Utilizing Lithium and Nickel Stocks to Drive Growth in the Electric Vehicle Industry

    Australia’s Lithium Dominance Challenged by Iran’s Massive Discovery

    In a shocking turn of events, the Iranian government has announced the discovery of a massive lithium deposit, estimated to be around 8.5 million tons. This is a significant development as China, the world’s largest consumer of lithium, primarily imports this valuable resource from Australia, the world’s leading lithium exporter. In fact, in 2020, Australia accounted for nearly half of the world’s available lithium.

    The importance of lithium cannot be overstated, as it serves as a crucial component in the manufacturing of electric vehicle (EV) batteries. Given China’s ambitious goal of becoming the world’s leading producer of electric vehicles, its demand for lithium is expected to skyrocket in the coming years. This has resulted in a substantial increase in Australia’s lithium export revenue, which exceeded a staggering US$7 billion in the first half of 2023. Experts predict that Australia’s lithium export revenue could more than triple over the period of 2022-2023.

    However, with the discovery of Iran’s substantial lithium deposits, Australia’s dominance in the Chinese market might face some challenges. China happens to be the largest export destination for both Australia and Iran. In 2022, China received over one-fourth of Australia’s exports, valued at approximately US$104 billion. Likewise, Iran has been a significant supplier of crude oil to China, providing more than 750 thousand barrels per day, which accounts for around one-quarter of its total production.

    As the global automotive industry steadily transitions to electric vehicles, the demand for lithium continues to surge. In 2022, almost 80% of all lithium use was attributed to the production of batteries. This has significant implications for other countries that aim to play a crucial role in this evolving industry, such as Indonesia, the world’s largest producer of nickel.

    In 2019, Indonesian President Joko ‘Jokowi’ Widodo initiated an electric vehicle program in the country, aiming to make battery-based EVs at least 20% of the total vehicles produced by 2025. Within this context, Indonesia established joint ventures with major players like South Korea’s Hyundai and China’s Shanghai General Motors Wuling. The Indonesian government also appointed the Indonesia Battery Corporation to spearhead the development of EV battery manufacturing, capitalizing on the country’s abundant nickel deposits.

    However, Indonesia faces a significant hurdle in its pursuit of becoming a key player in the EV battery industry. The country lacks access to other vital resources needed for battery production, particularly lithium. This has led to discussions about potential collaboration between Australia and Indonesia in the production of EV batteries. During Jokowi’s visit to Australia in July 2023, the prospect of joining forces to manufacture EV batteries became a focal point of discussion.

    Despite the initial talks between the Indonesian Chamber of Commerce and Industry and the Western Australian government, concrete steps towards realizing this collaboration have yet to be taken. It is speculated that Australia may be treading cautiously to avoid friction with the United States in its ongoing trade dispute with China. China has made significant investments in Indonesia’s nickel processing sector, making it the largest source of Foreign Direct Investment in the country’s mineral industry since 2013.

    While Iran’s discovery of lithium reserves could potentially expedite Australia-Indonesia EV battery cooperation and reduce Australia’s reliance on China, various domestic factors might complicate trade cooperation. Both Australia and Indonesia grapple with tensions between economic and environmental objectives, making it challenging to align their interests fully. Indonesia’s aggressive implementation of industrial policies, especially downstreaming, is a reflection of its desire to boost domestic value-added and reduce reliance on raw commodity exports.

    Downstreaming, which involves banning the export of raw commodities, serves as an incentive for the development of downstream sectors. It has led to a significant increase in exports of nickel derivatives following the export ban on nickel ores. Nonetheless, the policy has also affected nickel mining exploration due to lower domestic prices for the mineral. The downstream sector, predominantly foreign-owned, benefits from the policy, albeit with limited direct employment effects and national economic value added.

    While Australia and Indonesia may experience fluctuations in their pursuit of downstreaming strategies, it is crucial to look beyond bilateral cooperation. The EV battery industry requires a comprehensive integration with an internationally-oriented automotive industry. Policies focused solely on downstreaming hinder the objective of participating in global value chains.

    In summary, Iran’s announcement of a massive lithium discovery presents a potential challenge to Australia’s dominance in the Chinese market. As China’s demand for lithium continues to rise due to its commitment to becoming a leading EV producer, Australia’s position as the primary lithium exporter might be threatened. This development also has implications for other countries, like Indonesia, that aspire to play significant roles in the EV battery industry. Collaboration between Australia and Indonesia in producing EV batteries could be a viable solution, but various domestic and international factors must be considered to ensure successful cooperation. As the world increasingly embraces electric vehicles, the race to secure essential resources like lithium intensifies, necessitating strategic partnerships and long-term planning within the global automotive industry.

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