Workers run the brine pumping systems that raise lithium-rich water to the surface in the high-altitude salt flats of northern Chile, where the sky is almost too blue and the earth shimmers white. Months pass during the process. The water being evaporated by the sun. Lithium concentrations. The majority of it is eventually sent to China, where it is processed into the battery-grade chemical that is used in the electric cars that are sold back to the rest of the globe. Governments and businesses across several continents are currently rushing to destroy, reroute, or replicate that supply chain, which consists of raw materials harvested in South America, refined in China, and manufactured into goods consumed in the United States and Europe.
The figures that characterize China’s lithium position are important enough to set the scene for everything else. China owns around half of the world’s lithium market. China is home to more than 80% of the world’s lithium refining capacity. Although the Lithium Triangle of Chile, Argentina, and Bolivia owns the majority of the world’s lithium reserves, the nation has developed the industrial infrastructure necessary to convert raw lithium into usable battery chemicals at a scale and cost that is currently unmatched anywhere else.
Deliberate industrial policy, long-term supply agreements with mining firms in Australia and South America, and significant investment in the technical chemistry of battery material manufacturing all contributed to the establishment of this position over the course of two decades. The two leading Chinese battery producers, CATL and BYD, sprang from an ecosystem designed to facilitate their expansion. The basic material arrived. The procedure took place at home. The final goods were sold at prices that were extremely difficult for Western producers to match.
Over the past few years, the US and its allies have worked to alter that calculus. With the express purpose of creating a North American supply chain that lessens reliance on Chinese-controlled refining, the Inflation Reduction Act provided significant funding for domestic lithium mining, processing facilities, and battery manufacture. In an effort to establish the ability to transform lithium from North America or Australia into battery-grade material without passing it through Chinese facilities, processing facilities in Texas and other states are at different stages of construction. It is yet unknown if those expenditures will result in truly competitive alternatives within the timeframes required by the expansion of the EV industry.
An already complicated supply picture has been made more complicated by the resource nationalism component. In an effort to extract more value from the resource domestically rather than exporting raw ore to be processed overseas, Zimbabwe, which has substantial hard-rock lithium reserves, decided to mandate domestic processing before export. In order to provide producing countries more control over price and processing conditions, a number of South American governments have been debating coordinated frameworks for managing their collective lithium holdings. Bolivia’s attempts to nationalize its lithium development have yielded mixed results; without international technical and financial cooperation, it is challenging to swiftly create the practical infrastructure of large-scale lithium extraction.
The EU has its own regulatory approach and its own interpretation of this issue. The Critical Raw Materials Act recognizes that European battery manufacture cannot stay competitive if every level of the supply chain upstream of the factory passes via China and establishes targets for domestic extraction and processing of lithium and other strategic minerals. The goals are lofty. Meeting the targets is more difficult than the geological reality of European lithium reserves, which are smaller and more scattered than the brine fields in South America.
