February 29, 2024

To avoid falling further behind Tesla and Chinese auto companies, many Western auto executives are bypassing traditional suppliers and promising multibillion-dollar deals with lithium miners.

Wearing hard hats and steel-toed boots, they survey mines in places like Chile, Argentina, Quebec and Nevada to secure supplies of the metal that could make or break their companies as they switch from gasoline to battery power .

Without lithium, U.S. and European automakers won’t be able to make the batteries for the electric pickup trucks, sport utility vehicles and sedans they need to stay competitive. The assembly lines they added in places like Michigan, Tennessee and Saxony, Germany, will gradually grind to a halt.

With electric vehicle sales soaring, established miners don’t have enough lithium to supply the industry. GM plans to electrify all of its vehicle sales by 2035. In the first quarter of 2023, U.S. sales of electric cars, pickups, and sport utility vehicles will rise 45% year-over-year, according to Kelley Blue Book.

As a result, car companies are scrambling to lock in exclusive access to small mines before others flock to them. But the strategy exposes them to high-stakes, boom-and-bust mining operations, sometimes in countries with political instability and weak environmental protections. If they bet wrong, automakers could end up paying much more for lithium than it will sell for in a few years.

Auto industry executives say they have no choice because there is not a reliable enough supply of lithium and other battery materials such as nickel and cobalt to power the millions of electric vehicles that drive the world.

In the past, automakers let battery suppliers buy lithium and other raw materials themselves. But lithium shortages have forced deep-pocketed automakers to source the essential metal directly and send it to battery factories, some of which are owned by suppliers and others that are partially or fully owned by automakers. Batteries rely on lightweight lithium ions to conduct energy.

“We quickly realized that there was no established value chain that could support our ambitions for the next 10 years,” said Sham Kunjur, GM’s battery materials safety program leader.

The automaker struck a supply deal last year with Livent, a Philadelphia-based lithium company, to buy material from mines in South America. In January, GM agreed to invest $650 million in Vancouver, British Columbia-based Lithium Americas to develop the Thacker Pass mine in Nevada. Mr. Kunjur and Lithium Americas executives said the company beat out 50 bidders for the stake, including battery and component makers.

Ford has lithium deals with Chilean supplier SQM; Albemarle, based in Charlotte, North Carolina; and Nemaska ​​Lithium in Quebec.

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

The automakers’ deals with mining companies and processors of raw materials date back to the industry’s origins, when Ford founded rubber plantation Securing tire material in Brazil.

“Almost 100 years later, with this new revolution, we’re back at that stage,” Mr Kunjul said.

According to consultancy Benchmark Mineral Intelligence, the cost of setting up a lithium supply chain will be as high as $51 billion. To benefit from U.S. subsidies, battery raw materials must be mined and processed in North America or by trading allies.

But fierce competition for the metal has driven lithium prices to unsustainable levels, some executives said.

“The price of lithium has gone up so much since the beginning of ’22 and there’s so much hype in the system that people can do a lot of really bad deals,” said RJ Scaringe, chief executive of Rivian Electric Vehicles in Irvine, Calif. company

Dozens of companies are developing mines, and there may eventually be enough lithium to meet everyone’s needs. Global production could surge faster than expected, sending lithium prices tumbling, as happened recently. That would make automakers pay far more for the metal than it’s worth.

Auto industry executives are taking no chances, fearing that if there isn’t enough lithium for a few years, their companies will never be able to catch up.

Their concerns are justified. In the region where EV sales are growing fastest, established automakers have lost a lot of market. In China, where almost a third of all new cars are electric, Volkswagen, GM and Ford have lost market share to domestic producers such as BYD, which makes its own batteries. Tesla has established a supply chain for lithium and other raw materials over the years, and its market share in China, Europe and the United States has grown steadily.It is Second largest seller of all new cars Second only to Toyota in California.

Chinese companies often have an advantage over U.S. and European auto companies because they are state-owned or state-backed and can thus take more risks in the mining industry, which often encounters local opposition and nationalization by populist governments or technical difficulties.

In June, Chinese battery maker Ningde Times signed an agreement with Bolivia to invest $1.4 billion in two lithium projects. Few Western companies have shown sustained interest in a country known for its political instability.

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

These deals typically provide automakers with preferential access to crowd out rivals. Tesla’s deal with Piedmont Lithium near Charlotte secures the automaker a majority of output from a mine in Quebec.

Lithium is abundant, but not always easy to extract.

Many countries with large foreign exchange reserves, such as Bolivia, Chile and Argentina, have nationalized natural resources or imposed strict currency exchange controls, which may limit the ability of foreign investors to withdraw capital from the country. Even in Canada and the United States, it can take years to establish a mine.

“Lithium is going to be hard to come by and fully electrified in the U.S.,” said Eric Norris, president of the lithium global business unit of Albemarle, a leading U.S. lithium miner.

As a result, auto industry executives and consultants have flocked to mines around the world, most of which have yet to start production.

“People are kind of desperate,” said Amanda Hall, chief executive of Summit Nanotech, a Canadian startup working to speed up technology for extracting lithium from saline groundwater. Auto industry executives are “working hard to figure this out,” she said.

Auto companies, however, are rushing to strike deals with smaller mines that may not live up to expectations. “There are a lot of examples of problems coming out,” said Shay Natarajan, a partner at Mobility Impact Partners, a private equity fund focused on investing in sustainable transportation. Lithium prices could eventually collapse due to overproduction, she said.

Miners appear to be the big winners. Their deals with auto companies often guarantee them fat profits and make it easier for them to borrow money or sell stock.

Rio Tinto, one of the world’s largest mining companies, recently struck a tentative deal to supply Ford with lithium 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 had expressed interest. Rio Tinto provided car company representatives with a checklist covering mining methods, relationships with local communities and environmental impacts “to make everyone feel comfortable”, she said.

“Because if we can’t do that, then the supply won’t be unleashed and we won’t be able to solve this global challenge together,” Ms. Finlayson said of climate change.

Until a few years ago, lithium prices were 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 early development and will take years to start production.

Ana Cabral-Gardner, co-chief executive of Sigma Lithium, a Vancouver-based company that produces lithium in Brazil, said that until 2021, “there’s either no capital or very little capital.” short term”. “No one is looking at five-year and 10-year horizons.”

Dirk Harbecke, chief executive of Rock Tech Lithium, said automotive companies play an important role in helping mines get built and run. The company is developing a mine in Ontario and a processing plant in eastern Germany to supply Mercedes-Benz.

“I don’t think it’s a risky strategy,” Mr Harbeck said. “I think it’s a necessary strategy.”

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