U.S. Working to Catch Up in Strategic Lithium Race

Incentives outlined in the U.S. Inflation Reduction Act already are making a dent in breaking foreign dependencies on the essential materials of tomorrow, with electric vehicle leader Tesla Incorporated (NASDAQ:TSLA) (Austin, Texas) getting in on the lithium game.

Tesla planted a flag of sorts in Texas by breaking ground for a facility near Corpus Christi that can make battery-grade lithium hydroxide, which will be one of the few domestic plants making the essential electric vehicle (EV) component.

Production at the $375 million lithium refinery could begin within a year. In some aspects, that's a $375 million down payment on a race against China, the world's second-largest economy after the United States.

Chinese policy is supportive enough to lithium to create global dependencies, a risk that emerged as a major energy concern after the outbreak of war in Ukraine.

"Lithium-based energy storage will be one of the key technologies of the 21st century," an industry report from lithium advocate Li-Bridge read. "Lithium batteries will power the majority of vehicles manufactured over the next 50 years and will be essential to military systems, power grids - which are increasingly reliant on variable, renewable energy - and all manner of consumer, medical, and industrial electronics."

Should a major national power have a monopoly over lithium, the geopolitics of the future would move on their whims. So far, the production of battery-grade lithium hydroxide is concentrated in China, which also dominates much of the supply chain for lithium-ion batteries.

The Inflation Reduction Act (IRA) could help address that challenge for the United States. At least 40% of the critical materials used in EV batteries need to come from countries that have a free trade agreement with the United States or come from U.S. miners and recycling plants. That increases 10% each calendar year until it reaches a maximum of 80% in 2027.

Joe Govreau, vice president for Metals & Minerals research at Industrial Info Resources, said "Tesla's project is one of four lithium hydroxide refineries being planned in the U.S. at a cost of $2.4 billion. Others are being planned by Albemarle (Charlotte, North Carolina), Lithium Americas (NYSE:LAC) (Vancouver, British Columbia) and Piedmont Lithium. If all are built it would bring online around 120,000 tons per year of lithium hydroxide capacity."

That's supportive for the North American supply chain given that none of the critical minerals used in batteries can be mined or processed in China by 2025, according to the provisions of the IRA.

What's troubling for the U.S. economy and U.S. geopolitics is that, according to Li-Bridge, lithium competitors have a 10-year head start.

It may be too early to determine if any lessons from past energy and geopolitical pivots were learned. It's not unreasonable to assume a lithium cartel emerges to rival the Organization of Petroleum Exporting Countries, and bring with it all of the power struggles that arise as a result. But while trends such as Tesla's ambitions in Corpus Christi change the tone, it may be a case of progress before perfection.

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