Deep Dive: Western Automakers and Upstream Mineral Investments Pt. 1
Let's get Vertical
After a small break to focus on final papers, we are back with another edition of Non Ferrous Flows. This time around, we are examining how American and European automakers are securing the minerals necessary for their new fleets of Electric Vehicles (EVs). What started out as offtake agreements (agreeing to buy “x” amount of a given mineral, often before mine production starts) have in some cases escalated to direct investments in mines and mining companies. Each American and European car company has approached this challenge differently, so we are going to examine some of the major companies (Stellantis, Volkswagen, GM, Ford, Tesla, and BMW) to see how they are constructing their unique mineral portfolios. This article has kept getting bigger, so we’ve decided to split it into two sections. Section one, covering Stellantis, Volkswagen, and General Motors, is now up on the website, and the executive summary is below.
As always, the subtext of this trend is mineral dominance in China and attempts by Western corporations to uncouple their supply lines from the Chinese market. We’ll also explore what it means for other countries in the Asia-Pacific, and how major metals producers in the region could benefit.
Intro: Why is my carmaker buying a lithium company?
Over the last several years, we have heard major promises from automakers regarding the transition to selling EVs. However, these carmakers’ promises and business plans are facing the realities of the mining world, and the projected systemic undersupply of critical minerals.
Automakers have committed over $1.2 trillion to transition towards electric cars, and the trend of purchasing mines to ensure they have the raw materials can be seen as insurance against potential shortages threatening to hamper all investments down the value chain. International Energy Agency projects EV copper demand to quadruple by 2035, and nickel to almost quintuple for the same year. In case those demand numbers are not matched by supply, auto companies will not need to go to market to fund their EVs, but rather, rely on already purchased assets. Alongside the construction of new battery facilities and refurbishing factories, automakers are earmarking part of that money on a new venture — purchasing upstream mineral assets. Recently, we have seen automotive companies take a greater interest in the full value chain, first by signing pre-paid offtake agreements, and now more interestingly, by investing in mines and mining companies themselves.
This attempt to construct a vertical supply chain by auto companies is not entirely novel — it is reminiscent of Henry Ford’s failed attempt to own his rubber supply chain by founding the city of Fordlandia in the Brazilian Amazon a century ago — but it is certainly a break from how large public North American and European automakers have behaved in the past several decades. This transition toward upstream commodity asset ownership takes these large auto manufacturers outside of their core competency — often a concerning way for companies to spend their money. Commodity research head at Goldman Sachs, Jeffery Curry warned against this trend, noting that attempts by commodity consumers to purchase upstream assets “always ends in tears.”
Investors and stakeholders have become increasingly aware of supply chain issues, so there is positive press to be had in the short term by announcing these deals. Securing a mineral supply deal can prompt a pop in stock price. This is not to say that the deals won’t work out, as they can solve real long-term supply chain issues, but markets have been rewarding companies that make these announcements in the short term, giving mixed incentives.
The blurring of value chain roles has not flowed the other way — that is, miners still have a clear resistance to moving outside of their traditional fields, namely mining and potentially processing. One major miner, Rio Tinto, has started building small-scale battery facilities to test their minerals, but has strongly opposed becoming commercial-scale battery makers. We won’t be seeing a Rio Tinto car anytime soon.
This time around, Non Ferrous Flows will be focusing on European and North American automakers. Japanese automakers and metal companies operate in a very different system (Japanese trading and metal companies, like Sumitomo with strong ties to the government and domestic automakers, have been purchasing minority stakes in mines for years), while actions by Chinese automakers deserve their own article later this year.
Today we’ll ask some key questions — what metals are automakers concerned about, where are these companies investing, and are companies all following the same trajectory? Let’s jump right in!
Stellantis: Junior Miner Equity and Diverse Metals Portfolio
Stellantis, the fourth largest auto manufacturer in the world by cars sold, has been aggressively going upstream (your author has been bombarded with news from the battery factory Stellantis is building in Windsor, Ontario, just across from Detroit, after negotiating CAD$15 billion in tax breaks.) However, Stellantis is not satisfied by only going upstream in battery production. They have been buying equity in mining partners, alongside setting up offtake agreements. The portfolio they are building is extremely diverse in metals while staying outside of Asia and Africa (i.e. concentrated in Europe, the US, South America, and Australia.)
The penchant for taking equality in smaller miners can be underscored by their attempts at securing nickel and cobalt. In April, Stellantis closed offtake and equity purchase agreements with Australian Alliance Nickel for battery-grade nickel and cobalt. Two months later, Stealltnis closed a similar deal with Norwegian Kuniko, again for nickel and cobalt. The investments, are small (under $10 million apiece), but provide Stellantis minority shareholder status and a board seat. While other car companies are building offtake agreements, and looking to secure nickel and cobalt, few have started investing equity into junior miners. Stellantis however, has taken small stakes and given them seats at the strategic table. Most miners thus far have not pursued control of their mining partners, since executive planning for a mining company drifts quite far away from their core competency as an automaking firm. Alternatively, this could be a hedge to ensure that Stellantis can keep an eye on the junior miners but mostly plan to take a hands-off approach. It’s absolutely worth keeping tabs over the next 18 months to see what role Stellantis adopts vis-a-vis Australian Alliance Nickel and Kuniko.
Stellantis used pretty much the same playbook when locking down lithium assets as well. Stellantis’ investment in Vulcan Energy, an Australian lithium provider, for $56 million made them the second largest shareholder and provided Stellantis with secure offtake agreements. Last year Stellantis also invested in California lithium producer Controlled Thermal Resources, signing an offtake for 25,000 tons of lithium hydroxide over ten years, but no equity in the company. Since most automakers have signed deals to at least secure offtake of cobalt, nickel, and lithium, Stellantis is not unique in signing deals with these producers (although the equity structure of the deals, and the junior miner partners are notable.) What is worth discussing is Stellantis’ move to secure other minerals.
There is no better example of their wide interest metal than the copper deal they signed earlier this year with McEwan Copper. The major base metal, while vital to the energy transition, is produced in higher quantities than niche lithium and cobalt and to this point, no other automakers have secured offtakes. However, Reuters reported that Stellantis “will pay $155 million for a 14.2% stake in McEwen Copper, a subsidiary of Canada’s McEwen Mining, which owns the Los Azules project in Argentina.”
Just last week, Stellantis signed an early offer sheet with American Rare Earth miner NioCorp for, you guessed it, a planned offtake agreement and equity investment. The offer sheet is part of a plan to ensure that Stellantis has the necessary materials to manufacture the permanent rare earth magnets. Even compared to EV metals writ large, the rare earths supply chain is extremely concentrated in China, where more than 93% of rare earths are processed. While rare earths play an important role in technology manufacturing, auto companies have not been investing in rare earth mining projects, and in some cases, trying to create alternatives without relying on these elements (Tesla switched back away from motors that don’t use rare earths earlier this year). This underscores the wider range of metals that Stellantis is hoping to lock up, as compared to other companies.
Stellantis’ strategy seems to be as follows: secure access to as wide a variety of metals as possible through buying equity in junior miners and securing offtake agreements.
Volkswagen: The Long Global Climb to 50% Self-Sufficiency
Volkswagen has set ambitious goals for securing its EV supply lines, operated via its battery unit, aptly named “PowerCo.” The German automaker aims to meet half of its own EV demand from its upstream mining investments, a bold proclamation from the world’s eleventh-largest company by revenue. Last year, executives accompanied German Chancellor Olaf Scholz’s for his trip to Canada, where they met with Canadian policymakers and signed an MOU with the government on collaborating on EV supply chains. They’ve also been investing in Europe, Asia, and South America. The main thrust of their portfolio seems to be creating geographic diversity, and investing globally. As we’ll see, this is a stark contrast to GM’s disposition to center their investment in the US. While they have made several aggressive pledges, and publically outlined their strategy, the action has been slower than other automakers when it comes to investing thus far.
Volkswagen has prioritized the three common electric vehicle metals — lithium, cobalt, and nickel. Similar to Stellantis, Volkswagen signed a deal with the Lithium provider Vulcan, where they will begin buying lithium from Germany’s upper Rhine region in 2026. This is an interesting deal for the major European player to add European-mined metals to their portfolio.
Additionally, Volkswagon has decided to go beyond the offtake agreement deals, in favour of investing in mining projects directly. In an April interview with Reuters, VW executive Thomas Schmall-von Westerholt said, “the bottleneck for raw materials is mining capacity - that's why we need to invest in mines directly.” On that note, VW is reportedly pursuing collaborations with mining companies in Canada, where they will also be building their first EV plant outside of Europe, and is in investing Indonesian battery processing (link in Indonesian) which we discussed in our Indonesian processing article. However, while they have been making progress on building the midstream EV processing, their commitments regarding mine purchases have been slower to come.
Volkswagen also partnered with Glencore, Stellantis and a mining investment fund to create ACG, a London listed SPAC (special purchase acquisition company.) The newly founded company, ACG, announced last month that they had made a $1 billion purchase consisting of several Brazilian mining assets, with a concentration on copper and nickel. While this SPAC is a strong start, they will need to get more aggressive to hit their goal. Expansion in Southeast Asia could help satisfy their nickel requirements. Given the bold proclamations, Volkswagen needs to balance the scramble for minerals alongside looking for the right deal.
VW’s strategy seems to be as follows: use the company’s global footprint to invest in core battery materials (lithium, cobalt, and nickel) around the world, and find opportunities in Asia
General Motors: “Betting on American Lithium”
In 2021, General Motors announced that it planned to sell only electric cars by 2035, and has committed $35 billion towards its electrification transition. Like other car companies, GM has concentrated mostly on securing nickel, cobalt, and lithium assets, with a particular focus on lithium as of late. Unlike Stellantis, they have not tried to secure other metals, underscoring the uniqueness of Stellantis’ approach. The GM strategy seems to be securing the three metals noted above, but prioritizing jurisdictions that they are most comfortable with, namely Australia and the United States. They’ve also shown a disposition to invest equity in miners, capped off by their colossal deal with Lithium Americas.
In January, GM invested $650 million in Canadian miner Lithium Americas, taking a 9.999% stake in the company. Lithium America and GM plan to jointly develop the Thacker Path, which has the potential to power 1 million EVs, and is projected to cost $2.27 billion for the first phase expected in 2026. In another deal, GM invested several million dollars directly in California lithium miner Controlled Thermal resources. In both the Lithium America and Controlled Thermal Resources deals, GM receives equity alongside the opportunity to further control its supply chain. The latter deals should provide GM with exclusive rights to the projected annual 40,000 tonnes produced from Thacker Path’s first phrase.
But while GM has been making investments upstream in mining, almost all jurisdictions have been U.S. or Australian thus far. The Australian deals include a $69 million nickel deal with Australia’s Queensland Pacific Metals, and Australian cobalt offtake from Glencore’s Murrin Murrin. Aside from those, General Motors has not yet pursued extraction deals outside of the United States and Australia, although GM representatives were reportedly in Brazil last month to meet with Brazilian mining figures.
Instead, their major risk portfolio stems mostly from the yet-untested lithium extraction systems, like Lithium America’s plan to extract from a large clay deposit or use geothermal brine. At this stage, GM’s investment strategy indicates that they believe the largest chokepoint will be lithium, and that their solution to this is investing in both lithium projects and new lithium extraction technologies.
GM’s Plan seems to be as follows: Secure core battery materials, but invest heavily in lithium extraction within the United States
*Some of GM’s reasons for keeping within the U.S. are related to the Biden administration’s fiscal incentives in the Inflation Reduction Act — we will be parsing this in more depth in an upcoming article!