In the global transition to green energy, lithium has emerged as a critical resource, often referred to as ‘white gold’.
Its unique properties make it ideal for creating lightweight, high-capacity batteries that power everything from smartphones to electric vehicles (EVs).
As nations race to secure supplies of this vital element, a new geopolitical landscape is taking shape, with China and Russia positioning themselves as major forces vying for control over lithium deposits through strategic diplomacy and deal-making.
The lithium boom
The global lithium market is on an explosive growth trajectory. Industry projections suggest it will expand from $26.88 billion in 2024 to a staggering $134.02 billion by 2031. This surge is primarily driven by the rapid expansion of the EV market. According to Morgan Stanley, EVs are set to account for 26 per cent of global car sales by 2030, escalating to an impressive 72.2 per cent by 2040.
“Over the past decade, rare metals such as silver, palladium, and platinum have shown significant potential, offering a hedge against inflation and geopolitical uncertainties while also providing long-term growth opportunities,” said Mohamed Hashad, Chief Market Strategist at Noor Capital. This observation underscores the strategic importance of lithium in both economic and geopolitical terms.
China’s dominant position
China has emerged as the dominant player in the global lithium market, employing a multifaceted strategy that extends far beyond its borders. The country has systematically invested in lithium mining operations worldwide, with a particular focus on South America’s ‘Lithium Triangle’ – comprising Chile, Argentina, and Bolivia – which holds more than half of the world’s known lithium reserves.
Despite having access to less than 25 per cent of the world’s lithium resources, China has managed to secure control over approximately 65 per cent of the global lithium processing and refining capacity. This strategic positioning has allowed China to play a pivotal role in the global lithium supply chain.
China’s approach extends beyond mere resource acquisition. The country has built a comprehensive EV supply chain, encompassing mining, refining, battery production, and vehicle manufacturing. This vertical integration has enabled Chinese companies to achieve economies of scale, driving down costs and making Chinese EVs increasingly competitive in global markets.
“China, one of the largest producers of rare earth elements, has significant leverage over global supply chains for certain elements. Heightened trade tensions between China and the US could disrupt supply and potentially drive prices higher,” Wael Makarem, Financial Markets Strategist Lead at Exness, told Arabian Business.
The African frontier
While South America has been the traditional focus of lithium mining, Africa is rapidly emerging as a new frontier in the global lithium race. Countries like Zimbabwe, Namibia, and Mali have significant lithium deposits, attracting interest from both Chinese and Russian companies.
Zimbabwe alone reportedly has lithium reserves of approximately 310,000 metric tons. Namibia and Mali are also actively developing their lithium mining sectors, positioning themselves as important players in the global lithium supply chain.
China, in particular, has been aggressive in securing African lithium resources. Chinese companies have invested heavily in Zimbabwe’s Bikita lithium mine, one of Africa’s largest. These investments often come with promises of infrastructure development and economic partnerships, a strategy that has proven effective in gaining access to resources across the continent.
“The West and other economies have taken active steps to prevent the Chinese industry’s further rise. However, halting China’s dominance in the rapidly evolving EV sector remains a hugely difficult task,” said Hashad.
Russia, while less prominent than China in the lithium market, is also making strategic moves in Africa. The country’s state-owned nuclear corporation, Rosatom, has expressed interest in lithium projects in Zimbabwe and Namibia, signalling Russia’s intent to secure a foothold in the EV supply chain.
The geopolitics of EVs
The concentration of lithium resources and processing capabilities in the hands of a few countries, particularly China, has raised concerns about supply chain vulnerabilities and geopolitical leverage.
“The vulnerability of the supply chain should be taken into account by investors. In addition to the geopolitical risks, natural disasters, labour conditions and production interruptions can seriously affect performance,” Hashad warned.
The global lithium supply is heavily concentrated among just three countries. Australia leads production, accounting for around 52 per cent of the global total. Chile follows as the second-largest producer at approximately 22 per cent, with China ranking third, contributing about 16 per cent. Together, these three nations control a staggering 90 per cent of the current global lithium supply.
“Heightened trade tensions between China and the US could disrupt supply and potentially drive prices higher. Similarly, cobalt, mostly produced in the Democratic Republic of Congo, is vulnerable to political instability,” said Hashad.
The strategic importance of lithium has not been lost on Western governments. The United States, European Union, and other developed economies are now scrambling to reduce their dependence on Chinese lithium and battery supplies. This has led to increased investment in domestic lithium production and processing capabilities, as well as efforts to secure supply agreements with ‘friendly’ nations.
The European dilemma
Europe, home to some of the world’s largest traditional automakers, finds itself in a particularly precarious position. China’s EV market dominance has soared over the past few years, accounting for 3 per cent of the European market share in 2022, nearly 20 per cent in 2023, and is projected to reach 25 per cent market share this year.
This rapid growth comes against a backdrop of global efforts to combat climate change. While SUVs have seen a resurgence in popularity in the West, contributing significantly to oil consumption and CO2 emissions, EVs are seen as a key solution to reduce emissions from the transport sector. However, EV adoption rates in Western markets have shown signs of slowing. In the EU, sales of new EVs dropped by 12 per cent in May 2023 compared to the previous year, led by a 30 per cent plunge in Germany. Similarly, in the US, Tesla’s California sales plunged 24.1 per cent in the second quarter of 2023.
In contrast, China has seen a surge in EV demand, with a new sales record of 50.7 per cent in car sales in July. By the end of 2022, EV ownership in China had reached 13.1 million units, more than half of the global total, highlighting how fast the world’s largest auto market is outpacing Western counterparts in EV adoption rates.
In response to these challenges, the EU has taken action to protect its automotive industry. In July, the European Union raised tariffs on Chinese EVs, with new rates ranging from 17.4 per cent to 37.6 per cent, on top of an existing 10 per cent duty for all EVs imported from China. This move aims to address what EU officials describe as “unfair subsidisation” by China, which they claim allows Chinese-made EVs to be sold at much lower prices than those produced in the EU.
However, this protectionist measure is not without risks. Germany, Europe’s largest economy and a major exporter to China, is wary of potential retaliation that could harm its automotive industry. Moreover, the tariffs could raise EV prices across the EU, potentially making them less affordable for European consumers and slowing the transition to green transportation.
Joseph McCabe, president and CEO of global auto research company AutoForecast Solutions, told CNBC that these tariffs “will create a hurdle, but not a barrier to entry” for Chinese EV makers. This indicates that while the EU’s actions may slow Chinese EV penetration, they are unlikely to halt it entirely.
The US response
The United States is also taking steps to address the challenges posed by China’s dominance in the EV and lithium markets. Earlier this week, US Secretary of Commerce Gina Raimondo announced plans to seek a ban on the sale of connected and autonomous vehicles in the US that are equipped with Chinese and Russian software and hardware.
“This is not about trade or economic advantage. This is a strictly national security action,” Raimondo told reporters on Sunday. She also noted that currently, there aren’t many Chinese or Russian cars on US roads, suggesting that the impact of such a ban would be limited in the short term.
This action by the US government underscores the growing concern over the potential security risks associated with Chinese technology in critical infrastructure and transportation systems. It also highlights the broader geopolitical tensions surrounding the EV industry and the race for technological supremacy.
The road ahead
As the global lithium boom continues, the geopolitical landscape is likely to become increasingly complex. The race for EV supply chain dominance is not just about economic competition; it’s about energy security, technological leadership, and global influence.
“As technological innovations evolve, investors must stay attuned to shifts that could reshape the landscape of rare metal demand,” said Makarem. This advice is particularly pertinent as research into alternative battery technologies and new lithium sources continues.
For Western countries, the challenge lies in catching up to China’s head start while navigating the delicate balance between protecting domestic industries and maintaining global trade relationships. The development of alternative battery technologies and the exploration of new lithium sources may provide some relief, but the immediate future appears to be one of intense competition and strategic manoeuvring.
Hashad concluded with a call for strategic thinking. “Investors should stay informed, carefully evaluate their options, and approach the market with a balanced strategy.” This advice extends beyond investors to policymakers and industry leaders who must navigate the complex interplay of technology, economics, and geopolitics in the EV era.
As the world transitions to a greener future, the geopolitics of lithium and EVs will undoubtedly play a crucial role in shaping international relations, economic partnerships, and the global balance of power. The winners in this new race will not just secure economic benefits, but will also position themselves at the forefront of the green energy revolution, wielding significant influence in the decades to come.
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