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An electric vehicle charges in Ottawa, on July 13.Sean Kilpatrick/The Canadian Press

Tesla, the top electric vehicle maker, and Glencore, the mining company that is the world’s largest commodities trader, came up with an idea two or three years ago that would resurrect the spirit of Henry Ford: Tesla would buy a big stake in Glencore, a deal that would replicate the Ford Motor Company’s model of owning its supply chain.

The negotiations, which were acknowledged by neither side but mentioned in media reports, ultimately went nowhere for unknown reasons. Perhaps Tesla boss Elon Musk did not fancy himself a miner, a business alien to his tech fanaticism. Perhaps he considered the price excessive or realized that his ego would ensure clashes with Ivan Glasenberg, the hard-charging boss of Glencore at the time.

Whatever the case, Tesla’s exit from the deal now looks like a mistake – a big one.

Tesla would have won in several ways if it had bought, say, 20 per cent of Glencore. Its investment would have tripled in value, since mining stocks have been on fire during a sensational commodities rally partly driven by rising EV sales; it could have used Glencore’s ample dividend stream (the yield is 6.4 per cent) to help purchase whatever it needed to make its vehicles; and, crucially, it could have locked up the supply of some of the materials essential for battery production, especially cobalt.

It is not known whether Mr. Musk actually regrets taking a pass on Glencore or another mining investment, but a year ago he tweeted: “Price of lithium has gone to insane levels! Tesla might actually have to get into mining & refining at scale, unless costs improve.”

Other automakers, desperate to find reliable, long-term supplies of EV metals – cobalt, nickel, copper, lithium and rare earths – may try to go where Tesla didn’t.

At the start of the year, General Motors said it would invest US$650-million in Lithium Americas, which is developing a lithium mine in Nevada. This week, Volkswagen, which is building a battery factory in Southern Ontario, revealed it will invest in mines as part of its strategy to become a battery powerhouse. “The bottleneck for raw material is mining capacity,” Thomas Schmall, the VW management board member in charge of technology, told Reuters. “That’s why we need to invest in mines directly.”

Are EV makers about to embrace the full integration model, where they own or control their entire supply chain?

Forget it. They have lost that battle already – to China. If Tesla was a decade ahead of the pack in foreseeing the EV revolution, China was a decade ahead in foreseeing the EV metals revolution, moving aggressively to lock up supplies of cobalt and nickel, among other metals, in Africa and Asia.

The auto industry apparently wants to come full circle, replicating what Ford did a century ago to hedge against supply line bottlenecks and volatile pricing, which can destroy profit margins and slow – even halt – production. To feed his factories, Ford bought a railroad, 16 coal mines and almost 300,000 hectares of timberland. He also owned a sawmill (wood was a big component of cars back then), blast furnaces to make iron, glassworks and even rubber plantations.

The integrated system was unravelled in the postwar years. Today, cars are assembled from parts mostly made by other companies. The whole manufacturing process is outsourced in some cases (Canada’s Magna International, through Austria’s Magna Steyr, makes some high-end models for BMW, Mercedes and Jaguar).

China’s domination of the battery materials market is formidable and possibly unassailable, leaving EV makers scouring the planet for metals as they were for microchips during the pandemic, when supply lines broke down. Barring a miraculous technological breakthrough that would dispense with cobalt and other existing battery ingredients, the hunt for these materials could take on existential dimensions. The companies that lock up long-term, reliable and fairly inexpensive supplies will win the global EV battle.

Car companies are serious about buying mines because fixed-priced contracts for metals are exceedingly rare. Mining investors fear getting locked into below-market supply deals if prices rise. But where to buy?

This is where it gets complicated. The Democratic Republic of the Congo supplies 70 per cent of the world’s cobalt, and the main mines there are owned by Glencore and China’s CMOC (formerly China Molybdenum Co.). While Glencore may still be open to an investment from a car company, the price today would be stratospheric. CMOC would never sell all or part of its operations to a Western EV maker. The company is a strategic supplier to China’s battery makers.

Ditto nickel. Indonesia is the world’s biggest nickel producer, and China is busy locking up vast amounts of supplies there and building smelters. China’s Tsingshan Holding Group has become the world’s largest producer of nickel and stainless steel. China is also going after lithium in Chile. These supply gushers have helped make China’s CATL the world’s biggest lithium-ion battery maker; domestic rival BYD, which also makes EVs, is the second-biggest. Together they control more than half the global market for EV batteries.

You can see where this is going. Western EV makers might be able to buy a few small mines or take stakes in bigger mining groups such as Glencore, BHP or Vale. But Chinese battery makers figured out this game long ago and have locked up huge amounts of nickel, cobalt and other EV metals. Inevitably, the next step for China is to not just build batteries but entire EVs, then flood the Western market with them. Oh, wait, it has already started to do that too.