To keep pace with Tesla and Chinese competitors, Western automakers are embarking on a new strategy: investing in lithium mining companies. With lithium shortages posing a threat to their electric vehicle ambitions, companies like Ford and General Motors are donning hard hats and venturing into mines worldwide to secure a vital resource that could determine their success in the transition from gasoline to battery power.
The Lithium Challenge
Lithium, an essential metal for electric vehicle batteries, is abundant but difficult to extract. With established mining companies struggling to meet the growing demand, automakers are taking matters into their own hands. The surge in electric vehicle sales and plans for an all-electric future have forced car manufacturers to secure reliable sources of lithium. They are now competing for exclusive access to smaller mines and investing billions of dollars in lithium mining companies. This strategic move enables automakers to control their supply chain, but it also exposes them to the uncertainties and risks associated with mining operations.
General Motors, for instance, struck a supply deal with Livent, a Philadelphia-based lithium company, and invested $650 million in Lithium Americas to develop the Thacker Pass mine in Nevada. Ford Motor has made agreements with suppliers such as SQM from Chile, Albemarle from North Carolina, and Nemaska Lithium from Quebec. By establishing direct partnerships with mining companies, automakers aim to ensure a steady flow of lithium, avoiding potential raw material shortages that could disrupt their electric vehicle production.
Navigating the Risks
While automakers take on the mining business to secure their lithium supply, they face challenges such as political instability and environmental concerns in certain mining regions. The risky nature of mining could also result in automakers paying inflated prices for lithium if market dynamics shift. However, these risks are seen as necessary for automakers to stay ahead in the electric vehicle race, as the scarcity of lithium and other battery materials threatens their long-term growth prospects.
The Return to Resource Acquisition
The current strategy adopted by automakers to invest in mining companies and secure direct access to raw materials resembles the early days of the industry when Ford established rubber plantations in Brazil for tire production. Automakers are recognising the importance of controlling the lithium supply chain, which is estimated to cost $51 billion to develop fully. By striking agreements with mining companies, car manufacturers aim to prevent their market share from being eroded and ensure their ability to produce electric vehicles in the face of increasing competition.
As automakers race to transition from gasoline to battery power, securing a reliable supply of lithium has become imperative. By venturing into the mining industry, car manufacturers are taking control of their destiny, despite the risks involved. While there are concerns about the potential for oversupply and price collapses in the lithium market, the need for a stable lithium supply chain to support the global shift toward electric vehicles remains a top priority for automakers.