Eager to avoid falling further behind Tesla and Chinese auto companies, many Western auto executives are bypassing traditional suppliers and committing billions of dollars in deals with lithium mining companies.
They are turning up in hard hats and steel-toed boots to explore mines in places like Chile, Argentina, Quebec and Nevada to secure supplies of a metal that could make or break their businesses as they transition from gasoline to battery power. .
Without lithium, automakers in the US and Europe won’t be able to make batteries for the electric trucks, sport utility vehicles and sedans they need to stay competitive. And the assembly lines that are ramping up in places like Michigan, Tennessee, and Saxony, Germany, will stop.
Established mining companies do not have enough lithium to supply the industry as electric vehicle sales soar. General Motors plans to make all of its car sales electric by 2035. In the first quarter of 2023, sales of battery-powered cars, trucks and sport utility vehicles in the United States increased 45 percent from a year earlier, according to Kelly Blue Book. .
Therefore, auto companies strive to secure exclusive access to smaller mines before others get involved. But the strategy exposes them to the risky business of mining, sometimes in politically unstable countries with weak environmental protections. If they bet wrong, automakers could end up paying much more for lithium than it could be sold in a few years.
Auto executives said they had no choice because there weren’t enough reliable supplies of lithium and other battery materials, such as nickel and cobalt, for the millions of electric vehicles the world needs.
In the past, automakers allowed battery suppliers to purchase lithium and other raw materials on their own. But lithium shortages have forced automakers, which have deeper pockets, to purchase the essential metal directly and send it to battery factories, some owned by suppliers and others partly or wholly owned by automakers. The batteries are based on lightweight lithium ion to conduct power.
“We quickly realized that there was no established value chain to support our ambitions for the next 10 years,” said Sham Kunjur, who oversees General Motors’ program to secure battery materials.
Last year, the automaker struck a supply deal with Livent, a lithium company in Philadelphia, to source material from South American mines. And in January, GM agreed to invest $650 million in Lithium Americas, a Vancouver, British Columbia-based company, to develop the Thacker Pass mine in Nevada. The company beat out 50 bidders, including battery and component makers, for that share, Kunjur and Lithium Americas executives said.
Ford Motor has made lithium deals with SQM, a Chilean supplier; Albemarle, based in Charlotte, North Carolina; and Nemaska Lithium from Quebec.
“These are some of the largest lithium producers in the world with the best quality,” Lisa Drake, Ford’s vice president of electric vehicle industrialization, told investors in May.
The deals that automakers are striking with mining companies and raw materials processors date back to the early days of the industry, when Ford established rubber plantations in Brazil to secure material for tires.
“It almost feels like 100 years later, with this new revolution, we are back at that stage,” Kunjur said.
Establishing a lithium supply chain will be expensive: $51 billion, according to Benchmark Mineral Intelligence, a consulting firm. To benefit from US subsidies, battery raw materials must be extracted and processed in North America or by trading partners.
But intense competition for the metal has helped inflate lithium prices to unsustainable levels, some executives said.
“Since the beginning of 2022, the price of lithium has gone up so fast and there was so much hype in the system that there were a lot of really bad deals you could make,” said RJ Scaringe, chief executive of Rivian, an Irvine-based electric vehicle company. California.
Dozens of companies are developing mines, and eventually there may be more than enough lithium to meet everyone’s needs. Global production could increase sooner than expected, causing a collapse in the lithium price, something that has happened in the recent past. That would leave automakers paying far more for the metal than it’s worth.
Auto executives aren’t taking any chances, fearing that if they go a few years without enough lithium, their companies will never catch up.
Your fears have merit. In places where EV sales have grown the fastest, established automakers have lost a lot of ground. In China, where nearly a third of new cars are electric, Volkswagen, GM and Ford have lost market share to domestic manufacturers such as BYD, which makes its own batteries. And Tesla, which has built a supply chain for lithium and other raw materials over the years, has steadily gained market share in China, Europe and the United States. now is the second largest seller of all new cars in California after Toyota.
Chinese companies often have an advantage over American and European auto companies because they are state-owned or state-supported and as a result may take more risks in mining, which often encounters local opposition, nationalization by populist governments or technical difficulties.
In June, Chinese battery maker CATL completed an agreement with Bolivia to invest $1.4 billion in two lithium projects. Few Western companies have shown sustained interest in the country, known for its political instability.
With a few exceptions, Western automakers have avoided buying stakes in lithium mines. Instead, they are negotiating deals in which they promise to buy a certain amount of lithium within a price range.
Deals often give automakers preferential access, displacing rivals. Tesla has a deal with Piedmont Lithium, which is near Charlotte, that secures the automaker a large chunk of output from a mine in Quebec.
Lithium is abundant but not always easy to extract.
Many countries with large reserves, such as Bolivia, Chile and Argentina, have nationalized natural resources or have strict 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 hard to come by and fully electrify here in the US,” said Eric Norris, president of the global lithium business unit at Albemarle, the top US lithium miner.
As a result, automotive executives and consultants are flocking to mines around the world, most of which have not started production.
“There is a bit of desperation,” said Amanda Hall, chief executive of Summit Nanotech, a Canadian startup working on technology to speed up the extraction of lithium from saline groundwater. Auto executives, she said, are “trying to get ahead of the problem.”
However, in their haste, auto companies are making deals with small mines that may not live up to expectations. “There are a lot of examples of issues coming 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, he said.
The miners seem to be the big winners. Their dealings with auto companies usually ensure them big profits and make it easy for them to borrow money or sell stocks.
Rio Tinto, one of the world’s largest mining companies, recently reached a preliminary agreement to supply lithium to Ford from a mine it was developing in Argentina.
Ford was one of several car companies that expressed interest, said Marnie Finlayson, managing director of Rio Tinto’s battery minerals business. Rio Tinto takes car company representatives through a checklist, she said, that covers mining methods, relations with local communities and environmental impact “so everyone feels comfortable.”
“Because if we can’t do that, then the supply won’t unlock and we’re 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 mining was barely profitable. But now, with the growing popularity of electric vehicles, there are dozens of proposed mines. Most are in the early stages of development and will take years to start production.
Until 2021, “there was no capital or very short-term capital,” said Ana Cabral-Gardner, co-CEO of Sigma Lithium, a Vancouver-based company that produces lithium in Brazil. “Nobody 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, chief executive of Rock Tech Lithium, which is developing a mine in Ontario and a processing plant in eastern Germany that will supply Mercedes. -Benz.
“I don’t think this is a risky strategy,” Harbecke said. “I think it’s a necessary strategy.”
