Mexico Might Be Focusing on the Wrong Lithium Segment

The Mexican government is misdirecting its efforts by focusing on lithium extraction rather than prioritizing its production of batteries, according to a study by BloombergNEF. In addition, Mexico must overcome several barriers if it wants to be part of the lithium boom.

The rising demand for electric cars has increased the value of lithium as the metal of the future. However, experts point out that Mexico’s creation of the state-owned company LithiumMX, which aims to produce the resource, was misguided, as the real profit from the metal can be gained through battery production.

"The exploitation of lithium may be difficult in Mexico. We are more encouraged by the opportunity of battery cell production. We are not overly optimistic that Mexico will develop a large capacity [for lithium carbonate production], we believe that nationalization is a barrier," said James Ellis, Research Director, BloombergNEF.

Mexico has strong potential for battery production due to its location and manufacturing prices. However, because there are currently no manufacturing plants in the country. BloombergNEF ranked Mexico 27th out of 30 in competitiveness as a lithium battery producer.

BloombergNEF noted that two barriers are affecting the country's competitiveness: declining investment in renewable energy and government intervention in the industry. "There are looming requirements for the government to be a majority shareholder in all projects and this appears to leave an unclear role for the private sector,” said Ellis.

Moreover, most of the lithium reserves in Mexico are found in clay deposits that are expensive and difficult to access, reported MBN. “Mexico's only possible lithium source to go into production is a clay type. No country in the world has produced any lithium from such rocks. The company investing in Sonora has published technical reports that state that lithium can be separated from clay and, in a second step, converted into lithium carbonate. The development of the mine and construction of a chemical plant will require over US$400 million in investment,” Armando Alatorre, President of Mexico’s College of Mining Engineers, Metallurgists and Geologists, told MBN.

While the Mexican government has announced the Sonora Plan for power production and battery manufacturing, BloombergNEF believes the country will take a long time to develop the industry and may not be able to achieve production until the lithium boom is over.

However, if the government does overcome these issues, Mexico has great opportunities. BloombergNEF noted that battery production could cost 37% less in Mexico compared to the US. "Mexico's biggest savings are related to labor and manufacturing costs, which include electricity and water. Mexico could also benefit from cooperation as the US-Mexico-Canada and US-Mexico supply chains change. The free trade agreement favors local production to meet growing regional demand for electric vehicles," noted the report.