[Battery Decoupling from China]② Intensifying 'Resource Protectionism'... Is Nationalization by Resource Countries a Roadblock?

Chile, Argentina, Bolivia
Hold Over Half of Global Lithium Reserves
Resource Nationalization... Control Over Production and Distribution

Environmental Issues and Resource Security Cited
Concerns Rise Over Sharp International Price Increases
Electric Vehicle Price Hikes Inevitable

Editor's NoteThe battery industry is facing strong aftershocks from the United States' Inflation Reduction Act (IRA). With only about four months left before its implementation, urgent measures are needed, but finding an immediate solution is not easy. This is because it is difficult to find alternatives to China, which has secured a dominant influence in the battery materials market. Battery companies have secured multiple supply chains outside China to diversify their supply chains, but they are concerned that risks may increase due to various variables such as volume supply and price fluctuations. Amid uncertainty over whether the global trend toward decoupling from China will intensify or whether the U.S. will step back considering practical limitations, this article examines the crisis and solutions faced by the domestic battery industry confronting the new supply chain reshuffling between the U.S. and China.

Lithium produced in Argentina. Lithium, a key material for electric vehicle batteries, is also called "white oil."
[Image source=Reuters Yonhap News]

[Asia Economy Reporter Choi Seoyoon] In South America, which holds more than half of the world's lithium reserves, the 'lithium protectionism' barriers are rising. The already soaring international lithium prices are expected to continue climbing due to market controls by the governments of Chile, Argentina, and Bolivia. In this emergency situation where dependence on China must be reduced, the burden on domestic battery and automobile manufacturers is increasing.

According to industry sources and major foreign media on the 24th, as electric vehicle production increases, the demand for lithium, a key battery material, is surging, while the 'lithium triangle' countries of Chile, Argentina, and Bolivia are pushing for resource nationalization. The left-wing government inaugurated in Chile last March is preparing to establish a state-owned company to develop lithium and control production, stating, "We must not repeat past mistakes of resource privatization." The Chilean Constitutional Convention passed a proposal for the "nationalization of copper, lithium, and other strategic assets and new social and environmental governance," and a referendum next month will decide whether this constitutional amendment is approved. If passed, Chile's environmental regulations and indigenous rights will be strengthened.

Bolivia, which has the world's largest salt flat, nationalized its lithium industry during the left-wing government in 2008. At that time, the government established a state-owned company, claiming lithium would help alleviate extreme poverty affecting 40% of the country's population. Bolivia's lithium plant began operations in 2013 using its own technology, but current production remains very limited.

Lithium production is capital-intensive and requires significant technological investment, but Bolivia, a poor country with a per capita GDP of $3,000 (about 4 million KRW), has not secured its own technology or infrastructure and has made little progress in the lithium business. Meanwhile, the Argentine government has announced plans to expand private investment in lithium development to escape soaring inflation and poor finances, but currently operates only two lithium mines.

There are two main reasons for pushing nationalization. First is the environmental issues arising from lithium production. In South America, lithium is extracted by pumping brine from vast salt flats and drying it in the sun for 1-2 years. Indigenous people complain of water shortages for drinking caused by this process near the salt flats and damage to crops due to the brine. A representative case is the Chinese electric vehicle giant BYD. BYD won a contract earlier this year to develop a lithium mine in Chile, but in June, a local court invalidated the contract following protests from indigenous people over water shortages.

Another reason cited for nationalization is that the benefits from lithium mining do not significantly reach indigenous people. Lithium mining, which requires technology and infrastructure, is usually handled by specialized lithium producers from countries like Germany and the U.S., but wealth redistribution proportional to the profits these companies earn from lithium extraction is not properly realized.

Uyuni Salt Flat in Bolivia.
[Image source=Reuters Yonhap News]

Concerns about a sharp rise in international prices are growing due to these three governments' attempts to control battery material production and distribution. If lithium prices rise, already expensive electric vehicle prices will increase further, ultimately passing the burden onto consumers.

Earlier, Tesla in the U.S. raised electric vehicle prices across the board earlier this year to pass on raw material cost increases to customers. Toshihide Kinoshita, senior researcher at SMBC Nikko Securities, recently told Japan's Kyodo News, "If raw material prices such as lithium continue to rise, electric vehicle prices may need to increase by about 30%," adding, "This could delay the popularization of electric vehicles."

The global lithium supply shortage relative to demand is expected to worsen. Dongwon Sung, senior researcher at the Korea Eximbank Institute for Global Economy, said, "Lithium demand will increase from about 600,000 tons last year to 1.9 million tons by 2030, an increase of over 1 million tons," and added, "Even lithium companies with financial resources are struggling to increase supply, and expansion is too slow, so supply shortages will become increasingly severe."