A SQM lithium plant in Salar de Atacama, Chile. — ©️2023 The New York Times Company
EAGER to avoid falling further behind Tesla and Chinese car companies, many Western auto executives are bypassing traditional suppliers and committing billions of dollars on deals with lithium mining companies.
They are showing up in hard hats and steel-toed boots to scope out mines in places like Chile, Argentina, Quebec and Nevada to secure supplies of a metal that could make or break their companies as they move from gasoline to battery power.
Without lithium, US and European carmakers won’t be able to build batteries for the electric pickup trucks, SUVs and sedans they need to remain competitive. And assembly lines they are ramping up in places like Michigan, Tennessee and Saxony, Germany, will grind to a halt.
Established mining companies don’t have enough lithium to supply the industry as electric vehicle sales soar. General Motors plans for all its car sales to be electric by 2035. In the first quarter of 2023, sales of battery-powered cars, pickups and SUVs in the United States rose 45% from a year earlier, according to Kelley Blue Book.
So car companies are scrambling to lock up exclusive access to smaller mines before others swoop in. But the strategy exposes them to the risky, boom-and-bust business of mining, sometimes in politically unstable countries with weak environmental protections. If they bet incorrectly, automakers could end up paying far more for lithium than it might sell for in a few years.
Auto executives said they had no choice because there weren’t sufficient reliable supplies of lithium and other battery materials, like nickel and cobalt, for the millions of electric vehicles the world needs.
In the past, automakers let battery suppliers buy lithium and other raw material on their own. But lithium shortages have forced carmakers, which have deeper pockets, to directly acquire the essential metal and have it sent to battery factories, some owned by suppliers and others owned partly or fully by the automakers. Batteries rely on lightweight lithium ions to conduct energy.
A Mercedes-Benz battery factory in Woodstock. — ©️2023 The New York Times Company
“We quickly realised there wasn’t an established value chain that would support our ambitions for the next 10 years,” said Sham Kunjur, who oversees General Motors’ programme to secure battery materials.
The automaker last year struck a supply deal with Livent, a lithium company in Philadelphia, for material from South American mines. And in January, GM agreed to invest US$650mil (RM3bil) in Lithium Americas, a company based in Vancouver, British Columbia, to develop the Thacker Pass mine in Nevada. The company beat out 50 bidders, including battery and component makers, for that stake, said Kunjur and Lithium Americas executives.
Ford Motor has made lithium deals with SQM, a Chilean supplier; Albemarle, based in Charlotte, North Carolina; and Nemaska Lithium of Quebec.
“These are some of the largest lithium producers in the world with the best quality,” Lisa Drake, vice-president for electric vehicle industrialisation at Ford, told investors in May.
Dozens of companies are developing mines, and there may eventually be more than enough lithium to meet everybody’s needs. Global production could surge sooner than expected, leading to a collapse in the price of lithium, something that has happened in the recent past. That would leave automakers paying a lot more for the metal than it was worth.
Auto executives are taking no chances, fearing that if they go even a few years without sufficient lithium their companies will never catch up.
Their fears have merit. In places where electric vehicle sales have grown the fastest, established automakers have lost a lot of ground.
In China, where almost one-third of new cars are electric, Volkswagen, GM and Ford have lost market share to domestic producers like BYD, which manufacturers its own batteries. And Tesla, which has built a supply chain for lithium and other raw materials over years, has steadily gained market share in China, Europe and the United States. It is now the second-largest seller of all new cars in California after Toyota.
Lithium is abundant but not always easy to extract.
Many countries with big reserves, like Bolivia, Chile and Argentina, have nationalised natural resources or have stringent currency exchange controls that can limit the ability of foreign investors to withdraw money from the country. Even in Canada and the United States, it can take years to establish mines.
“Lithium is going to be tough to get and to fully electrify here in the US,” said Eric Norris, president of the Lithium global business unit at Albemarle, the leading American lithium miner.
As a result, auto executives and consultants are fanning out to mines around the world, most of which have not begun producing.
“There’s a bit of desperation,” said Amanda Hall, CEO of Summit Nanotech, a Canadian startup working on technology to hasten extraction of lithium from saline groundwater. Auto executives, she said, are “trying to get ahead of the problem”.
Yet, in their hurry, car companies are making deals with small mines that may not live up to expectations. “There are a lot of examples of problems that come up,” said Shay Natarajan, a partner at Mobility Impact Partners, a private equity fund focused on investing in sustainable transportation. Lithium prices could eventually collapse from overproduction, she said.
The miners appear to be the big winners. Their deals with the car companies typically assure them fat profits and make it easier for them to borrow money or sell shares.
Until a few years ago, the price of lithium was so low mining it was hardly profitable. But now with the growing popularity of electric vehicles, there are dozens of proposed mines. Most are in early development stages and will take years to begin production.
Until 2021, “there was either no capital or very short-term capital,” said Ana Cabral-Gardner, co-CEO of Sigma Lithium, a Vancouver, British Columbia-based company that is producing lithium in Brazil. “No one was looking at a five-year horizon and a 10-year horizon.”
Auto companies are playing an important role in helping mines get up and running, said Dirk Harbecke, CEO of Rock Tech Lithium, which is developing a mine in Ontario and a processing plant in eastern Germany that will supply Mercedes-Benz.
“I do not think that this is a risky strategy,” Harbecke said. “I think it’s a necessary strategy.”— ©️2023 The New York Times Company
