Lithium scarcity pushes automakers into mining

Wanting to avoid falling even further behind Tesla and Chinese car companies, many Western car drivers are bypassing traditional suppliers and spending billions of dollars on deals with lithium mining companies.

They show up in helmets and steel-toed boots to survey mines in places like Chile, Argentina, Quebec and Nevada to secure supplies of a metal that could make or break their businesses as they move from gasoline to battery power.

Without lithium, US and European automakers won’t be able to build batteries for the electric pickups, SUVs and sedans they need to stay competitive. And assembly lines they’re 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 sales of electric vehicles soar. General Motors plans to make all its car sales electric by 2035. In the first quarter of 2023, sales of battery-powered cars, pickups and SUVs in the United States increased 45 percent from a year earlier, according to Kelley Blue Book.

So car companies try to cut off exclusive access to smaller mines before others invade. 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 guess wrong, automakers could end up paying much more for lithium than it could sell in a few years.

Motorists said they had no choice because there were not 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, car manufacturers let battery suppliers buy lithium and other raw materials themselves. But lithium shortages have forced automakers, which have deeper pockets, to acquire the essential metal directly and send it to battery factories, some owned by suppliers and others owned in part or wholly by the automakers. 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.

Last year, the automaker signed a supply agreement with Livent, a Philadelphia-based lithium company, for 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 Nevada’s Thacker Pass mine. The company beat 50 bidders, including battery and component manufacturers, for that stake, Mr. Kunjur and Lithium Americas executives said.

Ford Motor has signed lithium deals with SQM, a Chilean supplier; Albemarle, based in Charlotte, NC; and Nemaska ​​Lithium from Quebec.

“These are some of the largest lithium producers in the world with the best quality,” Lisa Drake, Ford vice president of electric vehicle industrialization, told investors in May.

The deals automakers make with mining companies and resource processors hark back to the beginnings of the industry, when Ford rubber plantations in Brazil to secure material for tires.

“It seems almost 100 years later, with this new revolution, we are back at that stage,” said Mr. Kunjur.

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 sourced and processed in North America or by trading partners.

But intense competition for the metal has helped push lithium prices to unsustainable levels, some executives said.

“Since the beginning of ’22, the price of lithium has gone up so fast and there was so much hype in the system that a lot of bad deals were possible,” said RJ Scaringe, CEO of Rivian, an electric vehicle company based in Irvine, 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 faster than expected, which could lead to a collapse in the price of lithium, something that has happened in the recent past. That would cause automakers to pay much more for the metal than it was worth.

Drivers don’t take any chances, fearing that their companies will never catch up if they run out of lithium for even a few years.

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 nearly a third of new cars are electric, Volkswagen, GM and Ford have lost market share to domestic manufacturers such as BYD, which produces its own batteries. And Tesla, which has built a supply chain for lithium and other raw materials over the years, has been steadily gaining market share in China, Europe and the United States. It’s now the second largest seller of all new cars in California after Toyota.

Chinese companies often have an edge over US and European auto companies because they are state-owned or backed, and can therefore take more risks in mining, which often faces local opposition, nationalization by populist governments or technical difficulties.

In June, Chinese battery maker CATL signed an agreement with Bolivia to invest $1.4 billion in two lithium projects. Few Western companies have shown lasting interest in the country, which is known for its political instability.

With few exceptions, Western automakers have avoided buying stakes in lithium mines. Instead, they negotiate agreements in which they promise to buy a certain amount of lithium within a certain price range.

Often the deals give automakers preferential access, crowding out rivals. Tesla has a deal with Piedmont Lithium, which is near Charlotte, that will give the automaker a large share of the output of 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 controls that can limit the ability of foreign investors to withdraw money from the country. Even in Canada and the United States, mines can take years to establish.

“Lithium will be hard to get and fully electrify here in the US,” said Eric Norris, president of the global lithium business unit at Albemarle, the leading US lithium miner.

As a result, motorists and consultants are fanning out to mines around the world, most of which have not yet started production.

“There’s a bit of desperation,” said Amanda Hall, CEO of Summit Nanotech, a Canadian start-up working on technology to speed up the extraction of lithium from saline groundwater. Motorists, she said, are “trying to get ahead of the problem”.

Yet, in their haste, car companies are making deals with small mines that may not live up to expectations. “There are a lot of examples of issues that are emerging,” said Shay Natarajan, a partner at Mobility Impact Partners, a private equity fund focused on investments in sustainable transportation. Lithium prices could eventually collapse from overproduction, she said.

The miners seem to be the big winners. Their deals with the car companies usually assure them of big profits and make it easier for them to borrow money or sell stocks.

Rio Tinto, one of the world’s largest mining companies, recently reached a tentative agreement to supply lithium to Ford from a mine it was developing in Argentina.

Ford was one of many auto companies to show interest, said Marnie Finlayson, general manager of Rio Tinto’s battery minerals business. Rio Tinto takes auto company representatives through a checklist, she said, that covers mining practices, relationships with local communities and environmental impact “to put everyone at ease.”

“Because if we can’t do that, the supply isn’t unlocked 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 in mining that it was barely profitable. But now with the growing popularity of electric vehicles, there are dozens of proposed mines. Most are in an early stage of development and will take years to begin production.

Until 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. “No one was looking at a five-year horizon and a 10-year horizon.”

Auto companies are playing an important role in getting mines going, says 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 don’t think this is a risky strategy,” Mr Harbecke said. “I think it’s a necessary strategy.”