The electric vehicle industry is growing worldwide as economies transition to green technology. They will need lots of batteries for all of those cars, and those batteries require large amounts of lithium to manufacture. 60% of the world’s lithium is in Latin America, creating a huge opportunity for the region—if they are able to capitalize on it. This won’t be easy; historically, developing economies have found it very difficult to turn natural resources into wealth. Corruption and foreign influence tend to conspire to ensure that most of the money ends up outside of the nations that produce the resources.
To explain how Latin America can avoid this outcome, we must first explain how lithium goes from initial extraction to a consumer product. Then, we will discuss strategies for Latin American governments that find themselves at different parts of this chain.
The EV battery supply chain consists of four stages:
— Upstream: raw materials, like cobalt, nickel and lithium, are extracted in the form of ores or brines.
— Midstream: raw materials are refined and processed into battery cells.
— Downstream: battery cells are assembled into modules that automakers can use.
— End of Life: spent batteries are recycled or reused.
Currently, China, South Korea and Japan dominate the midstream stage. Latin America’s largest producers—Argentina, Bolivia, Chile and Mexico—mainly operate in the upstream stage.
The danger is that Latin American mineral producers will find themselves merely selling raw unrefined lithium on the global market for quick cash and thus miss out on all of the added value that occurs at later stages of production. While they have the lithium resources, they will need to develop industrial capacities farther down the stream to capitalize any further.
Not every Latin American lithium producer has made the same amount of progress on this front. Chile, the world’s second-largest lithium miner, also has the most mature production capabilities in the region. Argentina, whose lithium supply is mostly managed by local governments, is speedily increasing its production. Mexico is slowly attempting to catch up, while Bolivia, hampered by political instability, is still taking its first steps into lithium exploration.
The US can be an investor and friend
In addition to large supplies of raw materials, Latin American countries have another advantage that they can lean on to develop their lithium industry: geographical and political proximity to the United States.
Current American trade policy prioritizes what US Treasury Secretary Janet Yellen termed “friend-shoring,” which means reconfiguring global supply chains so that key manufacturing is located in politically friendly and reliable countries.
Another favorable policy is the Inflation Reduction Act, major legislation seeking to cut America’s greenhouse gas emissions by about 40% by 2030. The US is the second-largest global emitter of CO2 and will need to make significant investments in EVs to meet this goal. The transportation sector is the largest emitter of greenhouse gasses in the US economy, which will need to replace 300 million fossil fuel-burning vehicles with EVs in the coming years.
The US needs EVs, and it doesn’t want to make all of them in China. How can the Western Hemisphere work together to make this happen?
Lithium producers, from the relatively developed Chile to the fledgling Bolivia, should encourage investment that allows them to advance their domestic capacity beyond raw material extraction.
For Chile and Argentina, which have more advanced production operations than Bolivia and Mexico, this means motivating American companies to not only continue investing in upstream capabilities but also to invest in development of their midstream capacities. Current US policy provides both countries an opportunity to attract private-sector American investments that will allow them to develop refining and battery cell assembly facilities.
Chile’s Free Trade Agreement with the United States makes it an even better candidate for US investment, given that the Inflation Reduction Act requires a certain percentage of EV battery minerals be extracted and processed in a country with which the United States has such an agreement. Argentina’s relationship with the US is not as friendly, although some overtures point to future cooperation between the two nations on green development in the future.
For Bolivia and Mexico, whose production operations are less advanced than Chile and Argentina, the goal should be to continue attracting investments to their upstream capabilities, which are still in the development stage. To exploit lithium deposits, Mexico just created LitioMx, a state-owned lithium company, less than a year ago. The commercial potential of Bolivia’s 21 million tons of lithium has not even been determined yet.
Both nations have taken a state-led approach to production, with Mexico also making use of public-private partnerships where possible. Mexico’s openness towards public-private partnerships, along with its automotive-centric Free Trade Agreement and neighborly ties with the United States, makes it a prime candidate for American investments in upstream operations. The Mexican government is just starting lithium exploration, but these factors offer it a significant edge in attracting investment that could rapidly advance its upstream production.
Although Bolivia’s lithium industry is still in its embryonic stage, it too will need to attract outside investment to develop its upstream and, eventually, midstream capacities.
Despite their differences in approach—from state domination of production (Bolivia) to full reliance on private-sector collaboration (Argentina)—all four lithium producers will need to attract investment in order to develop multiple stages of the EV battery supply chain. This will allow the localization of production and, in turn, spur local economic development through spinoff entrepreneurship and supporting industries. The political will behind reshoring will not last forever; Latin America must capitalize on the present opportunity before American companies turn back to relying on Asian inputs out of inertia.
If Latin American nations are not able to develop multiple stages of the supply chain, they will be doomed to simply be providers of raw materials without seeing significant benefits. If they are able to take advantage of the opportunity, however, they will balance Asia’s dominance of the industry, help meet the growing global demand for EV batteries and ensure that production nodes stay within the Western Hemisphere.
[Anton Schauble edited this piece.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
The post How Latin America Should Handle the Lithium Boom appeared first on Fair Observer.
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