To avoid falling behind Tesla and Chinese car companies, many Western auto executives are bypassing traditional suppliers and plowing billions of dollars into deals with lithium mining companies.
They’ve been showing up in hard hats and steel-toe boots to mines in places like Chile, Argentina, Quebec and Nevada to ensure supplies of the metal that could make or break their companies as they move from gasoline to battery power.
Without lithium, American and European carmakers would not be able to make the batteries for the electric pickup trucks, sport utility vehicles and sedans they need to stay competitive. And the assembly lines they’re building in places like Michigan, Tennessee and Saxony in Germany will stop.
Established mining companies simply do not have enough lithium to supply the industry as electric vehicle sales increase. General Motors plans to make all its cars sold electric by 2035. In the first quarter of 2023, sales of battery-powered cars, pickups and sport utility vehicles in the United States are set to grow 45 percent from a year earlier, according to Kelley Blue Book. ,
So car companies are scrambling to seal off exclusive access to smaller mines before others intervene. 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 wrongly, automakers could pay far more for lithium than they sell for in a few years.
Auto executives said they had no choice because there was not enough reliable supplies of lithium and other battery materials like nickel and cobalt to power the millions of electric vehicles the world would need.
In the past, automakers allowed battery suppliers to buy lithium and other raw materials themselves. But lithium shortages have forced car makers, who have more pockets, to obtain the needed metal directly and ship it to battery factories, some of which are owned by the suppliers and others partially or fully. owned by the vehicle manufacturers. Batteries rely on lightweight lithium ions to conduct energy.
“We quickly realized that there was no established value chain that would support our ambitions for the next 10 years,” said Sham Kunjur, who oversees General Motors’ program to secure battery materials.
The automaker last year signed a supply agreement with Philadelphia-based lithium company Livent for the material from South American mines. And in January, GM agreed to invest $650 million in Lithium Americas, a company based in Vancouver, British Columbia, to develop the Thacker Pass mine in Nevada. Mr. Kunjur and Lithium America executives said the company beat out 50 bidders, including battery and component makers, for that stake.
Ford Motor signs lithium deal with Chilean supplier SQM; Albemarle, based in Charlotte, NC; and Nemasca Lithium of Quebec.
“These are some of the largest lithium producers in the world at the best quality,” Lisa Drake, vice president of electric vehicle industrialization at Ford, told investors in May.
The deals automakers are making with mining companies and raw material processors date back to the beginning of the industry, when Ford was founded rubber plantations To secure material for tires in Brazil.
Mr. Kunjur said, “It seems that after almost 100 years, with this new revolution, we are back to that phase.”
Setting up a supply chain for lithium will be costly: $51 billion, according to Benchmark Mineral Intelligence, a consulting firm. To benefit from US subsidies, battery raw materials must be mined and processed in North America or by trade partners.
But some executives said intense competition for the metal has helped propel lithium prices to unsustainable levels.
“With the price of lithium rising so quickly since the beginning of ’22 and there was so much hype in the system, there were a lot of bad deals that one could make,” said RJ Scaringe, chief executive of Rivian. Electric vehicle company in Irvine, Calif.
Dozens of companies are developing mines, and eventually there may be more than enough lithium to meet everyone’s needs. Global production may increase sooner than expected, causing a fall in the price of lithium, which has happened recently. This will result in automakers paying much more for the metal than it is worth.
Auto executives aren’t taking any risks, fearing their companies will never reach that level if they go even a few years without enough lithium.
There is substance in their fear. In the places where electric vehicle sales have grown fastest, established automakers have lost a lot of ground. In China, where about a third of new cars are electric, Volkswagen, GM and Ford have lost market share to domestic producers such as BYD, which makes its own batteries. And Tesla, which has built up a supply chain for lithium and other raw materials over the years, has steadily gained market share in China, Europe and the United States. it is now Second largest seller of all new cars In California after Toyota.
Chinese companies often have an edge over American and European car companies because they are state-owned or state-supported, and as a result, can take on greater risks in mining, which is often faced with local opposition, nationalization by populist governments, or technical difficulties. have to face.
In June, Chinese battery maker CATL completed a deal with Bolivia to invest $1.4 billion in two lithium projects. Some Western companies have shown continued interest in the country, which is known for its political instability.
With few exceptions, Western carmakers have avoided buying stakes in lithium mines. Instead, they are negotiating agreements in which they promise to buy a certain amount of lithium within a price range.
Often the deals provide preferential access to carmakers, thereby driving out rivals. Tesla has struck a deal with Piedmont Lithium, based near Charlotte, that ensures the carmaker a sizable share of production from the mine Quebec,
Lithium is abundant but it is not always easy to extract.
Many countries with large reserves, such as Bolivia, Chile and Argentina, have nationalized natural resources or have stringent currency exchange controls that may limit the ability of foreign investors to withdraw money from the country. Even setting up mines in Canada and the United States can take years.
“It’s going to be difficult to get lithium here in the US and electrify it completely,” said Eric Norris, president of the lithium global business unit at leading US lithium miner Albemarle.
As a result, auto executives and consultants are turning to quarries around the world, most of which have not started production.
“There is some frustration,” said Amanda Hall, chief executive of Summit Nanotech, a Canadian start-up that is working on technology to speed up the extraction of lithium from brackish groundwater. Auto executives are “trying to get ahead of the problem,” he said.
Still, in a hurry, car companies are making deals with smaller mines that may not live up to expectations. “There are a number of examples of problems,” said Shaya Natarajan, partner at Mobility Impact Partners, a private equity fund focused on investing in sustainable transportation. He added that overproduction could eventually cause lithium prices to fall.
Miners seem to be the big winners. Their deals with car companies usually assure them hefty profits and make it easy for them to borrow money or sell shares.
Rio Tinto, one of the world’s largest mining companies, recently reached a preliminary agreement to supply lithium to Ford from a mine it is developing in Argentina.
Marnie Finlayson, managing director of Rio Tinto’s battery minerals business, said Ford was one of several car companies that expressed interest. Rio Tinto Cars takes company representatives through a checklist, he said, that covers mining methods, relationships with local communities and environmental impact “to make everyone feel comfortable.”
“Because if we can’t do that, then the supply is not going to be unlocked, and we are not going to solve this global challenge together,” Ms Finlayson said, referring to climate change.
Until a few years ago, the price of lithium was so low that it was difficult to mine. But now with the growing popularity of electric vehicles, there are dozens of proposed pitfalls. Most are in the early development stage and will take several years before production begins.
“By 2021, there was either no capital or very short-term capital,” said Ana Cabral-Gardner, co-chief executive of Sigma Lithium, a Vancouver-based company that produces lithium in Brazil. “Nobody was looking at the five-year horizon and the 10-year horizon.”
Auto companies are playing a key role in helping get the mines up and running, said Dirk Harbeck, chief executive of Rock Tech Lithium, which is developing a mine in Ontario and a processing plant in eastern Germany that will house Mercedes-Benz. Will supply
“I don’t think it’s a risky strategy,” Mr. Harbeck said. “I think it’s a necessary strategy.”