The battle for the global electric vehicle supply chain in Bolivia

This article was submitted to the 2023 Harvard International Review Academic Writing Contest, winning an award for ‘Outstanding Writing Content’.

The white salt flats of Uyuni, Bolivia have long been an otherworldly tourist getaway. It is unlikely they will remain so unblemished a decade from now.

In the brine beneath the surface of the crust are trapped bountiful reserves of so-called ‘white gold’: lithium. As a key component of electric batteries, demand for it is expected to treble by 2025 from 2020 levels. In 2023, the Bolivian government estimated that within their pristine salt flats lie 23 million metric tons of the metal: the largest natural deposits of it in the world.

However, despite the growing demand for the mineral, Bolivia has a troubled history of attempting to extract economic value from it. Keeping with Bolivia’s history of nationalization–‘strategic sectors’ including fossil fuels, telecommunications, and electricity have been controlled by the government since 2009–lithium reserves are tightly controlled in the country. The state-owned firm YLB (Bolivian Lithium Deposits) is legally designated to control “the entire production chain of lithium”. So far, it has invested over $800M into the traditional method of extracting lithium salts through brine evaporation, a method expected to yield a modest 15,000 tons of lithium carbonate this year. Collaboration with private players, too, has largely failed: before this year, the closest such attempt was a 2019 deal with a German company that caused mass agitation and fell apart before its results materialized. Subsequently, only 543 of the approximately 600,00 tons of lithium produced globally in 2021 were from Bolivia.

With new partners, however, a reversal of fortunes may be on the horizon. In the last year, the Bolivian state company YLB signed agreements to produce Lithium with three international partners. In late July, it was announced that $600 million of investment is expected from a subsidiary of Russian state-owned electricity giant Rosatom, and $857 million from the Chinese firm Citic Guoan. This followed an announcement of a $1.4 billion investment by the Chinese battery producer CATL that might rise up to $9.9 billion in the coming years. The firms are expected to set up plants that use new direct lithium extraction techniques for producing lithium carbonate, which Bolivia’s energy czar Franklin Molina expects to produce 100,000 metric tons of by 2025.

At a time when Lithium resource nationalism is on the rise–with both Chile and Mexico causing increased uncertainty by their shift towards nationalization of the industries in the past year–Bolivia’s renewed interest in extracting the metal with the help of international partners likely comes as a welcome sign to some.

From the perspective of the Chinese economy, their success here helps reinforce the extent of their dominance in the global supply chain for lithium and its derivatives. After being mined from natural deposits such as those in Bolivia, lithium must be refined and processed. Already, 60% of lithium is estimated to be processed in Chinese factories. Once lithium is refined, about 30 to 60 kilograms of it are required for each electric vehicle (EV) battery. Currently, six out of 10 of the biggest EV battery producers are Chinese. CATL, already making three out of ten batteries globally, is likely to be particularly pleased by the extent to which their involvement in this deal in Bolivia secures their vertical integration.

At a time when China and Russia are seen as working to expand an anti-Western sphere of influence, offices from Washington to Brussels will likely look on with some concern at what is ostensibly a victory for their rivals in the race for essential strategic resources. This development lends further credence to the view that electric vehicle subsidies merely feed profits to economic rivals. And with memories of purported blackmail of Europe by Russia over gas after the invasion of Ukraine, and the ever-present fears of the implications of global semiconductor dependence on Taiwan, Western nations will not be eager to have one more external point of dependence on a crucial resource, even as they themselves attempt to catch up to realize the benefits of this new resource for themselves.

Closer to extraction, such benefits will also be welcome. Far from the potential geopolitical tussles between superpowers, this development is likely to have profound implications for the Bolivian economy. In recent times, its foundations have come into question, with some describing it as being close to or already in a state of crisis. At the heart of this is widely considered to be a shortage of foreign exchange. Bolivian foreign reserves have fallen from $15 billion in 2014 to less than $4 billion in May 2023, with rises in the cost of dollars in recent times caused by US interest rate hikes having hit Bolivia particularly hard. As a result, the BCB (Central Bank of Bolivia) has admitted to be facing a liquidity crisis that threatens their decade-old exchange rate peg of 6.9 bolivianos to the USD. Welcoming external investment will certainly help relieve some of the foreign exchange shortage. Yet this development may be a sign of Bolivia’s growing relationship with China growing deeper. Near the time of their announcement of the lithium deal in late July, Bolivian Economy Ministry officials revealed that 10% of Bolivian financial operations that quarter were done in Chinese Yuan. Chinese-state linked news outlet The Global Times hailed this as a sign of a ‘de-dollarization’ wave. Bolivia’s shift may perhaps be indicative of a broader aversion to the West.

Perhaps this is to be expected. In the cultural memory of Bolivians lives a strong skepticism of European and American foreigners, who, in the words of Bolivia’s leaders, have engaged in “unjust oil wars” and inflicted a “permanent plunder” on the nation in the past centuries. Already, to guard themselves against undue foreign influence, the Bolivian and Mexican presidents have called for the establishment of what has been dubbed a ‘Lithium OPEC’: an alliance between them and other lithium-rich Latin American countries, including Chile and Argentina. Considering the vast disparities in their stages of lithium extraction, contrasting economic policies for the mineral that remain in flux, and the fact that lithium, unlike oil, can be reused, the viability of such a plan remains to be seen. However, it indicates their collective keenness to ensure the benefits of this era of resource extraction are realized by them, too.

The day of the announcement of their collaboration, Bolivia’s Molina asserted it as proof of the existence of “sovereign alternatives” to completely privatized approaches for lithium extraction. It remains to be seen to what extent this alternate model can reap benefits for Bolivia over broader time horizons, with the long-term sustainability of lithium itself as a material for batteries being doubted by some. As the global green transition progresses, new raw material commodities will likely emerge, opening new avenues for international trade. How competing interests are balanced in this decade in Bolivia may help define such markets in the many more decades to come.