Chile signs deal with USA to make lithium IRA-compliant
As Bloomberg reports, a Chilean delegation led by Economics Minister Nicolas Grau is said to have negotiated and concluded a corresponding agreement with the US government. According to the agreement, lithium products manufactured in Chile that are used in the cathodes of electric car batteries are to fulfil the US procurement requirements for use in electric vehicles.
To qualify for half of the tax credit ($3,750), 40 per cent of the battery’s critical minerals must be extracted, processed or recovered in the US or in a country with which the US has a free trade agreement. This level will gradually increase to 80 per cent by 2027 – specifically by ten percentage points each year, so 50 per cent will already apply by 2024. You can read more details in this article.
This is a hugely important step for the South American country, considering Chile has the largest lithium reserves in the world. The USA is currently investing heavily in electromobility and supply chains, albeit with a number of stipulations regarding value creation and the origin of the raw materials. With the agreement that e-cars with cathodes from Chile are also eligible for subsidies in the USA, investments in the country’s lithium sector are becoming more attractive.
The situation was previously unclear when it came to cathodes in particular: Chilean lithium, which is processed into cathode materials by US companies, was already eligible for IRA funding. In the case of cathodes produced in Chile, which are then imported into the USA, there has been less clarity to date. However, the agreement is intended to regulate precisely this issue.
The Chilean government is trying to benefit from the growing demand not only for lithium mining but also for the further processing of the material. It has therefore offered preferential prices to companies that produce lithium iron phosphate cathode materials in Chile. Against this backdrop, two Chinese companies have already agreed to build such plants in Chile, as Bloomberg writes. This is notable, as the US government wants to keep Chinese manufacturers out of the US market with the origin requirements.
However, it is not just about Chinese companies: According to the report, American and especially South Korean companies are also interested in investing in Chile. Hyundai and Kia only concluded a long-term purchase agreement with the Chilean mining company SQM in June. Cell manufacturers LGES and SK On also source some of their lithium from SQM in Chile. Cathode materials from Korean companies that are processed in Chile and shipped to the USA would qualify for IRA funding.
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