BYD has scrapped plans to build a lithium iron phosphate (LFP) cathode factory in Chile due to a sharp drop in global lithium prices, affecting the project’s profitability. Chile, the world’s second-largest lithium producer, had been a site for multi-million-dollar ventures by BYD and Tsingshan Group.
Reuters reports that Chile’s National Economic Development Agency (Corfo) confirmed BYD and Tsingshan withdrew their investments due to the sharp decline in lithium prices. Tsingshan halted a 233 million USD project aimed at producing 120,000 tons of LFP annually, while BYD, planning a 290 million USD investment for a 50,000-ton LFP cathode factory, notified officials of its withdrawal in January.
Lithium carbonate prices, driven by the electric vehicle boom, peaked at 590,000 CNY (81,500 USD) per ton in November 2022 but have since fallen below 70,000 CNY (about 9,700 USD) per ton. As key components in LFP batteries, the prices of lithium carbonate and iron phosphate heavily impact investment decisions in the sector.
Despite securing lithium mining rights from the Chilean government in January 2022 and a priority supply deal for lithium carbonate in April 2023, BYD has reevaluated its production facility plans due to the price collapse.
BYD’s investment U-turn highlights the impact of short-term resource price volatility on supply chain strategies and signals roadblocks for Chinese battery manufacturers’ global expansion plans.
BYD’s plan to create a vertically integrated supply chain in Chile, from raw materials to battery production, has likely been disrupted by the lithium price crash. The company may now find it more cost-effective to use its existing Chinese facilities. This shift highlights the need for battery makers to reduce overreliance on foreign resources and adopt more flexible supply strategies.
If lithium prices stabilize and rebound, BYD and competitors may reconsider investments in lithium-rich nations like Chile or Argentina. The near-term focus will likely shift to maximizing existing processing capabilities rather than pursuing capital-intensive mine-to-battery strategies.
BYD may need to adjust its export strategy for low-cost LFP models. Challenges in securing affordable raw materials could affect the price competitiveness of its electric vehicles in global markets.
