The race for electric vehicle (EV) battery metals is heating up.
Automakers can’t go green without having sufficient quantities of the lithium, nickel and cobalt that make the batteries work.
Fear of missing out, quite literally, is generating an industry-wide shift to investing directly in the mining sector to ensure future supplies of the battery inputs.
General Motors Co has announced a $650-million investment in Lithium Americas Corp to help fund development of the Thacker Pass project in Nevada.
GM gets exclusive rights to 40,000 tonnes per year of lithium from a domestic mine, which is key to qualifying for the EV subsidies available under the Inflation Reduction Act.
Carmakers have already been busy tying up supplies of battery metals under direct off-take agreements with existing metals producers.
Now they are getting into the business of actually digging the mines, or at least helping with the finance.
The investment rush has until now largely played out in the lithium sector but French-Italian carmaker Stellantis has just pivoted into copper with an investment in an Argentinian project.
COPPER PIVOT
Stellantis, the third largest automotive group by sales, will pay $155 million for a 14.2% stake in McEwen Copper, a subsidiary of Canada’s McEwen Mining, which owns the Los Azules project in Argentina.
The deposit, ranked in the top 10 global undeveloped copper resources by Mining Intelligence, is expected to yield 100,000 tonnes per year of refined cathode from its anticipated start date in 2027.
The automaker’s investment comes with an option to purchase the mine’s output at a ratio equivalent to its equity ownership.
With the help of existing shareholder Nuton, a subsidiary of Rio Tinto, and its copper leaching technology, McEwen is aiming to make the mine carbon-neutral by 2038, adding to the project’s green credentials.
Copper is an often forgotten component of EV batteries, but it plays a critical role as a current collector. All battery chemistries require copper, albeit to varying degrees. Lithium-iron-phosphate batteries, a burgeoning part of the EV market, need around 50% more copper than nickel-manganese-cobalt, according to the International Energy Agency (IEA).
Outside of the battery pack copper is also used in the electric motor, the busbar and in what can be up to a mile of internal wiring.
The amount of copper used in a typical battery electric vehicle is 83 kilograms, compared with just 23 kilograms in an internal combustion vehicle, according to the International Copper Association.
FEAR OF FALLING SHORT
Stellantis’ leap upstream in the copper processing chain follows similar deals with Germany’s Vulcan Energy for lithium and Australia’s Element 25 for manganese.
The copper investment has the same strategic rationale, one of “ensuring strategic supplies of raw materials necessary for the success of the Company’s global electrification plans”, to quote Stellantis.
Automakers’ collective move into the mining sector has so far largely prioritized the lithium sector, where Western companies have been playing catch-up with Chinese investors.
Lithium supply is struggling to scale up at the speed required to meet accelerating demand from battery-makers. Even with a recent pullback in the spot Chinese market, the price of lithium carbonate has risen seven-fold since the start of 2021.
Where lithium is today, copper could be tomorrow, if you believe Glencore, which has warned of a cumulative shortfall of 50 million tonnes by 2030 under the IEA’s net zero emissions pathway.
Imminent shortfall has been part and parcel of the copper narrative for many years, largely due to poor visibility on future project time-lines.
However, this time could be different given the sector’s chronic under-investment in new mine capacity. Producers have been collectively scarred by the experience of the 2000s, when they spent heavily on new mines only to see the copper price slide steadily lower over the first half of the 2010s.
Capital expenditure in the sector slumped, miners opting to return cash to shareholders rather than dig more big copper mines. It hasn’t recovered despite the pick-up in the copper price from a cycle low of $4,318 per tonne in 2016 to $9,000.
Current guidance “points toward 34% less growth capex deployed in nominal terms between 2022-2026 than was deployed over the same time frame during the early-mid 2000′s,” according to Goldman Sachs.
If copper producers remain too wary of investing in future supply growth, automotive capital may be the answer. It is already a key enabler in the build-out of lithium, nickel and manganese production capacity.
BACK TO THE FUTURE
The automotive sector is driving back to the future, the new rush to take control of supply chains an echo of Henry Ford, who famously bought iron and steel operations to supply the iconic River Rouge complex in Dearborn, Michigan.
Ford’s ambition to own the full automotive supply chain from mine to product was driven by the raw material shortages created by the first world war.
The company’s modern-day successors are faced with the same raw materials shortfall across the battery metals spectrum. If they could have sourced their metals using their favoured horizontal supply chain model, they would have done.
But so intense is the competition for battery metals and so entrenched the dominant Chinese operators that Western automotive companies have little choice but to invest directly in the next generation of supply projects.
However, the move upstream comes with plenty of potential pitfalls.
Greenfield mines have a history of running late and over budget, particularly when they are experimenting with new processing technology such as is being deployed at many lithium projects.
It’s worth remembering that Henry Ford’s vertical integration model wasn’t always successful.
The Brazilian rubber plantations, intended to supply latex for tire production, were plagued by poor yields and bad relations with the local workforce. It didn’t help that Ford initially insisted on a Midwestern diet and participation in events such as square-dancing.
However, even after the rules were relaxed and the operations transferred to a more promising site, Ford’s Brazilian dreams were overtaken by the invention of synthetic rubber.
Ford ended up selling the assets back to the Brazilian government for just $250,000 without having achieved a commercially viable operation.
It’s a useful reminder that going upstream can be a high-risk business for even the biggest automotive companies.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
