Two recent headlines grabbed my attention, each signaling a seismic shift in the global lithium landscape. First up:
Major corporations diversifying into non-core verticals isn’t groundbreaking, but the world's sixth-largest company deciding to invest in a direct revenue killer certainly caught my attention. Saudi Aramco announced a joint venture with state-owned mining company Ma’aden to enter the lithium mining and refining space1, with plans to begin lithium production and processing in Saudi Arabia by 2027.
To me, this feels very different from, say, Shell spending money on green hydrogen/ammonia. The primary use case for lithium (batteries) is proven and well-established, and all trends point towards greater global electric vehicle (EV) adoption in the next 5-10 years. Aramco isn’t the first oil & gas company to commit substantial resources towards lithium mining and extraction. Since 2023, ExxonMobil, Equinor, Occidental, and others have either directly invested in or announced partnerships with mining companies across the globe. While it may sound perplexing, Big Oil’s entry into the lithium space actually makes a lot of sense since most modern processes used to extract lithium from the ground are surprisingly similar to current crude oil extraction techniques.
While lithium mining developments have captured a lot of attention, lithium refining has flown under the radar. Enter headline #2:
Last month, Tesla announced the operational start of its lithium refining facility in Texas. This facility, which reportedly cost $365 million, is the first of its kind in the USA and can produce 50GWh of battery-grade lithium annually once ramped up2. That’s enough lithium to power ~500,000 passenger electric vehicles.
Why would Tesla want to enter the lithium refining space? For starters, vertical integration. Already a global leader in battery production and assembly, Tesla is laser-focused on securing its lithium supply chain, and refining lithium is the next level upstream. This reduces its supply volatility and dependency on long-term lithium supply contracts with mining companies.
The other reason, I believe, is that Tesla views the current market setup of lithium refining as a precarious status quo—and also a high-margin opportunity. Today, one nation enjoys a near-monopolistic hold on lithium refining. For Tesla, building its own refining capacity helps reduce reliance on this Asian giant while tapping into a growing market. With Tesla’s new refinery making headlines, let’s explore why lithium refining is so crucial.
The lithium supply chain
The lithium supply chain has four main stages:
Mining & extraction
Refining
Battery production & assembly
Recycling
Global lithium production is dominated by three countries: Australia (43%), Chile (29%), and China (17%). In 2023, they accounted for nearly 90% of all mined lithium worldwide3. As lithium is extremely chemically reactive, it is only naturally found in rocks and brine deposits. The most common lithium ore is spodumene, readily available in large swathes of Western Australia. On the other hand, Chile’s Atacama desert is rich in brine deposits.
A lithium mine in Western Australia | Photo credit: David Steele
Lithium refining is a different story. China dominates this space with a 60-70% total market share. This is a staggering statistic, compounded by the fact that Australia sends as much as 98% of its mined lithium ore to China for processing and refining (per Australia’s Department of Industry). Australia’s lack of investment in its chemicals processing sector has resulted in a vicious cycle where Chinese companies easily outcompete local firms on price and secure long-term spodumene purchase contracts with Australian mines.
This situation is not a fluke. Since the early 2000s, the Chinese government has spent close to $100B to subsidize and bolster a robust domestic lithium supply chain, from mining to recycling. It helped create a large domestic demand for EVs, which in turn fostered an entire lithium ecosystem now capable of exporting refined lithium and finished battery packs worldwide. Today, China has a mix of vertically integrated (Tianqi Lithium) and specialized (Ganfeng Lithium) lithium companies, resulting in a formidable and robust lithium industry that produces 77% of the world’s lithium-ion battery capacity (per BloombergNEF).
The soft power of lithium refining
Chinese refining firms and battery manufacturers have been acquiring mining rights in several African countries to secure lithium supplies since at least 2017. That’s not all. Not content with having to transport ore/brine over thousands of miles back to China for refining, several high-profile players have struck deals with African governments to build lithium processing plants directly near deposits. In 2022, Chinese investors spent $2.8B to establish a “battery minerals processing zone” in Zimbabwe, a country that now accounts for 80% of Africa’s annual lithium output4. This is in addition to sustained Chinese investments in Mali and DR Congo. It’s no surprise that the Chinese government invests hundreds of millions on education and infrastructure projects in these countries, deepening ties and maintaining productive relationships.
Today, China’s grip on lithium refining shows little signs of waning. Chinese battery manufacturers and refining companies are working together to rapidly expand refining capacity. Industry reports predict that while the USA and Australia are expected to ramp up their refining capacities, China will still maintain a 50-60% market share in 2035, effectively tripling its current refining capacity by then.
So, what can other countries do? The reality is that refined lithium is now a matter of national security, given its importance in both transportation and utility-scale energy storage. The amount of time and resources China devoted to this endeavour makes it nearly impossible for any nation to directly copy its playbook. I see three initial steps for nations to try and break the Chinese hegemony:
Search every square inch of your land for lithium deposits, or secure lithium ore supply from other countries. This is easier said than done, because there aren’t many global lithium reserves that China hasn’t looked at already. Of course, the occasional surprise discovery can still occur. Europe and India have kickstarted lithium procurement conversations with African and South American countries, respectively.
Invest heavily into domestic lithium refining infrastructure. Enter into joint ventures with countries for knowledge transfer programs to help stand up lithium processing plants. Utilize local oil & gas expertise for both lithium exploration and refinery construction assistance.
Systemically remove any barriers and red tape in order to expedite #1 and #2. Incentivize production, upskill your workforce, and improve transportation infrastructure. Lithium refining and battery production must be treated as a top national priority, particularly for large growing economies.
This will be an incredibly difficult undertaking, even for resource-rich countries like the US and Australia. In a global order with imminent trade wars, I expect China to use its lithium refining capability as effective leverage against other powers. It’s no surprise that the US government rewrote local water laws and expedited construction permits for Tesla’s Texas lithium refinery in order to get it operational ASAP5.
The silver lining
Here’s some good news: There is near-unanimous market consensus that demand for lithium will begin exceeding supply by 2030, leading to a sustained lithium shortage. The pie will get bigger, and an expected long-term rise in lithium prices (it is a commodity, after all) has piqued the interest of several non-Chinese conglomerates that plan to enter the lithium mining and refining space. In 2023/24, South Korean steel giant Posco successfully set up two lithium refineries in a joint venture with Australian mining company Pilbara in order to meet both domestic and foreign demand. Other countries should follow this model if they want to remain competitive, because the race to secure lithium refining will shape the future of transportation and energy. To adapt an old proverb:
"The best time to build a lithium refining plant was 20 years ago. The next best time is now."
Further reading
If you liked this post and want to learn more, here are some articles/reports I recommend:
Fact Sheet: Lithium Supply in the Energy Transition by Columbia University’s Center on Global Energy Policy
The EV Battery Supply Chain Explained by the Rocky Mountain Institute