Ford, General Motors, and others are negotiating with mining companies to avoid shortages of basic materials that could derail their electric vehicle goals.
To avoid falling further behind Tesla and Chinese automakers, a number of Western auto executives are circumventing traditional suppliers and investing billions of dollars in lithium mining companies.
They are scouting mines in Chile, Argentina, Quebec, and Nevada to secure supplies of a metal that could make or break their enterprises as they transition from petroleum to battery power.
Without lithium, American and European automakers will be unable to produce batteries for the electric pickup trucks, SUVs, and sedans they need to remain competitive. And assembly lines in places such as Michigan, Tennessee, and Saxony, Germany will come to a complete cessation.
As sales of electric vehicles increase, established mining companies do not have enough lithium to supply the industry. General Motors intends to sell only electric vehicles by 2035. According to Kelley Blue Book, during the first quarter of 2023, sales of battery-powered automobiles, pickup trucks, and sport utility vehicles in the United States increased by 45 percent year over year.
So automakers are scrambling to secure exclusive access to lesser resources prior to competition. However, this strategy exposes them to the hazardous, boom-and-bust mining industry, sometimes in politically unstable countries with inadequate environmental safeguards. Automakers could end up paying significantly more for lithium than it would be worth in a few years if they wager incorrectly.
There were insufficient reliable supplies of lithium and other battery materials, such as nickel and cobalt, to produce the millions of electric vehicles that the world requires.
In the past, manufacturers allowed battery suppliers to independently acquire lithium and other basic materials. But lithium shortages have compelled automakers with deeper resources to acquire the essential metal directly and ship it to battery facilities, some of which are owned by suppliers and others of which are owned in part or in full by automakers. Lithium ions are used in batteries to conduct energy.
Sham Kunjur, who oversees General Motors’ program to acquire battery materials, stated, “We quickly realized there was no established value chain that could support our goals for the next ten years.”
The automaker signed a supply agreement with Livent, a lithium company in Philadelphia, for South American mined materials last year. And in January, G.M. agreed to invest $650 million in Lithium Americas, a Vancouver, British Columbia-based company that will develop the Nevada Thacker Pass mine. According to Mr. Kunjur and Lithium Americas executives, the company outbid 50 candidates, including battery and component manufacturers, for this share.
Ford Motor has agreements with the Chilean supplier SQM, the North Carolina-based Albemarle, and the Canadian company Nemaska Lithium.
In May, Lisa Drake, Ford’s vice president for electric vehicle industrialization, told investors, “These are some of the world’s largest and highest-quality lithium producers.”
The deals that manufacturers are forging with mining companies and raw material processors harken back to the early days of the industry, when Ford established rubber plantations in Brazil in order to obtain materials for tires.
Mr. Kunjur stated, “It almost seems as if 100 years later, with this new revolution, we are back at this point.”
Benchmark Mineral Intelligence, a consulting firm, estimates that the cost of establishing a lithium supply chain will be $51 billion. To qualify for U.S. subsidies, basic materials for batteries must be mined and processed in North America or by trade allies.
Intense competition for the metal, however, has contributed to unsustainable price increases, according to some executives.
R.J. Scaringe, CEO of Rivian, an electric vehicle company based in Irvine, California, stated, “Since the beginning of ’22, the price of lithium has risen so rapidly and there was so much hype in the system that there were a lot of really bad deals that one could do.”
There may ultimately be more than enough lithium to satisfy everyone’s requirements, as dozens of companies are constructing mines. As has been the case in recent years, a surge in global production could occur sooner than anticipated, causing the price of lithium to plummet. This would result in manufacturers paying significantly more than the metal is worth.
Automobile executives are taking no chances, for fear that their companies will never catch up if they go even a few years without sufficient lithium.
Their concerns are justified. In regions where sales of electric vehicles have grown the most rapidly, established manufacturers have lost considerable ground. In China, nearly one-third of new automobiles are electric.
Volkswagen, General Motors, and Ford have ceded market share to domestic battery manufacturers such as BYD. And Tesla, which has spent years constructing a supply chain for lithium and other raw materials, has consistently increased its market position in China, Europe, and the United States. It is currently the second-largest seller of new automobiles in California, behind Toyota.
Chinese companies often have an advantage over U.S. and European automakers because they are state-owned or -supported. As a result, they can take greater risks in the mining industry, which frequently faces local opposition, nationalization by populist governments, and technical difficulties.
Chinese battery manufacturer CATL signed an agreement with Bolivia in June to invest $1.4 billion in two lithium projects. Due to the country’s reputation for political instability, few Western companies have shown a sustained interest in the region.
Western automakers have, with a few exceptions, avoided investing in lithium mines. Instead, they are negotiating contracts in which they agree to purchase a certain quantity of lithium within a certain price range.
Frequently, the agreements offer automakers preferential access, squeezing out competitors. Tesla has an agreement with Piedmont Lithium, which is located near Charlotte, that guarantees the automaker a substantial portion of the output from a Quebec mine.
Lithium is abundant, but its extraction is not always simple.
Numerous countries with substantial reserves, such as Bolivia, Chile, and Argentina, have nationalized their natural resources or enacted stringent currency exchange controls that restrict the ability of foreign investors to withdraw funds. Even in Canada and the United States, establishing mines can take years.
Eric Norris, president of the Lithium global business unit at Albemarle, the leading American lithium miner, said, “Lithium will be difficult to obtain and fully electrify in the United States.”
Consequently, auto executives and consultants are visiting mines around the globe, the majority of which have not yet begun production.
Amanda Hall, CEO of Summit Nanotech, a Canadian startup developing technology to expedite the extraction of lithium from saline groundwater, stated, “There’s a bit of desperation.” She stated that auto executives are “trying to get ahead of the problem.”
Yet, in their haste, automobile manufacturers are entering into contracts with minor mines that may not meet expectations. Shay Natarajan, a partner at Mobility Impact Partners, a private equity fund that invests in sustainable transportation, stated, “There are a number of examples of problems that arise.” She stated that lithium prices could ultimately fall due to overproduction.
The miners are the apparent victors. Typically, their contracts with automobile manufacturers guarantee them substantial profits and make it simpler for them to borrow money or sell stock.
Rio Tinto, one of the largest mining companies in the world, recently reached a preliminary agreement to supply Ford with lithium from an Argentine mine it was developing.
Marnie Finlayson, managing director of Rio Tinto’s battery minerals division, stated that Ford was one of several automakers that expressed interest. Rio Tinto walks car company representatives through a protocol covering mining methods, relations with local communities, and environmental impact “to put everyone at ease,” according to the source.
Ms. Finlayson, referring to climate change, stated, “Because if we can’t do that, the supply won’t be unlocked, and we won’t be able to solve this global problem together.”
Prior to the past few years, the price of lithium was so low that its mining was barely profitable. With the increasing prevalence of electric vehicles, however, there are currently dozens of proposed mines. The majority are in the early phases of development and will take years to enter production.
Until 2021, “there was either no capital or very short-term capital,” said Ana Cabral-Gardner, co-chief executive of Vancouver-based Sigma Lithium, a company producing lithium in Brazil. No one was considering the five-year and ten-year horizons.
According to Dirk Harbecke, chief executive officer of Rock Tech Lithium, which is developing a mine in Ontario and a processing facility in eastern Germany that will supply Mercedes-Benz, automakers play a significant role in assisting mines with their startup.
Mr. Harbecke stated, “I don’t consider this to be a risky strategy.” I believe it to be a necessary strategy.
