Commentary: Why Tesla is turning to Chile for its lithium

Tesla, the pioneer of the electric vehicle revolution, is turning to Chile to secure the lithium it needs to power its mass production drive.

Tesla and Chilean lithium producer SQM are “exploring” opportunities after the automotive company expressed interest in buying “important volumes” of the battery ingredient, according to Eduardo Bitran, head of Chilean development agency Corfo.

It’s an obvious place for Tesla’s chief executive, Elon Musk, to look for secure supply.

The global lithium mother-lode is in the brine lakes of Chile’s Atacama desert.

And the biggest obstacle to its full development potential has just been swept away with the resolution of a long-running dispute between SQM and Corfo.

The prospect of a wave of Chilean lithium supply flooding the market sent the share prices of other producers and prospectors spiralling lower.

Lithium bulls, however, needn’t worry too much just yet.

Translating political breakthrough into production boom is going to take years.

And right now the lithium supply chain is still massively stressed as it adapts to meet exponential demand growth from battery makers.

Which is why Tesla is eyeing a direct path to the mother-lode. As ever with this company, the question is whether everyone else will follow where it leads.


Chile is part of South America’s “lithium triangle,” home to more than half the known global reserves of the mineral and the historic production base of the “lithium oligopoly”, namely FMC, Albemarle and SQM itself.

The Chilean government was as slow as everyone else to see the electric vehicle (EV) revolution coming but last year sprang into action with an international tender for lithium processing projects and a green light for Albemarle to raise production.

SQM’s Chilean expansion plans, however, were blocked by its bitter dispute with Corfo, which allocates the country’s lithium production licences.

Rooted in political intrigue dating back to Chile’s Pinochet era, the stand-off crystallized around a disagreement on royalty payments.

The drama has been running since 2014, the two sides locked in on-off peace talks and arbitration court battles.

The truce was announced on Jan. 17.

In return for an overhaul of its corporate governance and a lift in royalties, SQM gets an increase in its production quota to 216,000 tonnes per year of lithium carbonate and the option of partnering with state copper producer Codelco on its untapped lithium prospects.

The prospect of the Atacama mother-lode cranking up production sent tremors through the lithium investment community.

The Global X Lithium and Battery Tech exchange traded fund was trading above $40 before the news. It touched a low of $33.05 on Tuesday. Global X’s holdings are largely of lithium blue chips. The hit on the junior sector has been more savage.

But SQM can’t switch on new brine capacity overnight, even if it wanted to. It is, moreover, currently focused on getting its joint venture Argentinian project into production by a targeted 2020.

Any lithium surge from its Chilean operations could still be years away.

The removal of the political bottle-neck in Chile is, wrote analysts at Benchmark Mineral Intelligence, “good news for a lithium industry post-2021” but “until then the status quo remains.” (“Lithium Research Note”, Jan. 24, 2018)

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