General Motors, page-242

Carmakers switch to direct deals with miners to power electric vehicles


As the FT commodities article states,

"The threat to carmakers has led to a shift in attitude towards the mining sector and a realisation the motor industry can no longer approach sourcing raw materials as off-the-shelf procurement.Mercedes-Benz is among car companies to have signed offtake agreements — promises to buy future output that help suppliers raise financing — with miners, and has begun work on its own processing facilities.

“If you asked me five years ago, I would have said this was the job of the commodity markets,” said the German group’s chief executive Ola Källenius, adding that it now “makes sense” to do direct deals because of the coming squeeze.“If you do the maths of what we would need at the end of the decade, and you see where we are now, it’s a factor of X in terms of scaling,” he said. “The issue is not that there’s not enough lithium on this planet — there is. But it needs to be mined and it needs to be refined and go through all the steps.”

Skilton forecasts that the industry will be divided into winners and losers based on which companies will have the minerals to fulfil their “electrified dreams”.The change marks a reversal of a decades-old practice under which carmakers manage their direct suppliers, which in turn work with tier-two suppliers, and so on down the chain, with each business dealing only with the company that feeds directly into them. In the EV supply chain, battery producers, cathode manufacturers and mineral processors sit between the car companies and miners.Now carmakers are going right down the chain to the mines themselves, both to secure the supplies cheaply and to ensure ethical and emissions standards are met. Stellantis, owner of the Peugeot and Fiat brands, and GM are among those that have invested in early-stage mining companies in an attempt to secure resources." .....


"The interests of mining and automotive companies are fundamentally at loggerheads — miners want the higher prices that come with limited supply and car companies want low prices with ample availability. More practically, the multi-decade investment horizon for the mining industry is a far cry from the shorter cycles on which carmakers operate.

Henk de Hoop, chief executive of battery metal consultancy SFA, said the rationale for a car company to take a stake in a large miner was unclear. “If you invest in a Rio Tinto or Anglo American, then it’s a regulated shareholder relationship so it doesn’t give you a right to 20 per cent of the nickel or other metals,” he said. Instead of the full-blooded conglomerate model of Ford a century ago, according to de Hoop, the carmakers’ strategies bring them closer to behaving somewhat like a bank or Japanese trading house. “They are acting far more like alternative capital providers to accelerate projects deemed too risky by traditional lenders, while gaining supply security as compensation,” he said."