Via the Center for Strategic and International Studies (CSIS), a report on how

Countries in Latin America and the Caribbean (LAC) are navigating a new geopolitical moment. Some LAC countries are benefitting from increased access to low-cost, high-quality electric vehicles (EVs) and new investment throughout the value chain from China that can help meet governments’ climate and economic objectives. However, this comes with risks, as dependencies on Beijing may be exacerbated at a time when China’s economy is underperforming and geopolitical competition with the United States is on the rise. Washington should find new ways to engage with the region to find solutions that address local demands and simultaneously mitigate U.S. geopolitical risk.

Introduction

China’s external economic engagement is evolving rapidly and is reshaping its relationship with countries in the developing world, including in LAC. Beijing’s continued commitment to industrial policy is causing increasing tensions with countries concerned about overcapacity and a second “China shock.” However, China’s growing exports and nascent overseas production of high-tech green products such as EVs are changing the country’s offerings to regions such as LAC, which exports many critical raw materials, desires more value-added manufacturing investment, seeks to address climate change, and imports an increasing number of vehicles from China.

Growing tensions between the United States and China have raised concerns globally, but some countries in LAC see great power competition as an opportunity to position themselves as new nodes in this evolving trade and investment environment. Given LAC’s growing importance to the economic security strategy of the United States, the changing relationship of the region with China is worth analyzing more closely—especially with respect to the EV supply chain.

Beijing’s high-profile Belt and Road Initiative (BRI) has shaped its relations with the LAC region for much of the last decade, but this is rapidly changing as the number of new Chinese-backed large-scale infrastructure projects declines. Instead, Chinese foreign direct investment (FDI) is becoming more common in the region. Although China’s investments remain concentrated in the mining segment of the supply chain, there are signs of increasing interest from Chinese firms to expand their international presence in refining, assembly, and manufacturing, particularly in the EV supply chain. If this trend holds, it would represent a significant shift in Beijing’s offerings to potential partners in the developing world. Crucially for LAC, this would allow China to answer a growing regional call for investment in higher-value segments of the local supply chain while also helping meet governments’ climate goals. LAC is increasingly a market for Chinese EVs as well, and although much smaller than Europe and Asia, it is growing quickly (see Figure 1).

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There are several reasons why Chinese firms are considering investments beyond mining in LAC, and why the EV industry appears to be at the forefront of this trend. China’s slowing economy and high levels of competition are encouraging companies to seek new markets. This is particularly evident in the automotive industry, which has received significant state support over the years. Because economies of scale and acquiring more data are crucial to the innovation process and cost competitiveness in the EV industry, companies have a strong incentive to seek new customers globally.

Recently, Chinese companies have been focusing more on developing markets, in part due to partial or complete closures of larger automotive markets such as Europe and the United States through tariffs. However, many emerging economies have their own industrial ambitions in this space. Take Brazil, which became a top importer of Chinese EVs before President Luiz Inácio Lula da Silva’s second tranche of tariffs came into force in the summer of 2024 (see Figure 2).

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Lula’s government has also enthusiastically welcomed BYD—China’s and the world’s leading EV manufacturer—which is taking over an old Ford plant to build EVs in the country. This is one of three Chinese automotive companies with plans to make EVs in Brazil. Greater investment on the ground in LAC could allow Chinese firms to meet the region’s growing need for affordable EVs while also boosting the local economy through value-added manufacturing, especially if local workers are employed. It would also integrate the region further with China, both economically and technologically. 

Another important driver is derisking policies in the United States itself. To comply with requirements in the Inflation Reduction Act (IRA) and to avoid tariffs, for example, Chinese companies have been exploring opportunities to expand assembly and manufacturing in third countries, including in the LAC region. Indeed, the United States and other developed countries are putting in place incentives and restrictions that aim to onshore supply chains and direct companies to invest outside of China—especially in places closer to home, such as LAC. The IRA, with its EV tax credit requirements, represents one of the most ambitious policies so far when it comes to redirecting investment in third countries.

The rest of this paper will proceed by offering an overview of Chinese firms’ involvement in various segments of the EV supply chain in LAC and the implications for U.S. strategy. Although the value chain can be quite complex (see Figure 3), this paper will focus on key minerals (i.e., lithium and copper), the production of battery cells and packs, and vehicle assembly.

Mining

The mining industry in LAC has attracted international attention as governments seek to transition to green technologies, which require critical minerals such as lithium, found in large quantities in the region. China is ahead of its competitors in forging partnerships and catalyzing investment in LAC’s minerals space for use in the energy transition. China maintains outsized control over the mining of several critical minerals used in EV battery manufacturing, such as lithium and copper (see Figure 4). It does so by investing in complete acquisitions of local mines, purchasing significant shares in Western mining companies, and partnering with local governments.

Remote Visualization

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Lithium
The importance of lithium carbonate, the key compound used in EV batteries, has increased tremendously in the last decade. While Australia is currently the world’s largest lithium producer, LAC is home to the renowned lithium triangle—comprised of Argentina, Bolivia, and Chile—which is estimated to hold around 58 percent of the world’s lithium reserves. These countries have become major exporters of the mineral to China (see Figure 5). However, lack of infrastructure, weak institutions, and water crises are only a few of the challenges the region faces as it seeks to turn its lithium mining potential into reality.

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On paper, Bolivia has the world’s largest reserves of lithium, at 23 million tons, followed by Argentina (22 million tons) and Chile (11 million tons). But Bolivia’s efforts to capitalize on its resources remain mired in domestic politics—namely its effort to nationalize lithium starting in 2008 and the tight political control over the resource since exercised by the state-owned company YLB. In February 2019, President Evo Morales announced that his country would partner with China’s Xinjiang TBEA Group to advance the industrialization of the Coipasa and Pastos Grandes salt flats. This agreement eventually fell apart, however, due to the political turmoil caused by Morales’s election theft and subsequent flight from the country. The latest attempt to advance Bolivia’s lithium production came in June 2023 with the announcement of a $1.4 billion partnership with a consortium led by battery giant CATL to develop two lithium projects in the Uyuni and Coipasa salt flats. It remains to be seen if this venture will succeed.

Argentina has positioned itself ahead of Bolivia by retaining business-friendly policies that have attracted investment in its lithium mining sector. These policies have propelled Argentina to become the fourth-largest producer of lithium in the world—after Australia, Chile, and China—generating around 5 percent of the world’s supply at three mines in the provinces of Jujuy, Salta, and Catamarca. According to some estimates, Argentina could overtake Chile as the largest producer in the lithium triangle by 2030.

Argentina’s mining laws and regulatory landscape make it a more attractive partner. While the Bolivian government maintains full control of mining operations in its territory, Argentina’s laws allow local provinces to negotiate mining agreements directly with the private sector and limit royalties owed to the provinces to 3 percent. These benefits, and the ability of foreign companies to buy and operate mines, have allowed Chinese mining companies to acquire lithium mining operations and buy a significant percentage of the shares of other lithium mining companies.

According to the Argentine government, there are currently 49 new lithium mining projects under development in the country’s northeast, seven of which are being developed by China. Of the seven lithium projects owned or partially owned by China, the Caucharí-Olaroz project has started production of lithium carbonate and the Mariana project has begun operations and is expected to begin production soon. The rest of the projects are in different stages of development, with two in the construction phase, two in the feasibility stage, and one in advanced exploration.

Chile is currently the top lithium producer in South America and the second-largest producer in the world, though this position may soon be overtaken by Argentina. In 2022, Chile produced about one-third of the world’s lithium and accounted for 89.5 percent of China’s total lithium carbonate imports, making it a key player in the industry.

Until last year, Chile’s relatively open business environment attracted companies from the United States, Canada, and key Asian countries such as Japan. However, President Gabriel Boric’s new National Lithium Strategy, a move characterized by some as nationalization, has quickly reshaped the business landscape and may alter investor sentiment. According to the strategy, private sector entities must gradually transfer control of lithium operations to state-owned company Codelco, in what some experts argue is an effort to position Chile higher up the value chain.

Until now, lithium extraction in Chile has been in the hands of two private companies, SQM and Albemarle. Albemarle is an American-based company, while SQM is a Chilean company in which China’s Tianqi Lithium has a 22 percent stake. It is unclear whether both SQM and Albemarle will continue their operations in the country past their contracts’ sunset clauses in 2030 and 2043, respectively. Indeed, at the time of writing, Tianqi had initiated an appeal that could slow down SQM’s planned partnership with Codelco. Chinese EV giant BYD was expected to invest $290 million in a new lithium project that combines mining, refining, and a cathode factory, answering Chile’s call for more local investment, but the project was recently reported as being on hold.

The challenges faced by Chinese companies in Chile should be contextualized in the overall strong bilateral economic relationship. Chile was the first country in LAC to sign a free trade agreement (FTA) with China, which it did in 2005, a time when China was growing at double-digit rates yearly and rapidly expanding its engagement with the region. Since then, Chile’s trade with China has surpassed its trade with the United States. It remains to be seen if concerns over exposure to Chinese markets and disputes over investments in Chile could lead Santiago to seek a more forceful economic diversification strategy.

If Chile’s lithium strategy has created some new challenges for Chinese companies, Mexico’s policies on natural resources over the past few years have shifted the lay of the land for Chinese companies seeking to tap into Mexico’s lithium reserves, estimated at 1.7 million tons. In 2022, President Andrés Manuel López Obrador ordered the creation of a state-owned company, LitioMx, which would take over the exploration, exploitation, and refining of lithium in the country. This decree jeopardized major concessions in the state of Sonora given to Bacanora Lithium in 2009, acquired later by Ganfeng, and should they win arbitration, it would cover the largest deposit of lithium identified in Mexico. In June of 2024, Ganfeng filed an arbitration case against Mexico, and although President Lopez Obrador has indicated a desire to find an agreement with the company, the road ahead is one of legal limbo. The incoming president, Claudia Sheinbaum, a close ally of Lopez Obrador, is expected to maintain a similar approach to retaining government control of mineral resources and has been vocal about her desire to expand Mexico’s position as an active player in the EV value chain, including in lithium.

Copper
Though not categorized as a critical mineral by the United States until 2023, copper is essential for EV production and is used in components ranging from batteries to wires. This makes LAC a pivotal player, as it produces about 40 percent of the world’s copper and contains the largest deposits of the ore, primarily located in Chile, Peru, and Mexico. China is a leading importer of copper, and its companies have made key investments in LAC to secure access to the resource.

Chinese companies such as Minmetals (MMG), Guoxin, and Citic are important players in Peru’s mining sector. As a share of Peru’s total copper exports, sales of copper ore and copper concentrate to China have grown from 41 percent in 2012 to 76 percent in 2022, according to UN Comtrade data. Peru is an important case given its favorable business environment, which enabled Chinese companies to acquire two of the country’s largest copper mines, Las Bambas and Toromocho, though political instability in the country has caused a slowdown in investment.

Yet Chile is undoubtedly the largest player in the copper industry, which accounts for over half of Chile’s total exports. Copper is a key commodity in the thriving Chile-China economic relationship. In 2022, out of the $22.8 billion in copper ore that Chile exported, $15.6 billion went to China, followed by Japan at $4.0 billion and South Korea at $935 million.

In Chile, 72 percent of copper mines are owned and operated by private companies; the other 28 percent are operated by Codelco, the state-owned enterprise, which gives China less latitude to invest in copper mines in the country or to buy them outright. While Chinese-owned firms play a smaller role in Chile than in Peru, China still maintains a strong investment presence in the country.

Altogether, Chinese companies remain important in the Latin American mining industry, but local conditions matter. Resource nationalization and especially political volatility can lead to declining investment overall, as epitomized by Bolivia’s challenges, and could have long-term impacts on the sector. However, tighter controls on the exploitation of natural resources by host governments can be beneficial, among other things, in ensuring more diversified sources of investment and in negotiating greater local benefits. Finally, some countries, such as Bolivia and Mexico, may see Chinese investment as the most realistic pathway to developing domestic resources and tapping into a growing export market.

Refining

While investment in mineral extraction is a clear strategic goal, less intuitive are the forces behind a surge in interest in lithium refining in South America. One important driver of this trend is U.S. government policy. Per IRA rules, an EV qualifies for tax incentives if it is assembled in North America and the battery meets a series of requirements regarding mineral sourcing and the ownership of the companies involved throughout its value chain. All of these rules aim to incentivize lower levels of Chinese control over the supply chain and provide incentives for production outside of China. The result has been an immediate interest in countries that have FTAs with the United States (e.g., Chile) and those that may be able to secure sectoral agreements (e.g., Argentina).

Currently, the processing of critical minerals is concentrated in China, with some experts estimating that the country refines around 90 percent of the world’s rare earth minerals and 60–70 percent of lithium and cobalt. This has raised global concerns about the potential for disruption, price manipulation, and weaponization of highly concentrated supply chains. China’s 2023 decision to introduce export controls on graphite, germanium, and gallium has further fueled economic security concerns around minerals. Finally, as the United States makes historic investments in the energy transition, policymakers have tried to restrict how much of those financial incentives benefit Chinese companies.

Among other things, China’s position as the top smelter and refiner has long gone unchallenged because of the highly polluting and energy-intensive nature of those industries, though recent efforts by China to open new refining capabilities in LAC and Southeast Asia may signal a shift in this trend. In the case of lithium, for example, the raw material must undergo a series of chemical processes to produce lithium carbonate. With current technology, this process is very energy intensive and involves vast amounts of water, which in places such as Chile and Argentina can prove to be a significant challenge.

Another driver for Chinese companies to invest in refining capacity in LAC is the policies of countries in the region, most notably Chile. Despite having well-established copper refining operations, Chile’s lithium refining industry is still underdeveloped relative to its mining. With its new strategy, Chile seeks to position itself as the fourth-largest lithium refiner in the world to complement its sizable production of the mineral and, following protests about wealth inequality and development, ensure that more of Chile’s mineral wealth delivers local benefits. In October 2023, President Boric announced an investment of $233 million by Chinese giant Tsingshan Holding Group in Mejillones (located in the Antofagasta region) for a refining plant. Boric and his economic minister linked the deal explicitly to the country’s national strategy, which seeks to facilitate knowledge transfer and generate more value added. The Tsingshan deal followed the now-uncertain commitment by Chinese EV manufacturer BYD to build a refining facility in Chile.

Lithium refining is gaining momentum in Argentina as well, with several projects in various stages of development. In 2022, China’s battery giant Gotion High-Tech signed a joint venture agreement with Jujuy’s state-run mining company. Additionally, in 2021, Tsingshan signed a $1.7 billion joint venture with French firm Eramet, aiming to produce 24,000 tons of refined lithium carbonate. Questions remain in Chile and Argentina over the vast water requirements of the industry, which has sparked debates about the long-term viability of their lithium industries. The introduction by Chinese companies of direct lithium extraction technology could ameliorate some of these concerns, though it is liable to raise costs.

Domestic policies play an important role in attracting investment in segments of the industry with higher value added. Governments are attempting to leverage access to their natural resources (an example set by Indonesia with its rules in the nickel industry) and their commercial links to larger markets such as the United States, as well as potential growth in their own markets. Access to the U.S. market and compliance with IRA tax credit requirements appear to be important factors, especially for Chile, which has an FTA with the United States. (Argentina is hoping for an exception to IRA rules, much like the one granted to Japan and the European Union, in order to qualify for IRA tax credits.) Long-awaited rules by the Department of the Treasury and the Internal Revenue Service—as well as the Department of Energy’s Foreign Entity of Concern (FEOC) rule, which sets ownership standards as low as 25 percent to qualify for tax credits—have raised some challenges for Chinese companies hoping to qualify for tax credits.

Battery Manufacturing 

While there may be nascent signs that Chinese and LAC companies are interested in expanding lithium refining, the Latin American lithium-ion battery industry remains less dynamic. The industry overall is limited to a handful of factories throughout the continent. The only Chinese investment related to battery manufacturing appears to be a BYD plant in Manaus, Brazil, which started production in 2020. It is unclear if the facility can produce battery cells; it appears to be mainly focused on battery pack assembly. 

BYD is largely known for its vehicles, but the company is a leading battery manufacturer and supplies other automakers as well. The Manaus plant, however, appears to be primarily dedicated to producing batteries for BYD buses made at the Campinas plant near São Paulo, which opened in 2015 in southeastern Brazil. This may change as BYD’s new auto factory in Camaçari, in eastern Brazil, comes online in 2025 and increases demand for batteries. BYD also produces solar panels in the country, which are increasingly installed alongside stationary battery storage worldwide. It is not immediately clear if the batteries that support the solar plants are produced by BYD or whether they may be produced locally at the Manaus plant in the future. 

BYD’s battery production in Brazil is likely aimed primarily at fulfilling local demand and supporting the company’s automotive production in the country, which is the largest market in LAC. Indeed, given current transportation costs and the large investments taking place within the United States, it seems unlikely that Chinese-led battery production in Brazil could be aimed at the export market. This is very different from the dynamic observed in refining and mining, where Chinese firms are tapping into LAC natural resources for export to China or are establishing refining facilities to better access markets in third countries such as the United States. 

There have been at least two other high-profile Chinese battery plant projects that have received news coverage without making any significant progress. Chery, a Chinese automotive manufacturer that is a significant player in the internal combustion engine (ICE) and EV industries, announced a large project in Argentina in early 2023. Although some reports suggest that the proposed manufacturing complex would feature battery manufacturing capacity, this seems unlikely, since the company does not produce its own batteries. Regardless, the project seems to have stalled in the past year and a half. 

The second project that has failed to come to fruition is a CATL factory in Mexico, first reported in 2022, which could have potentially supplied Tesla’s factory in Texas. However, the plan has been on pause since the fall of 2022 after the IRA was made law. CATL has since pursued a licensing agreement with Ford to make lithium iron phosphate batteries in Michigan.

CATL’s pivot to the U.S. market reflects a general challenge to building batteries (and EVs) in LAC. The incentives offered by the IRA have led to a surge of investments in the United States by some of the world’s leading battery manufacturers (BYD being a notable exception). The IRA has also helped to drive more refining investment in countries that have FTAs with the United States, including Chile, as well as more manufacturing investment in Mexico, but it has complicated the position of Chinese firms that would otherwise be the biggest players in these sectors. Moreover, given the incentives available in the United States—expected to remain the largest EV market in the Americas for the foreseeable future—there is less reason for battery manufacturers to make investments in other countries. 

EV Manufacturing and Assembly

When it comes to the manufacturing of EVs and their components, two countries stand out: Brazil and Mexico (see Figure 6). This makes sense, as they are the largest markets in LAC, as well as the most sophisticated manufacturing bases—including in the automotive sector. Yet there are significant differences between the two countries and in the types of investments that Chinese firms are making. The biggest variable appears to be Mexico’s special trading relationship with the United States, epitomized by the United States-Mexico-Canada Agreement (USMCA). Indeed, Mexico benefits significantly from the IRA, which allows companies in the country to qualify for the same credits as those making vehicles and batteries in the United States. However, this also means that Mexico has been under pressure to be more cautious in its approach to Chinese investment, as such investment is viewed as a direct pathway to the U.S. market. 

Remote Visualization

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