Powering the Future: Lithium Shortages, EVs, and China's Strategic Edge

Image Source: MiningWatch Portugal

I recently read an article in the Financial Times on General Motors' decision to increase their investment in a lithium mine by $1 billion. GM is seeking more long-term security in their lithium supply, as it is essential for producing electric vehicle batteries. This will be achieved via a joint venture with Lithium Americas.

What does this tell us about the lithium market?

Considering how low lithium prices are at the moment, it makes sense why an American carmaker like GM would make such an investment. With a lithium shortage looming over us, companies are trying to secure the long-term supply of the metal, which is critical for EV production. In fact, Benchmark Mineral Intelligence anticipates a "global supply gap of 1.4 mn tonnes of lithium by 2040." This growing demand for lithium is amplified by government-imposed quotas in some countries, requiring carmakers to produce a certain percentage of electric vehicles.

This highlights how future-oriented the lithium market is at the moment, with companies making strategic moves despite the current low prices. Companies like GM evidently anticipate an increase in prices, as demand outpaces supply in light of the looming shortage. It also hints at the market's volatility, as prices surge in response to a depleting supply. This dynamic means that companies will prioritise long-term security over short-term savings when it comes to lithium.

What does this tell us about the geopolitics of EVs?

According to the same FT article, it appears that GM's investment also reflects its ambition to take on China's leadership in the EV market. The US government's $2.3 billion support for this project highlights its geostrategic nature, and places it in the wider context of US-China competition in the EV market.

This underscores that lithium supplies, and in turn EV production, is not just a private commercial matter. Instead, both have become focal points in geopolitical tensions, particularly between China and the West. GM's government backed investment signals an effort to reduce reliance on China for minerals and battery production. It is an example of efforts to boost domestic industries and localise supply chains.

I should note that lithium is not just used in EV battery production, but also in wind turbines and solar panels. This heightens the stakes of the geopolitical race for lithium supplies as it is considered one of the pillars of the energy transition.

What does this mean for China?

Chinese companies will likely face issues maintaining their market share in the U.S. and European countries in light of this commercial trend. In response, Chinese firms could adopt several strategies. They might lower their prices in an attempt to maintain their competitive edge in regions like the U.S. and Europe, especially by seeking further government support. Such support could come in the form of subsidies, funding for research and development, and trade incentives. However, lowering prices could reduce profit margins and cause concern over the sustainability of such an approach. These concerns would only be heightened by President Elect Trump's anticipated tariffs, which directly target Chinese imports. The above could prompt Chinese companies to redirect their focus and efforts to emerging markets in regions like the Global South. Latin America is a great example of this, with a growing demand for lithium batteries, a less competitive market, and the benefits of strong government ties that Chinese companies leverage, giving them a strategic advantage in securing resources and expanding their presence.

For the Chinese government, this only adds to the geopolitically charged environment governing its relationship with the US, which was only intensified by Donald Trump's re-election. This is not necessarily something new, but China will be called to find new ways to navigate these recent developments.

As always, anyone wanting to chat about the above, please feel free to reach out to me or use the comment section below.