there is
Wearing helmets and steel-toed boots, they explore mines in Chile, Argentina, Quebec, Nevada, and elsewhere, securing supplies of vital metals for companies as they transition from gasoline to batteries.
Without lithium, U.S. and European automakers won’t be able to make the batteries they need to stay competitive in electric pickup trucks, sport utility vehicles and sedans. And assembly lines being built up in states like Michigan, Tennessee and Saxony, Germany, will shut down.
Incumbent mining companies don’t have enough lithium to supply the industry as electric vehicle sales skyrocket. General Motors plans to make all car sales electric by 2035. Sales of battery-powered vehicles, pickups and sport utility vehicles in the U.S. in the first quarter of 2023 increased 45% year over year, according to Kelly Blue Book. .
That is why auto companies are scrambling to secure exclusive access to small-scale mines before others do. But the strategy exposes auto companies to a risky boom-bust mining business, sometimes in a country with weak environmental protections and political instability. Get the bet wrong and auto makers could end up paying far more for lithium than it will sell for years to come.
Auto executives said they had no choice because they lacked reliable supplies of the lithium and other battery materials such as nickel and cobalt needed to power the millions of electric vehicles the world needs.
In the past, automakers let battery suppliers purchase lithium and other raw materials on their own. But the lithium shortage has forced deep-pocketed automakers to source the essential metals directly and send them to battery factories owned by suppliers or partially or wholly owned by automakers. Batteries rely on lightweight lithium ions to conduct energy.
“We quickly realized there was no established value chain to support our ambitions over the next decade,” said Shyam Kunjah, who oversees General Motors’ battery materials procurement program.
The automaker last year signed a deal with Philadelphia-based lithium company Rivet to supply raw material from its South American mines. And in January, GM agreed to invest $650 million in Vancouver, British Columbia-based Lithium Americas to develop the Tucker Pass mine in Nevada. Kunjul and Lithium Americas executives said the company won its stake after defeating 50 bidders, including battery and component makers.
Ford Motor has signed a lithium contract with Chilean supplier SQM. Based in Albemarle, Charlotte, North Carolina. and Nemaska Lithium in Quebec.
“These are some of the world’s largest producers of lithium with the highest quality,” Lisa Drake, Ford’s vice president of electric vehicle industrialization, told investors in May.
The deals automakers are making with miners and raw material processors are reminiscent of the beginnings of the auto industry founded by Ford. rubber plantation To Brazil to secure materials for tires.
“After almost 100 years, this new revolution seems to put us back in that phase,” Kunjul said.
Establishing a lithium supply chain will cost $51 billion, according to consulting firm Benchmark Minerals Intelligence. To benefit from U.S. subsidies, battery raw materials must be mined and processed in North America or a trading ally.
But some executives said fierce competition for the metal had pushed lithium prices to unsustainable levels.
“Since the beginning of 2022, the price of lithium has risen so quickly and there was so much hype in the system that there were a lot of really bad deals that could be done,” Rivian Chief Executive RJ Scaringe said. rice field. An electric vehicle company in Irvine, California.
Dozens of companies are developing mines, and eventually there may be enough lithium to meet everyone’s needs. Global production could surge faster than expected, leading to a recent crash in lithium prices. Automakers would then pay far more for the metal than it was worth.
Auto executives aren’t taking the risk, fearing that if they don’t have enough lithium for even a few years, they’ll never catch up.
Their fear makes sense. In the regions where electric car sales are growing fastest, incumbent automakers are losing ground. In China, where nearly a third of new cars are electric, domestic manufacturers such as BYD, where Volkswagen, GM and Ford make their own batteries, are losing market share. And Tesla has been building a supply chain for lithium and other raw materials for years, steadily gaining market share in China, Europe and the United States. It is now 2nd highest in all new car sales After Toyota, in California.
Because Chinese companies are state-owned or state-backed, they often have an advantage over U.S. and European car companies, and as a result face local opposition, nationalization by populist governments, or technical difficulties. Mining with a lot of dust can take more risk.
In June, Chinese battery maker CATL completed a deal with Bolivia to invest $1.4 billion in two lithium projects. Few Western companies have shown lasting interest in a country known for political instability.
With a few exceptions, Western automakers avoid buying stakes in lithium mines. Instead, they are negotiating a pact that commits them to buy a certain amount of lithium within a price range.
In many cases, this deal gives automakers preferential access and keeps out rivals. Tesla has a deal with Piedmont Lithium near Charlotte that will ensure it gets most of its output from its mines in Quebec.
Lithium is abundant, but not always easy to extract.
Many countries with large reserves, such as Bolivia, Chile and Argentina, have nationalized their natural resources or have strict exchange controls that limit the ability of foreign investors to withdraw money from the country. Even in Canada and the United States, it can take years to set up a mine.
“It’s going to be difficult to get lithium here in the United States and go fully electrified,” said Eric Norris, president of the Lithium Global Business Unit at Albemarle, a major U.S. lithium mining company.
As a result, auto executives and consultants are expanding their presence in mines around the world, most of which have yet to start production.
“It’s a bit hopeless,” said Amanda Hall, chief executive of Canadian start-up Summit Nanotech, which is working on technology to accelerate the extraction of lithium from salty groundwater. Auto executives are “trying to get ahead of the problem,” she said.
But auto companies are in a hurry to make deals with smaller mines that may not meet expectations. “There are a lot of examples where things go wrong,” said Shay Natarajan, partner at Mobility Impact Partners, a private equity fund focused on investing in sustainable transportation. Lithium prices could eventually crash due to overproduction, he said.
The minors seem to be the big winners. Dealings with car companies usually guarantee big profits and make it easier to borrow money or sell stock.
Rio Tinto, one of the world’s largest mining companies, recently reached a preliminary agreement to supply Ford with lithium from a mine it is developing in Argentina.
Ford is one of several automakers that have expressed interest, said Marnie Finlayson, managing director of Rio Tinto’s battery minerals business. He said Rio Tinto has created a checklist for auto company representatives that covers mining methods, community relations and environmental impacts “to keep everyone happy.”
“Because if we can’t do that, we won’t be able to free up supplies and solve this global challenge together,” said Finlayson, referring to climate change.
Until a few years ago, the price of lithium was mined so low that it was barely profitable. But now, with the growing popularity of electric vehicles, dozens of mines are planned. Most are in the early stages of development and will take several years to enter production.
Ana Cabral Gardner, co-CEO of Sigma Lithium, which is based in Vancouver and produces lithium in Brazil, said until 2021 “there was either no capital or very short-term capital. ‘ said. “Nobody was thinking five or ten years out.”
Dirk Halbeecke, CEO of Rock-Tech Lithium, which has a mine in Ontario and is developing a processing plant to supply Mercedes-Benz in eastern Germany, said the auto company could start up and operate the mine. said it played an important role in supporting
“I don’t think it’s a risky strategy,” said Herbecke. “I think it’s a necessary strategy.”
