Lessons from Germany’s Visit to South America’s Lithium Triangle



Scott B. MacDonald | The National Interest

Considering how the automotive sector plays a large role in the German economy, securing lithium sources for EV batteries has taken on a sense of urgency in Berlin.

German Chancellor Olaf Scholz’s February 2023 visit to Argentina, Brazil, and Chile is something that the Biden administration could learn from. Germany, one of the world’s oldest and most competitive auto hubs, is deeply concerned about gaining and maintaining access to lithium, a key component in batteries used to power electric vehicles (EVs). Without lithium, there will be serious problems in making the batteries used to power EVs. There is not much lithium in Europe, but around 60 percent of the world’s total supply is in three countries often referred to as the “lithium triangle”; Argentina, Bolivia, and Chile. National security also factors high for Germany, which is seeking to diversify its energy sourcing away from Russia. And it faces another geopolitical risk: the country that has the most access to the world’s lithium is China, which also happens to currently make 79 percent of lithium-ion batteries, handles half of the world’s lithium refining, and has its own rapidly expanding EV industry. For Germany’s Scholz, a trip to Argentina and Chile is worth the visit. Can the same be said of U.S. President Joe Biden?

It is worth briefly reviewing Chancellor Scholz’s visit. He met with the leaders of Argentina, Chile, and Brazil, with the stated intention of helping his country’s companies develop stronger business ties with Latin America. German companies have traditionally been active in the region, especially in the automotive industry and more recently with renewable energy. Germany is one of the top 10 trade partners of the three countries of the 2023 visit and a major foreign direct investor. 

While considerable attention was given during the Scholz visit to Brazil to the revitalization of the European Union-Mercosur trade deal, which languished due to discord with Brazil’s Bolsonaro government, lithium loomed large in talks with Argentina and Chile. Considering that the automotive sector plays a large role in the German economy, securing lithium sources for EV batteries has taken on a sense of urgency in Berlin.

Bolivian Troubles

German companies have made early attempts to access the lithium triangle through Bolivia. According to the U.S. Geological Service, Bolivia sits on the largest reserves at 21 million tons, followed by Argentina with 19 million tons and then Chile with 9.8 million tons. While Argentina and Chile have lithium sectors that are up and exporting, backed by a cadre of foreign companies and expertise, Bolivia’s lithium has largely remained in the ground. Under President Evo Morales (2006–2019) efforts were made to launch the sector, but the strategy was constructed around a poorly-run state company (now called Yacimientos de Litio Bolivianos, or YLB). Complicating matters, Bolivia was generally perceived as non-investor friendly, with the Morales government presiding over an earlier nationalization of the gas industry. However, over time it was understood that lithium could become a new export for the country, though the preference remained that YLB would partner with foreign investors, creating a state-dominated sector that operates everything from salts-to-battery materials. Under such a scheme, Bolivia would move from being just an extractor of lithium to exporting adding value-added goods.

In 2018, Bolivia negotiated two joint venture deals—one with Germany’s ACI Systems to produce lithium hydroxide and another with China’s Xinjiang TBEA to produce lithium from two salt flats. The deal was greeted with considerable excitement in Germany, with the country’s then Economy Minister Peter Altmaier stating, “Germany should become a leading location for battery cell production. A large part of production costs are linked to raw materials. German industry is therefore well advised to secure its needs for lithium early in order to avoid falling behind and slipping into dependency.” 

German excitement over the deal, however, quickly soured when Bolivian protests erupted in 2019 over local demands for higher royalties for the country. Confronted with a nationalist backlash, Morales canceled the contracts. Morales was soon ousted (partially due to his resistance to his wish to extend his presidential tenure beyond the constitutionally-mandated fourteen years). It was also rumored that control over lithium reserves was the real reason for Morales’ forced exit, which was said to have been done with the support of Western governments and Tesla owner Elon Musk.

Bolivia’s interest in accessing foreign help in the lithium sector resumed under the government of President Luis Arce (elected in 2020), who has stated that he wants to make his country “the world capital of lithium.” His objective is for Bolivia to supply 40 percent of global lithium by 2030. A new bidding process to launch the lithium business was initiated in 2022, with a number of foreign companies participating—including three Chinese firms (in a consortium called CBC standing for CATL, Brunp, and CMOC), U.S.-based EnergyX, Russia’s Uranium One, and Lilac Solutions (backed by German automaker BMW and Bill Gates’ Breakthrough Energy Ventures). CATL is the world’s largest maker of batteries, Brunp is majority-owned by CATL and is a recycling technology company, and CMOC is the largest molybdenum miner in the world and a major force in tungsten, cobalt, niobium, and copper production. 

In late January 2023, Bolivia signed a deal with the Chinese CBC to develop the country’s lithium deposits. YLB estimates that lithium will begin export in 2025. As part of the deal, the CBC will undertake the construction of “infrastructure, highways, and necessary conditions to jumpstart the plants.” The deal received a mixed reaction among the public and foreign parties. It was said that China got the deal because it offered an infrastructure overhaul and that the Chinese government actively promoted the deal with a left-leaning Bolivian government that has often harbored anti-U.S. sentiment.

What Berlin Wants

Considering the high political risk in Bolivia, Argentina, and Chile have greater appeal for German companies. Although China is active in both nations, companies from other countries have set up shop, including entities from Australia, Canada, South Korea, and the United States. Despite ongoing political froth, there is a broad consensus in Argentina that lithium is open for business, though environmental challenges exist. Chile has a more structured system and is awaiting government plans to possibly create a state company. 

In Argentina and Chile Scholz made three important points.

First, Germany wants to advance its energy transition away from fossil fuels to cleaner energy, which means greater use of lithium batteries for EVs and other technological goods and public utilities. Buenos Aires and Santiago are imports of Berlin’s new energy map. 

Second, Germany wants to make certain that it secures the right energy sources so end its dependency on Russian fossil fuel and reduce Chinese leverage in lithium batteries. For Germany, the Russo-Ukraine War that erupted in February 2022 has been highly disruptive, as it upended its considerable dependence on Russia for oil, natural gas, and coal. In addition, the shutdown of the country’s nuclear industry and slower-than-expected alternative fuel programs left the Scholz government scrambling to secure new sources of energy, with the Chancellor and other high-ranking officials visiting a number of Middle Eastern and African countries to secure supplies of natural gas and oil. 

Third, Germany is very open to the idea of allowing local value being added to the production process. In Buenos Aires, he stated, “The question is: Can one not move the processing of these materials, which creates thousands of jobs, to those countries where these materials come from?” A country does not have to have a free trade agreement with Germany to develop the trade in lithium and/or batteries, which is the U.S. policy under the Inflation Reduction Act (IRA) passed in 2022. Under the IRA, it will be much easier to export Chilean lithium to the United States than for Argentina to do so. However, the United States, like Germany, faces limitations on its supply of lithium, as well as considerable environmental hurdles (the Biden administration has killed several recent mining deals related to clean energy).

German Lessons

As Chancellor Scholz met with Argentina’s President Alberto Fernandez in Buenos Aires and later his Chilean counterpart Gabriel Boric in Santiago, thought must have been given as to when was the last time a U.S. president ventured into these countries to help generate business and uphold national energy security. President Donald Trump was the last U.S. leader to visit Argentina in 2018, attending the G20 meeting. President Barack Obama was the last U.S. leader to visit Chile in 2011. No U.S. president has visited Bolivia, and Washington has lacked an ambassador in La Paz since 2008, with its business being conducted by the chargé d’affaires. Germany has an ambassador in each country; so does China.

The main lesson from Scholz’s trip to the lithium triangle is quite elementary: if you want to play, you have to show up. This is something that President Joe Biden and his foreign policy and energy teams need to think harder about. 

Dr. Scott B. MacDonald is the Chief Economist for Smith’s Research & Gradings, a Fellow with the Caribbean Policy Consortium, and a Research fellow with Global Americans. Prior to those positions, he worked for the Office of the Comptroller of the Currency, Credit Suisse, Donaldson, Lufkin and Jenrette, KWR International, and Mitsubishi Corporation. His most recent book is The New Cold War, China and the Caribbean (Palgrave Macmillan 2022).

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