https://www.barrons.com/articles/tesla-elon-musk-lithium-6b5304f4

Lithium is the new oil—and the U.S. doesn’t produce nearly as much of the silvery metal as it needs. That’s a problem down the road and an issue Tesla TSLA +1.73% CEO Elon Musk might not be ready for.

EV demand is growing now that battery costs have fallen to the point where EVs can compete with gasoline-powered cars. All-electric and plug-in hybrid vehicles accounted for roughly 10% of global light vehicle sales in 2022. Based on announced spending plans from auto makers, penetration could be as high as 50% by the end of the decade.

More EVs mean more lithium, the key component in the lithium-ion batteries that power electric vehicles. Global lithium production expanded roughly fourfold over the past decade. Production is expected to grow at least fivefold over the coming 10 years.

That growth has auto makers feeling a little nervous and looking to ensure adequate supply in one way or another. Tesla (ticker: TSLA), for its part, is more focused on lithium refining than on lithium mining.

“I would like to, once again, urge entrepreneurs to enter the lithium refining business. The mining is relatively easy. The refining is much harder,” said Musk on Tesla’s second-quarter earnings call in July 2022. “It is basically like minting money right now.”

Musk believes refining is the key constraint on EV growth—and he’s taking his own advice. Tesla is building a lithium refinery in Corpus Christi, Texas.

It isn’t a bad idea. Today, China dominates lithium refining with about 60% of the global market. Foreign production has auto makers paying higher costs to import batteries and battery materials. It has the U.S. government worrying about the security of supply for critical materials, too.

Lithium is mentioned more than 300 times in a 2021 White House report about strengthening U.S. manufacturing supply chains. The need to strengthen the domestic extraction, refining, and recycling of lithium is a focus of the report, said an Energy Department representative in an email.

China refines most of the world’s lithium into lithium carbonate and lithium hydroxide—the two main lithium products that go into EV batteries. But it doesn’t mine the most lithium raw material.

Mining is concentrated in South America and Australia. The U.S. mined essentially no lithium in 2022. Canada mined about 500 metric tons.

That needs to change. Where the lithium ores come from might be as big a risk as China’s current dominance of lithium refining.

“Musk is solving the wrong problem. We need more mining capacity,” said Lithium Americas LAC +1.14% (LAC) CEO Jonathan Evans. “I remember the Arab oil embargo in the U.S.” when there was plenty of refining capacity, but not enough oil to refine.

In 1973, during the Arab-Israeli war, the Organization of the Petroleum Exporting Countries, or OPEC, imposed an oil embargo against the U.S. in retaliation for supplying Israel’s military.

At the time, American oil demand was roughly 800 million metric tons of oil, according to BP BP +1.79% (BP). Refining capacity was roughly 700 million metric tons and production capacity was roughly 500 million metric tons. U.S. production wasn’t enough to keep refineries full.

Today, the U.S. still has more refining capacity than production capacity. And it still produces less oil than it consumes.

That’s the problem Lithium Americas is trying to solve. It owns 50% of a lithium mine in Argentina with China’s Ganfeng Lithium (002460. China). It is also building a lithium mine and refinery in Nevada that is designed to produce 40,000 metric tons a year starting in 2026.

Eventually, the Nevada complex should produce 80,000 metric tons a year, enough to provide material for roughly 2.5 million all-electric vehicles. About 810,000 battery-electric vehicles were sold in the U.S. in 2022. Tesla sold about 522,000 of those.

The U.S. has lithium resources in North Carolina, Arkansas, and California, as well as Nevada. Piedmont Lithium PLL –3.15% (PLL), another start-up miner, is developing a mine and lithium refinery in North Carolina.

“If we develop [refining] capacity but can’t secure the supply of lithium from key North American [mining] resources…we will continue to rely upon foreign nations for our energy resources,” said a Piedmont spokesperson in an emailed statement.

The North Carolina complex should produce about 30,000 metric tons of lithium hydroxide a year from materials mined at that site beginning in late 2026. Piedmont also plans to refine another 30,000 metric tons of lithium ores a year at a facility in Tennessee. The plan is to obtain the material for the Tennessee facility from other lithium miners.

Those are plans from two start-ups. Albemarle ALB +2.26% (ALB), the world’s largest lithium miner, is doubling capacity at its Silver Peak, Nevada mine to 10,000 metric tons of refined product a year. That operation is based on evaporating salts from lithium brines.

Albemarle stock is down 2% this year, but shares are up 124% over the past five years. In comparison, the S&P 500 is up 3% this year and up about 45% over the past five years. The Dow Jones Industrial Average is down about 3% since Jan. 1, but up about 30% over the past five years.

Lithium Americas and Piedmont shares are up 231% and 341%, respectively, over the past five years—buoyed by higher lithium prices that have risen about 100% over the same span.

The U.S. will need all types of resources to meet demand. Winning the race for raw materials will be a big part of winning the race to build EVs.