Lithium shortage pushes Ford and GM and others into mining – 7/4/2023 – Market

Trying to avoid falling further behind Tesla and Chinese automakers, many western auto executives are bypassing traditional suppliers and committing billions of dollars to deals with lithium mining companies.

They are showing up in helmets and boots to explore mines in places like Chile, Argentina, Quebec and Nevada to secure a supply of a metal that could decide the fate of their companies as they replace gasoline with electric batteries.

Without lithium, automakers in the United States and Europe will be unable to make batteries for the electric trucks, SUVs and sedans they need to stay competitive. The assembly lines they are reinforcing in places like Michigan, Tennessee (USA) and Saxony (Germany) will stop.

Established mining companies don’t have enough lithium to supply the industry as EV sales grow. General Motors plans that by 2035 all its cars sold will be electric. In the first quarter of 2023, sales of battery-powered cars, trucks and SUVs in the United States are up 45% year-over-year, according to the Kelley Blue Book website.

So automakers are scrambling to secure exclusive access to smaller mines ahead of competitors. But the strategy exposes them to the risky and fluctuating business of mining, sometimes in politically unstable countries with weak environmental protections. If they bet incorrectly, automakers could end up paying a lot more for lithium than it could cost in a few years.

Auto industry executives say they have no choice because there are no reliable supplies of lithium and other battery materials like 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 the shortage of lithium has forced automakers, who are wealthier, to source the essential metal directly and ship it to battery factories, some owned by suppliers and others wholly or partly owned by automakers. Batteries rely on lightweight lithium-ion to conduct energy.

“We quickly realized that there was no defined value chain that would support our ambitions over the next 10 years,” said Sham Kunjur, supervisor of General Motors’ program to source battery materials.

Last year, the automaker closed a supply agreement with Livent, a Philadelphia-based lithium company, for material from South American mines. In January, GM agreed to invest US$650 million (R$3 billion) in Lithium Americas, a company based in Vancouver, Canada, to develop the Thacker Pass mine in Nevada. The company beat out 50 bidders, including battery and component makers, for that stake, Kunjur and Lithium Americas executives said.

Ford Motor struck lithium deals with Chilean supplier SQM; Albemarle, headquartered in Charlotte, North Carolina (USA); and Nemaska ​​Lithium, from Quebec (Canada).

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

The agreements that automakers are closing with mining companies and raw material processors date back to the beginning of the industry, when Ford established latex plantations in Brazil to guarantee material for tires.

“It almost feels like a hundred years later, with this new revolution, we’re back in that phase,” Kunjur said.

Establishing a supply chain for lithium will be costly: $51 billion (R$244.1 billion), according to consultancy Benchmark Mineral Intelligence. To benefit from US subsidies, battery raw materials must be sourced and processed in North America or by commercial allies.

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

“Since the beginning of 2022, the price of lithium has gone up so quickly and there’s been so much hype in the system that there were a lot of really bad deals to be had,” said RJ Scaringe, CEO of Rivian, an electric vehicle company in Irvine, Calif.

Dozens of companies are developing mines, and there may be more than enough lithium to meet everyone’s needs. Global production may increase sooner than expected, leading to a collapse in the price of lithium, something that has happened in the recent past. That would make automakers pay far more for the metal than it was worth.

Automotive executives are taking no chances, fearing that if they go a few years without enough lithium, their companies will never catch up.

Your fears are well founded. 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 car makers such as BYD, which makes its own batteries.

Tesla, which has built a supply chain for lithium and other raw materials over the years, has been gaining market share in China, Europe and the United States. It is now the second-largest seller of all new cars in California, after Toyota.

Chinese companies often have an advantage over US and European automakers because they are state-owned or state-backed and, as a result, can take more risks in mining, which often encounters local opposition, nationalization by populist governments or technical difficulties.

In June, Chinese battery maker CATL concluded an agreement with Bolivia to invest US$1.4 billion (R$6.7 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 certain price range.

Deals often give preferential access to certain automakers, hurting competitors. Tesla has an agreement with Piedmont Lithium, which is located near Charlotte, which guarantees the automaker much of the production of a mine in Quebec.

Lithium is plentiful but not always easy to extract.

Many countries with large reserves, such as Bolivia, Chile and Argentina, have nationalized natural resources or have strict exchange controls that 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.

“It’s going to be difficult to get and fully electrify lithium 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 visiting mines around the world, most of which have not yet started production.

“There is a certain desperation,” said Amanda Hall, CEO of Summit Nanotech, a Canadian startup working on technology to accelerate the extraction of lithium from saline groundwater. Auto executives are “trying to get ahead of the problem,” she said.

However, in the rush, automakers are striking deals with small mines that may not live up to expectations. “There are a lot of examples of issues arising,” said Shay Natarajan, partner at Mobility Impact Partners, a private equity fund focused on sustainable transportation. Lithium prices could eventually collapse due to overproduction, she said.

Mining companies appear to be the big winners. Its deals with automakers often guarantee big profits and make it easy to borrow money or sell stock.

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

Ford was one of several automakers that expressed interest, said Marnie Finlayson, managing director of Rio Tinto’s battery ores business. Rio Tinto walks carmaker representatives through a checklist, she said, covering mining methods, relationships with local communities and environmental impact, “so everyone is comfortable.”

“Because if we can’t do that the supply won’t unlock and we’re not going to solve this global challenge together,” Finlayson said, referring to climate change.

Until a few years ago, the price of lithium was so low that mining was hardly 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.

By 2021, “either there was no capital or there was very short-term capital,” said Ana Cabral-Gardner, co-CEO of Sigma Lithium, a Vancouver, British Columbia-based company that produces lithium in Brazil. “Nobody was looking at a five-year horizon and a ten-year horizon.”

Auto companies are playing an important role in helping mines to function, said Dirk Harbecke, CEO of Rock Tech Lithium, which is developing a mine in Ontario (Canada) and a processing plant in eastern Germany that will supply Mercedes-Benz .

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

Translated by Luiz Roberto Gonçalves