Global automobile manufacturers are racing to gain access to battery-making materials, with competition hot to secure offtake from lithium miners and processors as the electric vehicle revolution spreads from China to the rest of the world.
While China is the clear market leader in the consumer take-up of electric vehicles, with more than 1.3 million battery-powered cars on the road and a wide range of manufacturers, major carmakers are converging on the scene.
In February, luxury German automaker BMW announced it had entered a joint venture with China’s Great Wall Motor Co, as part of its plans to introduce 25 electrified models to market by 2025.
BMW has budgeted to spend up to €7 billion ($11.2 billion) in 2018 alone as it researches and develops its offering to the sector, which is becoming increasingly crowded.
Part of BMW’s commitment is reportedly an offtake deal with ASX-listed lithium miner Galaxy Resources, speculation of which sent the company’s shares soaring earlier this year.
Ford Motor Company, the United States’ second largest carmaker, is planning to spend $US11 billion ($14.3 billion) developing a range of 40 hybrid and fully electric vehicles by 2022.
Toyota has pledged to offer more than 10 new electric models to its line-up by the early 2020s, partnering with electronics giant Panasonic to develop batteries.
Nissan has also pledged to sell 1 million electric vehicles by 2022, while Hyundai Motor Company and its affiliate Kia Motors plan to release 38 green models by 2025, using a variety of new technologies, including battery power.
Among luxury manufacturers, BMW is not alone, with Audi planning to launch 20 electric vehicle models by 2025 in collaboration with Porsche, and Daimler AG investing €10 billion in electric and hybrid technology.
Volvo has said it will introduce five electric models between 2019 and 2021, and move away from building vehicles that only have an internal combustion engine.
The Swedish carmaker, owned by China’s Geely, will also continue to introduce various forms of hybrid engines to its petrol and diesel-powered model range.
Sales data for 2017 compiled by Macquarie Bank shows manufacturers are jostling to catch the electric vehicle wave, with global sales of battery-powered cars up 51 per cent on the previous year.
In China, sales were up by 72 per cent year on year, with electric vehicle penetration rising to 2.3 per cent in the country, compared with 1.4 per cent globally.
The numbers point to exponential growth in electric vehicle demand, with forecasts by Bloomberg predicting electric vehicle sales would hit 24.4 million by 2030.
It is those market penetration statistics that have instilled a surge of confidence in the lithium mining sector, with the material a key ingredient in the battery manufacturing process.
Altura Mining managing director James Brown said he believed the electric vehicle story, particularly in China, had not been well understood.
The rising demand was in contrast to recent market reports, which suggested the price of lithium might peak this year because of new supply.
“Government subsidies (for electric vehicles) and legislative changes in the maximum number of vehicles that will hit the road with an internal combustion engine mean that the market is a lot bigger than what we think,” Mr Brown told Australia China Business Review.
“In simple terms, I never like to get into the battery market argument because it’s difficult to understand and we don’t make EVs, we make raw materials, but the fact is the penetration rate of EVs as far as a percentage of worldwide car production is somewhere around 1 per cent to 2 per cent.
“The lithium market has been in double-digit annual growth for the last seven or eight years, so you’re seeing every three or four years a doubling of the market and we’re also seeing a broadening application of all these battery systems.
“If the market share of EVs was to grow to 4 per cent, just four in every 100 cars worldwide containing some form of lithium battery, you would need an Altura coming on every year just to maintain the market share where it is, which is undersupply.”
Neometals managing director Chris Reed said, like electric vehicles, lithium had become an extremely China-centric story, largely because most of the world’s lithium processing capacity was located in China, or was controlled by Chinese companies.
One of China’s biggest lithium processors, Tianqi Lithium, has made headlines in Western Australia for adding to its processing capacity in China by constructing an $860 million facility in Kwinana to complement its Greenbushes joint venture lithium mining operation in the south of the state.
Other major players backing WA lithium operations include processing groups Shandong RuiFu Lithium Co, General Lithium, Ya Hua International Investment and Development as well as battery manufacturers Optimum Nano and Lionergy.
Ramping up processing and manufacturing capacity by Chinese players, Mr Reed said, had made lithium one of the most active spots in WA’s minerals sector in recent years, with three new mines coming online last year and another five expected to start producing by the end of 2019.
“China are at about 110,000 to 120,000 tonnes conversion capacity at the moment,” Mr Reed said.
“There are about 170,000 tonnes coming on stream in 2018, up to 300,000 tonnes of capacity.
“That will mean all the mines here will be flat chat to supply that.”
Mr Reed’s company is producing spodumene concentrate at Mt Marion in the Goldfields region of WA, in a joint venture with fellow ASX-listed miner Mineral Resources and Chinese processing group Ganfeng Lithium.
“We are very happy to have secured probably the leading producer in China, they have the most diverse lithium production range, they go all the way from compounds through to metals and everything in between,” Mr Reed said.
“Lithium is not like gold, there is no one on the other side of the fence to catch it in a terminal market.
“Your business is only as strong as your offtake partner, so linking up with Ganfeng was crucial.”
The Neometals story is being repeated across the state, as Chinese battery manufacturers and lithium processors, ramping up capacity in their own country, move to corner the market.
Mr Reed said around 240,000 tonnes of lithium carbonate equivalent (LCE) was consumed in 2017, with around 60 per cent of that going to the battery market.
“But by 2025, we are going to need 800,000 to 1 million tonnes of LCE, and the best deposits are in production now, everything else is incrementally lower or at higher costs.
“In short, I think (global lithium supply) is probably ok out to between 2021 and 2025.
“But then when you have a look at 2025 to 2037, its going to double again, and it’s hard to see how that’s going to happen.
“I can see how we can be more than double where we are now, with the new guys coming in, but for the life of me I can’t work out where the next wave of supply will come from.
“You’re going to have to have the incumbent guys all double production, but I’m not sure everyone has got the resources to do it.”
The potential scarcity of supply is spurring significant interest outside of China in WA lithium operations.
Earlier this year, Pilbara Minerals, which is developing a lithium-tantalum project in the Pilbara that will start commercial production in the coming months, unveiled a landmark offtake deal with South Korean steel manufacturing giant POSCO.
The $80 million deal was not only a show of confidence in WA’s lithium mining sector by a globally significant player, it was somewhat unique in that it was the first deal consummated by a South Korean company to secure supply from a WA miner.
The eight lithium operations scheduled that came online last year in WA, or will come online by late 2019, have attracted a collective total of 15 offtake partners.
Just five of those partners – Panasonic, BMW, Mitsubishi, POSCO and SQM – are not based in China.
Altura’s Mr Brown, who is steering his company towards production at its Pilgangoora mine in the Pilbara, said big players were moving now to ensure they were not constricted by supply going forward.
“South Korea doesn’t want China to dominate, they want to have access,” Mr Brown said.
“Japan is probably the elephant in the room, I think you can see Toyota increasing its stake quite rapidly in Orocobre.
“They don’t want the Chinese to do it, the Koreans don’t want the Japanese to get a foothold and the Japanese don’t want the Koreans to have a foothold.
“It’s a bit of a Mexican standoff because they all want access to these materials.”
Altura has been developing its mine, an operation that will add around 30,000 tonnes of lithium carbonate concentrate to global supply in 2018, in partnership with battery manufacturers Optimum Nano, a subsidiary of Shaanxi J&R Optimum Energy, and Lionergy.
Altura and Optimum Nano also revealed last month that negotiations were underway regarding a controlling stake in the Australian miner.
“We have had numerous contacts, but the difficulty we have is we don’t want to oversell our production,” Mr Brown told Ausralia China Business Review.
“We have people that have been supporting us for two years that have an option and an obligation to take all of our production from stage one.
“Stage two is another matter, but we will deal with our existing partners first and then look to see if there is excess capacity.”