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EV battery betting in Saudi Arabia is a warning

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The oil capital of the world wants to go electric and become clean. It does this by getting its hands on critical minerals for batteries and taking a stake in the electric vehicle supply chain. That should leave countries and companies prone to announcing ambitious plans but doing little to deliver them on high alert.

As shortages loom and companies scramble to secure prohibitively expensive resources in a bid to ramp up production, Saudi Arabia has tapped lithium miners and battery makers to put in place of operations, thereby filling a critical gap. The country wants 30% of the cars on the roads of its capital to be electric by the end of this decade.

Australian battery chemicals and technology company EV Metals Group Plc said it was launching the development of its processing plants for lithium hydroxide monohydrate – a key compound for batteries – furthering its plans in the kingdom. The company has been working with its partners over the past two years on feasibility studies, and the facility now plans to produce high-quality chemicals for power supply cathode materials, an important component on which EV makers are trying to get their hands on it. Another Australian company, Avass Group, said it signed an agreement in February to jointly manufacture electric vehicles and lithium batteries with the country.

Alongside these commitments, Saudi Arabia’s Ministry of Industry and Mineral Resources announced $6 billion projects as part of a broader effort to boost its mining industry. It also processes nearly 150 exploration permit applications from foreign companies. The government has signed a deal to buy up to 100,000 electric vehicles over 10 years from Lucid Group Inc, an electric vehicle maker in which the country’s sovereign wealth fund has a stake. It is allocating more than $3 billion in funding and incentives to set up the factory over the next decade and a half. Foxconn Technology Group, the largest assembler of iPhones, was in talks to establish a $9 billion factory that could make chips and parts for electric vehicles.

Establishing manufacturing and processing facilities within its borders is a wise and prescient decision. Not only will this eventually help reduce costs, but more immediately – and importantly – will ensure that the nation becomes a key part of the global electric vehicle value chain. So far, aside from China and its giant battery makers, few others have been able to achieve manufacturing scale.

Saudi Arabia has the resources, the capital and the belief – and that is exactly what many companies and countries lack. It is now using its oil price and demand advantage to make a transition that others are struggling with. Its geographical position adds to this, allowing it to supply Europe and obtain resources from China and Australia. The kingdom has begun rapidly assessing and issuing mining licenses to exploit its mineral resources, with an estimated potential value of $1.3 trillion. Compare that to the United States, where permits are suspended and approvals for such mining plans have fallen to multi-year lows.

Meanwhile, it could also develop its own resources: the lithium in the salty brine byproduct around its oilfields is becoming a key source for the metal as the supply shortfall widens. Researchers are currently working on economically efficient ways to remove and convert lithium into a form pure enough to use in batteries.

Saudi Arabia’s advance in battery materials, as shortages drive up costs and companies battle to tighten green regulations to move forward, turns what poses a huge threat to its economy into a long-term benefit.

It is almost too late for the United States and parts of Europe to catch up. Other places in the Middle East are also looking to shift from their economic dependence on oil to greener technology. Abu Dhabi recently contracted a lithium company to build facilities in the Khalifa Industrial Zone to mine the metal and recover valuable by-products from lithium-mica and phosphate minerals.

So it should come as no surprise that companies and nations will soon end up trading their reliance on Saudi oil for critical battery materials, much like they had to with China.

More from Bloomberg Opinion:

• What happened to the US electric vehicle supply chain? : Anjani Trivedi

• Saudi Arabia reveals that oil production is near its ceiling: Javier Blas

• What falling oil prices mean for the climate: David Fickling

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.

More stories like this are available at bloomberg.com/opinion