In an effort to avoid falling further behind Tesla and Chinese automakers, many Western car executives 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 scout mines in places like Chile, Argentina, Quebec and Nevada to secure supplies of the metal that could make or break their companies as they transition from gasoline to battery power.
Without lithium, U.S. and European automakers won’t be able to produce the batteries for the electric pickup trucks, SUVs and sedans they need to stay competitive. And the assembly lines they’re expanding in places like Michigan, Tennessee and Saxony, Germany will come to a complete halt.
Incumbent mining companies do not have enough lithium to supply the industry as electric vehicle sales rise. General Motors plans to sell all its cars on electricity by 2035. According to Kelley Blue Book, in the first quarter of 2023, sales of battery-powered cars, pickup trucks and sport utility vehicles in the United States are up 45 percent from a year earlier. .
So the car companies are trying to block exclusive access to the smaller mines before others rush in. But the strategy exposes them to the risky business of mining booms and busts, sometimes in politically unstable countries with weak environmental protections. If they bet wrong, automakers could end up paying far more for lithium than it could sell in a few years.
Automakers have said they have no choice because there is not enough reliable supply of lithium and other battery materials such as nickel and cobalt for the millions of electric vehicles the world needs.
In the past, automakers let battery suppliers buy lithium and other raw materials themselves. But the lack of lithium has forced deeper-pocketed automakers to source the base metal directly and have it shipped to battery factories, some of which are owned by suppliers and others partly or wholly owned by automakers. Batteries rely on lightweight lithium ions to conduct energy.
“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’ battery materials security program.
Last year, the automaker signed a contract to supply material from South American mines with Livent, a lithium company in Philadelphia. 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. The company beat out 50 bidders, including battery and component makers, for the stake, Mr. Kunjur and Lithium Americas executives said.
Ford Motor strikes lithium deals with Chilean supplier SQM; Albemarle, based in Charlotte, NC; and Nemaska Lithium of Quebec.
“They are one of the largest producers of lithium in the world with the best quality,” Lisa Drake, vice president of electric vehicle industrialization at Ford, told investors in May.
The deals that automakers make with mining companies and raw materials processors harken back to the industry’s early days, when Ford founded rubber plantations in Brazil to secure tire material.
“It almost seems that 100 years later, with this new revolution, we are back at that stage,” Mr Kunjur said.
Establishing a supply chain for lithium will be expensive: $51 billion, according to consulting firm Benchmark Mineral Intelligence. In order to take advantage of US subsidies, raw materials for batteries must be mined and processed in North America or by trading allies.
But intense competition for the metal has helped inflate lithium prices to unsustainable levels, some executives said.
“Since the beginning of ’22, the price of lithium has gone up so fast and there has been so much hype in the system that there have been a lot of really bad trades to make,” said RJ Scaringe, CEO of Rivian, an electric vehicle company 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 rise earlier than expected, leading to a collapse in the price of lithium, which has happened in the recent past. That would leave automakers paying far more for the metal than it was worth.
Auto company executives are not taking risks because they fear that if they are without enough lithium for even a few years, their companies will never catch up.
Their fear is justified. In places where electric car sales have grown the fastest, established automakers have lost a lot. In China, where nearly one-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, is steadily gaining market share in China, Europe and the United States. Now it is the second largest seller of all new cars in California after Toyota.
Chinese companies often have an edge over American and European automakers because they are state-owned or state-backed, and as a result can take more risks in mining, which often runs into local resistance, nationalization by populist governments or technical difficulties.
In June, Chinese battery maker CATL finalized a deal 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 negotiate deals in which they promise to buy a certain amount of lithium within a price range.
These agreements often give automakers preferential access and crowd out competitors. Tesla has an agreement with Piedmont Lithium, located near Charlotte, that provides the automaker with much of the production from the mine in Quebec.
Lithium is abundant, but not always easy to obtain.
Many countries with large reserves, such as Bolivia, Chile and Argentina, have nationalized natural resources or have strict exchange rate 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.
“It will be difficult to source and fully electrify lithium here in the U.S.,” said Eric Norris, president of the global lithium business unit at Albemarle, a leading U.S. lithium miner.
As a result, automotive executives and consultants are expanding into mines around the world, most of which have yet to begin production.
“There’s a bit of desperation,” said Amanda Hall, CEO of Summit Nanotech, a Canadian start-up that’s working on technology to speed up the extraction of lithium from saline groundwater. Automaker executives, she said, are “trying to fix the problem.”
However, in their haste, automakers are closing deals with small mines that may not live up to expectations. “There are many examples of issues that are emerging,” 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.
Miners seem to be the big winners. Their deals with car companies usually provide them with 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 reached a preliminary agreement to supply Ford with lithium from a mine it was developing in Argentina.
Ford was one of several automakers to show interest, said Marnie Finlayson, managing director of Rio Tinto’s battery minerals business. Rio Tinto takes the automaker’s representatives through a checklist that covers mining methods, relationships with local communities and environmental impact “to make everyone feel comfortable.”
“Because if we can’t do that, then supplies won’t be released and we won’t solve this global problem together,” Finlayson said, referring to climate change.
Just a few years ago, the price of lithium was so low that it 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 the capital was very short-term,” said Ana Cabral-Gardner, co-CEO of Sigma Lithium, a Vancouver-based company that produces lithium in Brazil. “No one was looking at the five-year and 10-year horizons.”
Automakers play 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 don’t think it’s a risky strategy,” Mr. Harbecke said. “I think it’s a necessary strategy.