With mines, ports, and factories, China is set to dominate Latin America’s electric vehicle industry

Business & Technology

The region has some of the largest mineral reserves for this industry, including copper and lithium. Chinese companies also see opportunities in the local vehicle market.

Illustration for The China Project by Alex Santafé

Raw materials are crucial to the electric vehicle (EV) industry, and China is already way ahead of other countries in securing access to the metals needed for batteries and other components. Latin America holds the largest reserves of some important minerals for the energy transition, including lithium and copper, and Beijing aims to ensure a steady supply with a huge infrastructure project in Chancay port, on the Pacific coast of Peru.

Located 60 kilometers (37 miles) from the Peruvian capital Lima, Chancay is a small city of under 100,000 people with a modest port. However, Chinese investment of around $3.6 billion is promising to change that. This mega project by the Chinese firm COSCO Shipping Ports aims to transform the South American shipping network and make Chancay a hub for Chinese containerized exports, in a so-called Shanghai-Chancay connection.

Peru will occupy the presidency of the Asia-Pacific Economic Cooperation (APEC) forum in 2024. The expectation is that the group’s summit in Lima in April 2024 that will host many world leaders, including Xí Jìnpíng 习近平, will coincide with the Chancay’s port inauguration.

Omar Narrea, a researcher from the Center for China and Asia-Pacific Studies at Universidad del Pacífico in Lima, affirms the project is going to be a hub that will facilitate the shipment of goods not only from Peru but also from other countries in the region more quickly to China. “The project is part of a conception of generating a new economic geography and is part of the New Silk Road,” he told The China Project.

In Narrea’s view, Chancay could help Chile and Bolivia export their lithium to Asia. Many of Chile’s mines are located in the country’s north, and the port will give easier access to Asia than the existing southern ports (Chile is 4,270 kilometers or 2,653 miles long north-to-south). Bolivia is a landlocked country, and an enlarged deepwater port at Chancay would be a boost for trade.

According to the Financial Times, the project has caused concerns in the current U.S.administration, and Washington raised the issue with Lima directly. “On the big geostrategic issues, the Peruvian government is not sufficiently focused on analyzing the benefits and threats to the country,” an official told the newspaper. However, Latin American governments simply do not see China through the same lens as the U.S.

A new Middle East for the vehicle industry?

As the top producer of lithium and several other materials that are integral to EV battery production, Latin America has and will continue to play a fundamental role in the the extraction and potentially processing of these metals, according to Margaret Myers, director of the Asia and Latin America Program at the Inter-American Dialogue

According to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), the so-called Lithium Triangle, which includes Chile, Bolivia, and Argentina, has 56% of global reserves. In addition, there is lithium in smaller quantities in Brazil, Mexico, and Peru, which raises the regional supply to nearly 60% of global reserves.

“China has sought to ensure a prominent role in lithium industries throughout the region through different mechanisms,” affirms Myers. She points to movements in the Chilean market from Tianqi Lithium, a Sichuan-based company that controls an important share of this global mineral production.

“Chinese companies and other actors have been working for years at the provincial level in Argentina to establish valuable networks with those responsible for resource exploration and lithium industry guidelines,” she adds.

In Bolivia, a Chinese consortium led by battery giant Contemporary Amperex Technology (CATL) confirmed in July that it will invest $1.4 billion to build lithium extraction plants.

In the copper industry, a mineral that is also important for solar panels, a key part of China’s energy transition, the International Energy Agency (IEA) affirms that the share of global exploration expenditure in Latin America has gone up from 35% to 45% in the past decade, indicating the potential for further production increases.

A key country for that supply is Peru, where China has made several investments in mining, including logistics chains. In the last 11 years, this amount has totalled around $15 billion, according to the Peruvian government, which says that the country provides 27% of all the copper used in by China.

Narrea says that in the case of Las Bambas, a mine in the country’s center, there was not just the development of mining, but also investments in a railway and even in the port of Mataraní to upgrade logistic chains. For more than 10 years, China has had a Free Trade Agreement with Peru, which was very important in boosting the country’s exports to Asia, according to Narrea.

The market is as important as the minerals. Aside from being a source of raw materials, Beijing also sees Latin America as a potential market. In the last few months, Chinese government entities and companies have made important investments in the region in plants for EVs and batteries that will help expand the consumer market for the Chinese auto industry.

In Brazil, the region’s biggest car market, Chinese electric car giant BYD is leading sales. In August, there were 1,167 registrations of EVs in Brazil, including 656 units from BYD — a number six times greater than that of second place, the Swedish company Volvo — according to data released by the Brazilian Electric Vehicle Association. Those small numbers look set to grow rapidly.

According to Bill Russo, Founder and CEO of Automobility Limited, a Shanghai-based consultancy for the auto market, Chinese carmakers are prioritizing sales in regions such as Latin America, which seek affordable alternatives to that being offered by the American and European automakers. In his view, Chinese companies will prioritize regions with reciprocal benefits such as access to raw materials.

China has already established itself in Brazil with two electric car manufacturers: BYD and Great Wall Motors. A BYD plant in Camaçari, in the Brazilian northeast, has an investment of around $600 million, and makes use of existing factory buildings from Ford, which decided to close this operation. It will be the first BYD plant outside Asia.

Roberto Abdenur is a Brazilian diplomat who was ambassador to China and served in the U.S. He expects Brazil to become an important platform for Chinese EV production and a hub for exports to other Latin American countries, a position that the country plays in the carmaker’s traditional industry.

A challenge for this sector in Latin America is pricing: EVs cost many times more than regular vehicles, but the local population has an average income much lower than in the U.S. and Europe. However, Russo believes China will be able to deliver affordability because it can scale the highest-cost component of EVs: the batteries.

“Chinese EV makers will bring their solutions to the global markets that are seeking affordable electric alternatives to what is being offered by legacy automakers from the U.S., Europe, Japan, and Korea,” he argued.

Domestic and foreign reactions

The domination of Latin American resources by foreign powers has long been a sensitive issue, and it is often exploited by politicians for electoral reasons.

Chilean President Gabriel Boric mentioned the nationalization of the country’s minerals in his electoral campaign, and former Peruvian President Pedro Castillo, a radical leftist, made many similar promises. In Argentina and Bolivia, some leaders have enacted such protectionist plans, for example, the nationalization of Bolivian oil and gas by former President Evo Morales in 2006, which scared foreign companies operating in the region.

In April, Bolivian President Luis Arce said he would be willing to jointly design a lithium policy with other Latin American countries to benefit their economies. “We must be united in the market, in a sovereign manner, with prices that benefit our economies, and one of the ways, already proposed by (Mexico’s) President Andres Manuel Lopez Obrador, is to think of a kind of lithium OPEC,” Arce said in a speech .

The objective is to position Bolivia, Chile, Argentina and Peru “as potential promoters of new forms of energy storage that will make it possible to overcome the use of fossil fuels,” said the President.

For Narrea, there are different instances. “I do not think that the nationalization proposals will advance in Peru, the conditions are not the same as in countries like Bolivia and Argentina,” he argues.

“However, there are social demands that can generate conflicts and even an anti-China outlook,” Norrea said. Investments to diversify regional economies and good use of royalties are a pending issue, and this must somehow reach the population, he believes. In the last few years, Peruvian copper production has had many problems, especially strikes and blockades that included Las Bambas. “A good successful mining operation depends on the good distribution of resources, which avoids conflict,” the researcher concluded.

Abdenur also expects investments and competition from the U.S., especially in Brazil. But “pressurizing Brazil to avoid China would be a grave mistake. It would probably be rejected,” he said. The former ambassador remembers that the Trump administration tried restricting Huawei in the region, but he does not believe that Biden’s government is going in the same way. “The relations are better right now,” he argues.