As big automakers like Volkswagen, Toyota, and General Motors make ambitious promises about transitioning to an emissions-free, electrified future, one thing is becoming obvious: they’ll need lots of lithium batteries in the future.
Demand for this indispensable component for running electric vehicles has sparked a lithium market rush that has investors, established and start-up companies, and even governments vying to develop the technology and build the factories needed to produce lithium. million electric cars every year.
Mexico is today the seventh largest vehicle manufacturer in the world and several specialists consulted believe that, in order to maintain this status, it is necessary to detonate a lithium battery production chain, which goes from the extraction of metal to the production of cells for batteries.
“The technology is already available, but now manufacturers depend on the infrastructure set up in each country,” says Gerardo Gómez, director of JD Power Mexico. “It’s not just manufacturing electric cars in a country because it sounds fancy , we need the infrastructure to support this production,” says Holger Nestler, president of Volkswagen in Mexico.
Deloitte estimates that electric vehicles will account for 32% of new car sales by 2030. That would increase demand for batteries by about 10 times what factories can currently produce. And that’s a conservative estimate. Some analysts expect electric vehicle sales to grow much faster.
Gómez, from JD Power Mexico, is one of them. Their estimates raise the percentage of vehicles that will be fully electric globally to 45% by 2030. “Half of the world market will migrate to electrification in the next decade and adoption will be faster in markets such as the European Union, China and United States,” he says.
Although the analyst predicts that this adoption will be relatively slow in Mexico –around 12% of new cars sold will be electric in 2030–, the fact that around 80% of current production is exported to markets that will spearhead electrification should set off the alarms in the country. Mexico now has an automotive production scale of around three million units and a proximity to the US market that may be attractive for battery manufacturers to establish themselves in the country, as more automakers announce investments to incorporate electrified models in the country. their production lines.
Today, battery manufacturing is dominated by companies like Tesla, Panasonic, LG Chem, BYD China, and SK Innovation, almost all of which are based in China, Japan, or South Korea. But many new players are entering this market, and investors are opening their wallets to startups that are close to making major improvements in technology.
Lithium batteries: the business that Mexico should not miss
Batteries for a midsize electric car cost about $15,000, about twice the price they must be to make electric cars similar in price to gasoline models.
Those savings can be achieved by making dozens of small improvements, such as reducing the waste of materials used to make a battery – today 10% is wasted due to inefficient production methods – or producing batteries near car factories to avoid costs. shipping.
Ford already produces fully electric models in Mexico, while GM will do so from 2023. Other brands, such as Mazda or BMW, assemble vehicles with hybrid engines in their Mexican plants. Mazda recently started production of versions with mild-hybrid systems of the CX-30 and Mazda3 models at the Guanajuato plant. BMW manufactures a hybrid version of its 3 Series model at the San Luis Potosí plant.
Now, the batteries for these models are imported from other markets, mainly Asia, but the need for a chain to produce lithium batteries will become more apparent as more manufacturers want to produce new electric models.
The United States and the European Union are pumping government funds into battery technology. Europe is subsidizing battery production to avoid reliance on Asian suppliers – the global shortage of chips has made clear the risk of relying on a single supplier region – and preserve jobs in the auto industry. In September last year the European Commission, the bloc’s administrative arm, announced a fund of 2.9 billion euros (approximately $3.5 billion) to support battery manufacturing and research.
The United States is also expected to promote the industry in line with President Joe Biden’s focus on expanding the adoption of electric cars as a measure to curb climate change. Several battery factories are in the planning or construction phase in that market, including the one General Motors is building with LG in Ohio.
Mexico has the resources – Bacanora has a lithium extraction project underway in Sonora that will allow it to produce 17,500 tons per year in a first from 2023 – and it can only be extracted and marketed by the Mexican State and closes the door, by least for now, to private investments in the market.
With this, the State will concentrate the activities of extraction and exploitation of the soft metal and that worries investors. “There is the risk that we will remain in the extraction of lithium. Pemex, for example, focused for decades on the extraction rather than on the refining of oil. This left the country exposed to variations in international oil prices,” points out an expert on the subject who requested anonymity.
With lithium moving in an even more volatile market than oil, analysts say building a battery production chain will be crucial for the country to maintain its position as one of the 10 largest carmakers in the world.