Mexico’s President Andrés Manuel López Obrador published two decrees in the official gazette (DOF) on 18 February. Both decrees were related to Mexico’s fledgling lithium industry and appeared designed to advance López Obrador’s goal of achieving nationalised lithium production. However, uncertainties remain around the exact implications of the decrees and the feasibility of producing lithium from Mexico’s hard-to-extract reserves.
The first decree established a new lithium mining reserve of some 235,000 hectares (ha), known as Li-MX 1, in seven municipalities in Sonora state (Arivechi, Divisadero, Granados, Huásabas, Nácori Chico, Sahuaripa, and Bacadéhuachi). The second decree made the energy ministry (Sener) responsible for ensuring Li-MX 1 is properly established. It also instructed Sener to carry out actions to comply with the provisions of two previous lithium decrees, passed in April and August 2022. These decrees amended the federal mining law to bring the lithium industry under state control and created a state-run lithium company called Litio para México, or LitioMx, thus effectively nationalising the exploration, exploitation, and production of the mineral.
The two decrees issued in 2022 first introduced restrictions for the exploitation of lithium and suspended new concessions, with the aim of taking advantage of growing demand for electric vehicle (EV) batteries, for which lithium is a key component. The decree issued in August 2022 also established that the new company would be open to partnerships with private and public entities, something that was reiterated by Sonora’s governor Alfonso Durazo, who accompanied López Obrador during the announcement made in Sonora.
Pablo Taddei, director general of LitioMx, has said that any joint ventures established between the company and third parties would need to provide the state company with a majority stake. However, it remains unclear what type of entities would be permitted to enter into such a partnership with LitioMx, as the decrees do not specify whether they are businesses or other organisations. The decrees also fail to mention how exactly private players could participate in the sector. While López Obrador has said that existing lithium mining and exploration concessions held by foreign companies will remain safe, he has also said that lithium belongs to the nation, suggesting that only LitioMx will have access to the mineral. Indeed, the February decree said that “no mining activity can be carried out related to lithium” within the new reserve. Crucially, however, Mexico’s government and, by extension, LitioMx lack the know-how, technology, and experience to profit from the country’s lithium potential.
Specialists have said that the implications of the decree are unclear. Local lawyer Fernando Quesada, an expert on extractive industries in Mexico, told national daily Reforma in February that it was contradictory to declare that the new lithium reserve was public while also stating that existing, privately held concessions would be respected. In Quesada’s view, the government could seek - or force - a negotiation with the Chinese lithium miner and battery manufacturer Ganfeng, which owns the most developed lithium project in the country through its holdings in lithium companies Bacanora Lithium and Sonora Lithium.
Another lawyer, Daniel Sánchez from international law firm Baker McKenzie, told Mexican newspaper Expansión that it was not clear if the decree actually represented an expropriation, meaning it takes away the ownership or the extraction rights from private entities settled in the area, or whether it means that the state will exploit the reserves itself. Indeed, some observers consider that the ambiguity is deliberate while the government continues to work on defining how lithium extraction and related activities will be carried out in practice.
The government’s interest in controlling lithium reserves is driven by the increasing demand for electric mobility. Indeed, López Obrador highlighted the role Mexico can play within broader North American plans in this area, aiming to produce lithium batteries for vehicle manufacturers in southern US states. In 2021, the US government of President Joe Biden established as a target that, by 2030, 50% of new vehicles sold in the US should be electric. As a result, demand for lithium, graphite, and copper – all minerals found in Sonora, according to Durazo – is likely to increase. However, Viviana Patino, a researcher at local think tank México Evalúa, points out that without a mobility strategy and a long-term plan, there will be little to gain from the nationalisation of lithium. Crucially, in order to take advantage of electric mobility, Mexico needs much more than just lithium resources. It requires the capacity to locate, extract, transform, and commercialise lithium. In Mexico, lithium reserves are found in clay deposits, from where it is harder - and much more expensive - to extract than in other countries where it is found in rocks or brine deposits.
Nevertheless, the government remains adamant about the appeal of the country’s lithium potential to attract investment. Indeed, on 28 February, López Obrador confirmed that after a telephone conversation with Elon Musk, the owner of US EV manufacturer Tesla, it was decided that the company would invest in Mexico, establishing a manufacturing plant in Monterrey (Nuevo León state). López Obrador had previously stated that Tesla would not be allowed to settle in the state due to limited water resources. However, the government stated that Tesla has agreed to use recycled water rather than resources for human consumption. Nuevo León governor Samuel García, of the opposition Movimiento Ciudadano (MC) party, had previously said that while the state can provide 3,000 litres of treated water per second, Tesla would need less than 100 litres per second.
Labour costs and proximity are likely to have been key factors for the company’s decision to invest in the country, more than its lithium resources. Not only does Nuevo León have a well-trained labour force, but it is a good location for the plant given that Tesla opened a new factory in Austin, Texas, in April 2022, across the border from Nuevo León, some 600km from Monterrey. Moreover, Nuevo León was undoubtedly more attractive than other parts of the country - the government has tried to encourage foreign investors to settle in less developed southern regions - as it already has well established export infrastructure for vehicles and auto-parts. Indeed, in April 2022, García offered to provide a preferential lane for Tesla at the Puente Colombia border crossing (the modernisation plans for the crossing include increasing it from three to five lanes and providing more security personnel). The plans were formally presented to US authorities on 2 February.
Production of EVs in Mexico is likely to remain mostly for export in the short-to-medium term. According to a report by the United Nation (UN)’s environment programme released in 2021, despite significant progress made in recent years regarding the use of hybrid and electric vehicles in Latin America, there is still insufficient infrastructure to charge vehicles and few incentives to increase the acquisition of EVs by both individuals and institutional and commercial fleets.
Lithium reserves
Mexico’s lithium reserves are considered significant - they are estimated to be the world’s 10th largest. However, at an estimated 1.7m tonnes (t), they are but a fraction of Bolivia’s 21m t, according to figures from the World Bank. Importantly, although there are eight regions in the country where it is thought there could be lithium, it is only in this area of Sonora where it is certain.