In a previous contribution, I inquired about the possible cause of optimism of Bolivia’s President Evo Morales in regard to lithium prospects for the country.
Here I reconfirm my suppositions. This is based on what the President had to say on occasion of his State of the Country address to the National Assembly and what the Ministry of Planning for Development declared only a few weeks ago at a press conference.
Let’s start with the President. In his above-mentioned speech to the nation delivered on January 22, he indicated that Bolivia has many proposals from China, Russia, United States and Europe to jump to the next stage of lithium industrialization after minor production at the pilot plants that his government implemented. He then added that:
“According to our technical team, Germany would be the most advanced and advantageous option for Bolivia. We will define this year with which international company we will guarantee the investment for the productive chain of lithium and related products.”
This was corroborated by the Minister of Planning for Development who said:
“We have the expectation of producing vehicles in the national territory with lithium batteries, we have received offers from China and Russia, and the President stressed that the most interesting and serious offer was that of the German Government because not only German companies come, (but) they come with the support of the German Government and with its Automotive Chamber (...) We hope that in the coming months the Government will take a decision regarding our strategic partner.”
But the Minister went on even further. In her view, to produce lithium batteries, it is necessary to think about the function that must be fulfilled "and that is linked to a type of vehicle or productive chain that is much more convenient; in the case of the German offer, they are thinking about the development of the whole chain and that manifests itself throughout the German chain."
She also argued that Bolivia has thus far generated pilot plants for basic lithium products and some expertise has been developed to produce cathodes as well.
“This year, when we want to implement the production chain, we need the incorporation of the private sector that comes as a partner to develop the lithium, it will not be the typical buyer who takes the lithium and goes to industrialize outside the territory, but a partner who comes to develop all the chain,” she said.
In the first phase of development of the productive chain of lithium, it was projected that Germany would invest at least $350 million, she assumed. However, to comply with the industrialization of lithium, the Minister thinks that Germany would have to make a contribution similar to that made by Bolivia:
"Remember that the Government is putting a contribution of more than 1,000 million dollars in development and our partner should at least approach that contribution that we have made as a State".
It is not the first time that the president of Bolivia talks about choosing the right partner for lithium industrialization. Way back in 2011, he expressed his deepest wishes to select Japan as a lithium development partner, insofar as Toyota (TM) electric vehicles are produced in the country.
This rather awkward and astonishing argument forced me to react almost immediately pointing to three flaws in the presidential reasoning. First, I thought the government of Japan couldn’t force any Japanese private company to invest in a specific endeavor. Somewhat curiously, this line of thinking remains valid today for Japan but perhaps not for other countries. Why? Well, because Japan (highly influenced by Toyota) continues to believe that fuel cell electric vehicles (FCEVs) rather than plug-in electric vehicles (PEVs) is the way to go towards a Clean-tech Revolution in the world.
As for other countries, say China or Germany, I am now more inclined to think that their governments would be willing to cooperate with Bolivia to create the kinds of synergies and networks that are necessary for development and industrialization of its lithium so long as Chinese or German companies are involved in this process and are finally beneficiary of unlimited or unrestricted access to the critical metal.
Second, previous necessary steps to produce electric vehicles in Bolivia can’t be taken for granted. In a 2016 piece, I suggested two reasons why the leading EV maker Tesla (TSLA), for instance, would not be interested in building a lithium battery plant – and, for that matter, an EV factory as well – in Bolivia anytime soon. One, that lithium was not visualized at the time by Tesla as facing supply issues in the near future; and two, that neither Bolivia nor even South America was seen back then as attractive or potential EV markets in the coming years. In retrospect, these two views of the world may need to be amended as follows.
To begin with, in its latest Earnings Call, Tesla unveiled two additional worries of Elon Musk’s – besides all the points regarding the delayed launch of the Model 3 amply discussed by analysts of different sorts: A possible lithium supply constraint and the need for vertical integration in Li-ion battery production. Take a look at the following transcript of the Tesla call:
“Elon Reeve Musk - Tesla, Inc.
And down the road, there will be some cell conflict. I think in … a year or two, we really need to think about cell production as being a constraint … (1:09:32) …, making sure that we secure the supply of lithium hydroxide, cobalt – there’s actually a small amount of cobalt - let me say nickel...(1:09:48)
Jeffrey B. Straubel - Tesla, Inc.
Nickel, graphite, (1:09:53) aluminum.
Elon Reeve Musk - Tesla, Inc.
Yeah … (1:09:52).”
In short, the thrust of my argument was that since there is at the present day sufficient evidence that a lithium shortage is likely to occur in the years ahead, major electric car makers might be interested in vertically integrating their lithium value chain all the way up in the supply stream to secure access to lithium resources, which may in turn help them warrant their supplies of lithium batteries necessary to produce their final products.
In addition, to the extent that now EVs are becoming an effective means of transportation everywhere in the world, it probably makes more sense to think of South America – and even Bolivia (let alone Argentina and Chile) – as potential EV markets in the years to come. In this connection, lithium-producing countries from this part of the world may have a once-and-for-all opportunity to negotiate vertically-integrated lithium projects with major EV makers.
This may explain why BYD (OTCPK:BYDDY) is considering producing the first electric buses powered by lithium-ion batteries in Argentina by 2019, installing its plant in Salta, close to significant lithium resources; Tesla might be interested in working in Chile to produce high-quality lithium hydroxide, possibly in partnership with SQM (SQM); and the German consortium AFK ACI Group - I talked about in my latest Seeking Alpha article available only for my subscribers – would also be willing to establish “a Bolivian-German partnership for the extraction and use of raw materials from brine and the construction of batteries in Bolivia, for which purpose a joint venture between YLB (with a 51% share) and associated German companies (with a 49% stake) would be created.”
All of the above leads us to analyze the relevance of the third flaw in Morales’ argument back in 2011, namely that he doesn’t appear to have a clue regarding the current state of electric vehicle technology, not to mention his lack of knowledge about the use of lithium in advanced batteries for electric cars. Recall that at the time I was referring to Toyota’s uncompetitive position – which also explained its resistance to technological change - with respect to GM (GM) and Nissan (OTCPK:NSANY) in the kind of plug-in EV technology that would strongly favor lithium development in Bolivia.
Sadly enough, neither president Morales nor the Minister of Planning for Development show any kind of positive evolution insofar as their views about EV technology. No wonder Bolivia’s government doesn’t seem to be concerned about the fact that none of the members of the German consortium with which they have signed a memorandum of understanding has any technical expertise to produce any kind of advanced lithium batteries.
But there is more to say about this important subject. The above-mentioned minister has not only talked about producing lithium batteries but also electric cars. So even if the German consortium - whose technical and financial proposal for construction of the industrial plant of lithium carbonate is currently being evaluated by the government – happens to be sufficiently connected with other German firms that actually produce lithium batteries and EVs in a competitive manner to bring them along as the lithium industrialization project - that is making president Morales so happy - progresses and is implemented, we still need to ask ourselves whether this is indeed the best option for Bolivia or – for that matter – for any other lithium producing country.
This leads me directly to enquire about Germany’s readiness to compete in the lithium battery and EV markets. The results of that investigation are not very encouraging. Based on information provided by Avicenne and the European Commission European Commission for 2015, it was found that German Li-ion battery firms accounted for only 26% of total European production and about 49% of total European production capacity, while European actual production and production capacity signified only 0.5% and 2.4% of global Li-ion battery production and production capacity, respectively.
This situation doesn’t seem to have changed significantly in 2016 and 2017. Things could have been better perhaps if only SB_LiMotive, the company formed in 2008 by Bosch (Germany) and Samsung SDI (Korea), would have decided to continue its operation beyond 2012.
Even though prospects for production of Li-ion batteries in Germany in the years ahead look more interesting, particularly due to Daimler’s (DMLRY) recent announcement that it will begin construction of its second Li-ion battery plant with an investment of 500 million euros, they appear almost negligible when compared with other executed and planned efforts by Tesla (USA) and Contemporary Amperex Technology Limited CATL (China), respectively. In a recent video it is explained why Germans might be interested in producing their own Li-ion battery cells as they sort out all the obstacles facing today to become competitive in the EV market.
As for the EV market, the numbers are a bit trickier. Here we need to take a look at the subject from two perspectives. One, in terms of EV sales, and two, as a function of lithium carbonate equivalent (LCE) use in batteries for EVs. These two distinct angles would in turn permit us to draw some conclusions regarding Germany’s competitiveness in the most important end-product of the lithium energy value chain as well as Germany’s position as a potential partner of Bolivia (or any other lithium producing country) in the latter’s attempt to generate value-added products along the same value chain.
I have long advocated a vertical integration in the lithium industry as beneficial to both raw material producing countries and end-product manufacturing countries. Now it seems like even Australia, the current leader in the global lithium industry, might be interested in a significant development of its lithium value chain which would imply not only manufacturing battery cells using partner technology by 2019 but also producing locally assembled consumer EVs beginning 2021.
This was first accomplished by applying my novel approach to competitiveness developed in 2014 to data on EV sales by country of origin as contained in Table 1 with two important modifications.
EV Sales and EV Sale Market Shares by Country of Origin
One, based on the “competitiveness as market share” thesis originally put forward by Michael Porter, percent variations of EV sale market shares instead of percent variations of EV sales were utilized. Two, the notions of positive and negative stability were added to increasing and decreasing percent variations of EV sale rankings, respectively, on the assumption that ranking fixation in the upper half of the list of countries subject of analysis may have a positive dimension equivalent to increasing EV sale rankings, the opposite being the case with the lower half of it, because maintaining the highest positions in EV sales may require much more effort than not doing so in the lowest ranks of the list.
The period of analysis was 2011-2017 and, for the purpose of this study, data were compiled for a list of six countries: China, USA, Germany, Japan, France and South Korea. Hence countries situated in the first three ranks of the list with no year-on-year percent variation in their EV sale rankings were taken as if they had increasing EV sale rankings, whereas countries located in the three following ranks of the list were considered as if they had decreasing EV sale rankings.
The new methodology was then adapted to analyze Germany’s position as a potential partner of Bolivia (or any other lithium producing country) to produce lithium value-added goods in accordance with information included in Table 2.
Lithium Carbonate Equivalent (LCE) Use by Country of Origin
Source: Table 1 and my own database, assuming 1kWh requires 1kg of lithium carbonate equivalent (LCE).
Following my previous article on the subject, I deemed it necessary to rephrase a little bit my approach to competitiveness in the global EV market before it can be adapted to analyze partnership potentiality in the global lithium industry. To begin with, we may look at competitiveness in terms of the percent variation of EV sale market/LCE use shares, meaning that the higher the percent variation of EV sale market/LCE use share of a country, the more competitive/better partner it might be.
And, of course, we can observe it in terms of the percent variation of EV sale/LCE use rankings, meaning that the faster a country moves upwards in the ranking, the more competitive/better partner it might be. In Tables 3 and 4 I present the general procedure used for both analyses which can be summarized as follows.
First, let’s assume we are facing a declining EV sale market/LCE use share for any country and year. This may mean two things. One, the country performed bad, in which case the percent variation of EV sale ranking of this country declined as well or there was a zero percent variation of ranking for this country assuming it is in the lower half of the list. And two, other countries performed better, but still the country exhibited a positive percent variation of its ranking of EV sales/LCE use or a zero percent variation of its ranking assuming it is in the upper half of the list.
In the first case, the result would be that the country was least competitive/seen as the worst partner due to a cumulative process whereby the declining EV sale market/LCE use share of the country was exacerbated by a negative percent variation of its EV sale/LCE use or a zero percent variation of its ranking assuming it is in the lower half of the list.
In the second case, the result would be that the country was less competitive/seen as worse partner due to an internal counteractive process by which the declining EV sale market/LCE use share of the country was mitigated by a positive percent variation of its EV sale/LCE use ranking or zero percent variation of its ranking assuming it is in the upper half of the list.
Second, let’s now take a look at the other side of the coin, namely an increasing EV sale market/LCE use share for any country and year. This may imply two things. One, the country performed well, in which case the percent variation of its EV sale ranking was also positive or the country exhibited a zero percent variation of its ranking assuming it is in the upper half of the list. And two, other countries performed worse, even though our country reflected a negative percent variation of its EV sale/LCE use ranking or a zero percent variation of its EV sale ranking assuming it is in the lower half of the list.
In the first case, the result would be that the country was most competitive/found to be the best partner because of a cumulative process whereby an increasing EV sale market/LCE use share was further enhanced by a positive percent variation of its EV sale/LCE use ranking or a zero percent variation of its ranking assuming it is in the upper half of the list.
In the second case, the result would be that the country was more competitive/found to be better partner due to an external counteractive process by which the negative percent variation of its EV sale/LCE use ranking or the zero percent variation of its ranking assuming the country is in the lower half of the list was moderated by the fact that other countries performed worse.
Competitiveness Analysis Procedure
Source: Adapted from Seeking Alpha.
Partnership Potentiality Analysis Procedure
Source: Adapted from Seeking Alpha and Table 3.
The results of these exercises are presented in Tables 5 and 6 and can be synthesized in the following points. First, during the complete time period under consideration (2011-2017) China appeared to be the world’s most competitive country in production and sale of EVs, as well as the best potential partner for Bolivia or any other lithium producing country to develop its lithium energy value chain due to the volume of LCE used for the EVs it produces, followed by the U.S. and Germany.
Second, even though during this time-frame the three countries were found to be the most competitive and best potential partners using our novel competitiveness and partnership potentiality analysis procedure, only China preserved its number 1 position when the procedure was applied to the last three and two years only. In effect, the U.S. classified as less competitive in 2014-2017 and 2015-2017, worst partner in 2014-2017 and better partner in 2015-2017, whereas Germany was still most competitive in 2014-2017 but least competitive in the last two years and worse partner in both 2014-2017 as well as 2015-2017.
Third, the above findings can be explained by and large by the percent variations of EV sale market/LCE use shares, but our methodology doesn’t pick up the considerable differences in the level of EV sale market/LCE use share among these countries. In fact, China’s EV sale market share in 2017 was almost 3X higher than that of the U.S. and more than 3X higher than that of Germany and even higher than that of the U.S., Germany and Japan combined, whereas last year China’s LCE use share was more than 7X higher than that of Germany and US’s LCE use share was more than 5X higher than that of Germany.
Fourth, our novel procedure doesn’t take into account explicitly either the two dimensions of competitiveness (cost-efficiency and technology) I identified in a reply to a comment on my latest article on EV quotas in China. But it seems reasonable to presume that the cost-efficiency (quantity) dimension of competitiveness explains better the results of China and Germany than those of the U.S. where the technology (quality) dimension of competitiveness appears to be most relevant, particularly due to the “Tesla-effect.”
According to a recent report published by Electrek, it can now be confirmed that an unnamed German premium automaker would have just paid over four times the average price of the current Model 3 to purchase such car on the used market, transport it directly to Germany by air, analyze it for ten days before starting to dismantle it to perform a reverse-engineering and benchmarking of the vehicle. After providing some details regarding these operations, Electrek concludes that “it’s far from impossible for [BMW (OTCPK:BMWYY)] to be involved especially since the Model 3 is often being compared to the 3 series.”
Be aware that Mercedes did the same thing with a Tesla Model X in 2017, while Audi proceeded similarly in 2016. It is therefore clear that German luxury automakers are interested in Tesla’s technology which also ratifies that they are lagging behind the disrupting company in this regard. In the same vein, InsideEVs reported in November 2017 that Chinese startup Xiaopeng Motors had cloned Tesla’s Model X taking advantage of the U.S. carmaker’s decision to open-source its patents.
Fifth, as for the partnership potentiality analysis, where we assume that LCE use means a great deal, it is clear that the procedure fails to explain the factors behind the quantity of LCE used by the different countries in the batteries for their EVs. However, it might be safe to suppose that they were related to both the average capacity (in kWh) of those batteries and, most importantly, the proportionality of PHEVs and BEVs in each country.
It is therefore not surprising that during 2011-2017 the U.S. was found to have the highest average capacity in its Li-ion batteries (30.28 kWh), followed by China (26.83 kWh) and Germany (14.63 kWh), and that China was the leader in producing BEVs (71%) followed by the U.S. (56%) and Germany (50%).
And sixth, given all the previous considerations, it looks like the President of Bolivia was wrong again when arguing this time that “Germany would be the most advanced and advantageous option for Bolivia.”
EV Sales: Competitiveness Analysis Results
Sources: Tables 1 and 3.
Lithium Carbonate Use: Partnership Potentiality Analysis Results
Sources: Tables 2 and 4.
 Data on EV sales by country of origin were actually compiled at the brand level. Note that when we refer to Germany here, we are talking about EVs produced by German firms and sold across the world. This compilation was first suggested by EV-Sales for 2017. Except for the numbers for the U.S. and Germany, which seem to be upside down, the figures appear to be quite similar. The reason for the discrepancy might have to do with either an estimation error on the part of EV sales or insufficient data collected by this website including in some cases information on only the top 20 (or less) EV models sold in the different countries of the world and problems derived from estimation of EV sales of other models by brand of origin based on these data.
 In a forthcoming piece, I intend to redo this analysis using data on EV sales by OEM Groups rather than countries, as recently suggested by EV-Sales. This might be more appropriate given the fact that most business decisions are made at the company level rather than at the country level. This will also allow us for the possibility to include groups of automotive companies from different countries working together in the form of joint ventures or parent-subsidiary frameworks in the study.
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