In the 1920s, Henry Ford set up rubber plantations in the Amazon, a steel mill in Michigan, and coal mines across the United States to support his growing automobile empire. A century later, car groups are again seeking to gain more control over their raw material supply chains in the race to electrify the world’s fleets.
Demand for electric cars is growing, but a bottleneck of battery raw materials such as lithium, nickel and cobalt threatens to slow their rollout — a problem that could lead to factory shutdowns and land automakers with billions of dollars in fines for missing them. emissions target.
“We’re absolutely convinced that it’s a race, a zero-sum game, and resources are finite,” Tanya Skilton, director of critical electric materials procurement at General Motors, told the FT Mining Summit last month.
The International Energy Agency predicts that growing demand for storage batteries will require 50 new lithium projects, 60 nickel mines and 17 cobalt developments by 2030, a huge challenge for an industry that typically takes 15 years or more to develop a project.
The threat to car manufacturers has led to a change in attitude towards the mining sector and an understanding that the car industry can no longer approach raw material sourcing as an off-the-shelf purchase.
Mercedes-Benz is among the car companies that have signed offtake contracts – promising to buy future production that helps suppliers raise financing – with miners and has started work on its own processing facilities.
“If you had asked me five years ago, I would have said it was the job of the commodity markets,” said Ola Källenius, chief executive of the German conglomerate, adding that it was now “sensible” to do direct deals because of the emergency.
“If you calculate what we would need at the end of the decade and you see where we are now, it’s an X-factor in terms of scale,” he said. “It’s not that there isn’t enough lithium on this planet – there is. “But it has to be mined and it has to be refined and gone through all the steps.
Skilton predicts the industry will be divided into winners and losers depending on which companies will have the minerals to fulfill their “electrified dreams”.
The change marks a reversal of a decades-old practice in which automakers manage their direct suppliers, who in turn work with suppliers in two tiers, and so on down the chain, where each company deals only with the company that taps directly into them. In the EV supply chain, battery manufacturers, cathode manufacturers and mineral refiners sit between the car companies and the miners.
Now automakers are going straight down the chain to the mines themselves, both to secure supplies cheaply and to ensure ethical and emissions standards are met. Stellantis, owner of the Peugeot and Fiat brands, and GM are among those that have invested in early-stage mining companies to try to secure resources.
“The automakers have woken up to this,” said Doug Johnson-Poensgen, chief executive of Circulor, a technology group that uses a distributed database to track parts and materials through the supply chain. “That’s why quite a few car groups have direct supply contracts.
Chinese EV companies have been following this strategy for some time. BYD, the world’s largest electric car maker, has tried to secure access to lithium mines in Africa and Chile. The world’s largest battery maker CATL agreed last month to buy a nearly 25 percent stake in cobalt producer CMOC for about $3.7 billion.
Tesla has been the most aggressive of the Western automakers in indicating that they will be directly involved in the mining and processing of critical raw materials when the supply chain cannot meet their needs.
The company was in talks with Glencore about taking a stake in the Swiss commodities conglomerate, although Tesla chief executive Elon Musk denied his company was considering such a move. Two people familiar with Musk’s thinking said he would prefer the automaker to develop its own capabilities, disliked giving away capital without operational control and worried about the increased scrutiny a Tesla-backed mining project would face.
Musk told the Financial Times’s Future of the Car Summit this year that the company would only invest in mines if “we think we can significantly change the process of that mining company”.
Tesla is moving ahead with plans to build a lithium refinery on Texas’ Gulf Coast with equipment expected to arrive next year, according to a person familiar with the project.
Some of the feedstock for the refinery was supposed to come from Piedmont Lithium’s project in North Carolina, but the Australian mining group delayed delivery indefinitely last year after falling behind on permit applications. It reflects a broader lament among mining executives who say licensing has become more stringent, pushing mine development times from five to seven years a few decades ago to well over 10 years now.
Lithium is particularly problematic. The price has risen ninefold in less than two years to $74,500 per tonne of battery material. The industry is still developing and lacks experience in scaling up production rapidly.
To meet the projected increase in demand for electric vehicles, the lithium industry relies on early-stage miners, often with unproven technology, to deliver every ton of promised supply.
GM’s Skilton said new entrants could unlock resources sooner or in a cleaner way. But she acknowledged the danger “that the tonnes will appear on a different timescale than we want them to”.
Eric Norris, president of lithium at the world’s most valuable producer and a key Tesla manufacturer, Albemarle, said securing enough hard rock containing the metal to move into the lithium refinery is the key challenge for Musk’s company, which aims to sell 20 million electric vehicles. vehicles per year in 2030.
“The bottom line is they need capital to carry out their policies,” he said. “They may have a few deals here and there but they will only be a small fraction of what their growth plans are.” I think they need the industry and companies with access to these big world-class resources to push their agenda.”
Major mining groups differ significantly from early-stage developers on the need to move beyond the traditional model of execution contracts to get supply delivered when needed.
“We need to raise a lot of money,” Piedmont Lithium CEO Keith Phillips said, adding that $600 million is needed for a lithium refinery in Tennessee and about $1 billion for a proposed mine and refinery in North Carolina. “The best way for us to do that and for the car and battery companies to secure their supply is to invest with us.”
On the other hand, Norris said Albemarle generates “significant cash flow” to fund future growth and has no need for capital from automakers. It would only explore investment from a car company if there was a strategic benefit such as helping it innovate faster, develop new products or expand its recycling operations, he added.
An executive at another major battery metal producer also said “we don’t need an automaker to hold our hand” for any assets it wanted to develop.
The interests of mining and car companies are fundamentally at odds – miners want higher prices that come with limited supply, and car companies want low prices with ample supply. More practically, the multi-decade investment cycle of the mining industry is a far cry from the shorter cycles that car manufacturers operate on.
Henk de Hoop, managing director of SFA’s battery metals consultancy, said the case for car companies taking a stake in a major miner was unclear. “If you invest in Rio Tinto or Anglo American, it’s a structured shareholder relationship so it doesn’t entitle you to 20 percent of the nickel or other metals,” he said.
Instead of the full-blooded conglomerate of Ford a century ago, according to de Hoop, the automakers’ policies are bringing them closer to behaving somewhat like a bank or a Japanese department store.
“They are acting much more like other financiers to accelerate projects that traditional lenders consider too risky, while gaining security of supply as compensation,” he said.
Additional reporting by Edward White in Seoul and Gloria Li in Hong Kong