Chile is considering nationalising its lithium mines to take advantage of the growing shift towards electric cars.

The country is home to some of the world’s largest lithium reserves and sees this move as an opportunity to cash in on the increasing demand for lithium batteries.

The government is currently evaluating different options, including taking control of the mines, to ensure it maximises the benefits for the country. This move has been met with some opposition from mining companies, who argue that nationalisation could harm the industry and discourage investment.

This move comes after Mexico’s decision last year to do the same, as car manufacturers compete for limited supplies of the metal.

Chile is the world’s second-largest producer of lithium and has the third-largest reserves, making the automotive industry vulnerable to higher prices, analysts warn. Although other metals can be used to make batteries for cars, lithium is the preferred technology for today’s models and is expected to remain so for some time.

As demand for the metal grows, developing new mines can take years. President Gabriel Boric stated that the decision would enable Chile to retain more of the wealth generated by lithium mining and protect its environment. He said that this move was the best chance for the country to transition to a sustainable and developed economy and that they could not afford to miss this opportunity.

The government has reassured that existing contracts with companies will be honoured, including some that run until the 2040s. Albemarle and SQM, two of the largest lithium producers that supply Tesla and Korean battery maker LG, are among the beneficiaries. However, analysts warn that this move could result in reduced investment in the country, with foreign firms potentially prioritising Australia instead.

According to Harsh Bardia, an analyst at National Australia Bank, policy stability is crucial for any mining project, and foreign firms are likely to prioritise investing in mining-friendly jurisdictions like Australia.

The move to nationalise Chile’s lithium-mining industry could be viewed as a renationalisation of some lithium interests, as SQM was state-controlled until its privatisation in 1983 under dictator Augusto Pinochet. Julio Ponce Lerou, his son-in-law, was appointed as the president of the organisation overseeing the sale, and he now controls a 17% stake in the company, estimated to be worth about $3.4bn (£2.7bn) by Forbes.

While demand for lithium is expected to rise significantly in the long term as car manufacturers switch to producing battery-powered cars, the current lull in demand is causing Tesla and other manufacturers to reduce the prices of their vehicles.

In related news, Ford CEO Jim Farley recently commented that a competitive electric car market has forced his company to rethink its vehicle design as it competes with “beautiful” Chinese models, adding that technology and services will be the key differentiators going forward.

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