This new approach is leading automakers to go further upstream in the battery supply chain than ever before, according to Sarah Maryssael, who leads Livent’s efforts to grow and scale globally as well as its strategy and commercial operations in North America.
Maryssael said that automotive companies have been on a journey of learning over the last few years as they began to transition away from internal combustion engines and into electric vehicles (EV), with ongoing education about the mining industry and raw materials.
“For a very long time, automakers saw critical minerals as just another component in their supply chain which they sourced, just as they sourced any of the other components they needed to build a car,” she told Fastmarkets in an interview on Monday, June 5.
This meant that initially, automakers didn’t look at lithium as a strategic material, and drew their team members from auto supply chains, Maryssael said. But it eventually became clear that the electrification of transportation and energy systems amid a shift away from fossil fuels to renewable energy sources required a different approach, she added.
“Over recent years, there’s been a fundamental realization that these materials are just very different to any other type of component or material that any automaker has had to source before. That’s because the nature of the materials is quite different – with manufactured components, you often know the more you produce, the cheaper it gets,” she noted.
“That’s not the case for raw materials, and it’s taken time for automakers to realize this because the more lithium or cobalt or other raw materials they use, the scarcer these minerals become and therefore the more expensive. So, you have an inverse logic that the more you need, the more expensive it becomes, which automakers have had trouble wrapping their heads around,” Maryssael added.
Another key change has been around price, Maryssael said.
“Auto component manufacturing costs are fixed and therefore predictable and scalable. Raw materials are quite different because they have to achieve specification and purity levels which are unique and reliant on industry proprietary know-how that is concentrated among a select number of producers,” she noted.
“There’s also an issue with price volatility, with some of the traditional tools of risk management more nascent than in aluminium and copper,” she added.
Maryssael noted that the supply chain is also new and complex for automakers, which have to go further upstream than ever before.
As a result, automakers’ approach has evolved to the point where they are investing in projects and hiring industry experts from mining, chemicals and price reporting agencies to assist, she added.
Costs driving upstream push
While every automaker is on a very different journey at a different stage and with a different risk appetite, Maryssael noted that they have a common reason to move further upstream: costs.
“Some [automakers] see price as a risk; some see raw materials as a risk; some see batteries supply as a risk. They all have different risk profiles. But fundamentally, the more actors in a value chain, the more processing steps you go through, and every processing step is a cost increase,” she said.
“If you are working further away from where the bulk of those costs are, which are the raw materials, you’re losing visibility in how you control costs throughout your value chain, because everyone’s adding a mark-up, everyone’s adding a margin,” she added.
“Part of the reason of going all the way upstream and skipping the mid-tier processing segment is to achieve better visibility of and control over your costs,” she told Fastmarkets.
Similarly, automakers have come to the realization that they need to rely on themselves to improve their own cost visibility and ensure the security of suppliers rather than being too dependent on others, Maryssael noted.
Mergers and acquisitions in the lithium industry
Amid these changes, the lithium industry is seeing increased mergers and acquisition (M&A) activity, a factor that assists with achieving scale and speed to production, Maryssael noted.
Livent is itself in the midst of a merger with Australia-headquartered Allkem to create a $10.6 billion global lithium chemicals producer with a production capacity of around 250,000 tonnes of lithium carbonate equivalent by 2027.
“Consolidation helps with scale and speed, and there’s no legacy for how it has to be done. A lot of automakers are indirectly going to be driving a lot of consolidation because of who they’re announcing their partnerships with, or because they decide to be more actively involved with acquisitions,” she told Fastmarkets.
“It’s going to be quite interesting to see the role automakers and battery producers play in driving some of that consolidation. We’ve seen a number of examples of that, and I think that’s going to continue happening over the next few years,” she added.
According to Maryssael, when lithium prices were at historical lows in 2020, automakers were operating on the basis that they did not need to invest in lithium projects or lock in long-term contracts to secure units because the market was in surplus.
Following a two-and-a-half-year price slump from mid-2018, the lithium market turned suddenly at the start of 2021, driven by strong, durable demand from the EV market and residual impacts from Covid-19. Prices peaked in November 2022 and have been volatile since.
Fastmarkets’ daily assessment of lithium carbonate 99.5% Li2CO3 min, battery grade, spot prices cif China, Japan & Korea was $42-48 per kg on Tuesday, June 6, up from $34-42 per kg a day earlier, but down from $78-80 per kg at the start of the year.
Maryssael noted that as prices have rallied from their lows over the last 12-18 months, “there’s been a bit of panic that has set in.”
This has resulted in a number of different financing arrangements, including prepayments, debt facilities, and equity investments, Maryssael said, demonstrating a willingness by auto OEMs to change their behaviors.
The next step would be for an auto OEM to acquire a lithium producer, although the market is still some time away from this kind of move, she told Fastmarkets.
Partnerships
Nonetheless, the recognition that partnerships are required to speed up project development has been quite evident, Maryssael said.
She noted the recent long-term agreement between Ford Motor Company and Nemaska Lithium for the supply of lithium products, including lithium hydroxide, over an 11-year period. Livent has a 50% stake in Nemaska.
“This is one of the longest agreements that we’ve seen for lithium and potentially other battery raw materials from an original equipment manufacturer (OEM), and I think that really signals what is going to be required [for the energy transition]. You need these long-term commitments because these aren’t suppliers you change every 2-3 years – these are suppliers you stick with for 10 years or longer,” she told Fastmarkets.
According to Maryssael, the “new normal” will be more OEMs investing and partnering with raw materials companies for much longer terms, especially if they’re putting investment dollars in.
“Mining projects have time horizons, not of a few years but of 20 years, if not longer. So, for OEMs to enter these partnerships, they need to get comfortable with that type of risk profile, investment profile and time horizons which you’re increasingly seeing them doing,” Maryssael added.
The fact that permitting and the process of exploration to production are lengthy makes partnerships even more critical, she said, noting that they come with the beneficial influence of major OEMs in assisting the process.
“Partnerships bring a lot more than just publicity and dollars. It really helps unlock a number of non-financial benefits which are difficult to quantify but are absolutely critical in getting the buy-in for a project,” she added.
An entire battery ecosystem is now being built in North America, Maryssael said, with the different segments of the supply chain evolving together.
“You cannot build a giga factory without thinking about where your cathode, your lithium chemicals and your raw materials come from. We’re seeing the entire battery ecosystem really evolve together,” she said in the interview.
“When a company knows there’s lithium in Canada and they’re building their battery cell plants in the US, it makes the decision about where to locate the midstream a lot more straightforward. Having that concentration within one jurisdiction makes scaling and building the entire ecosystem much, much more efficient,” she added.
In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.
