Toyota tackles Prius' lithium challenge with mining deal

Toyota is many things – auto giant, producer of the iconic Prius, scourge of US car firms – but mining firm? Surprisingly, the answer could be yes.

The company's Toyota Tsusho subsidiary announced last week that it will take a 25 per cent stake in a new joint venture with Australian mining firm Orocobre to develop Argentinian supplies of lithium, the key component in batteries for the electric and hybrid vehicles that Toyota expects to eventually dominate the global auto market.

The two companies will work to develop the Salar de Olaroz lithium-potash project, a lithium extraction initiative that is currently in the feasibility study stage. Toyota Tsusho will invest $4.5m (£2.8m) to complete the study, which should be released in the third quarter of this year.

Under the terms of the deal, Toyota has also signed an off-take agreement that would allow the company to buy up any lithium carbonate produced by the joint venture.

Lithium supplies will be hugely important for Toyota over the coming years as the company seeks to make good on its pledge to double production of hybrid vehicles such as the Prius by 2011. The company plans to produce 800,000 units this year, rising to a million units next year. By the time it ships the plug-in hybrid version of its Prius in 2010, Toyota plans to be producing up to 1.1 million hybrid vehicles a year.

Salars – salt flats – are a relatively new source of lithium, which used to be produced from a substance called spodumene. South America has been a fruitful source of salars since mining companies began extracting from them in 2001. As auto vendors begin ramping up hybrid and electric vehicle production, they will find themselves competing with electronics providers for the chemical, which can be used to produce batteries with a high energy density.

The market for lithium can be difficult to navigate, as it is based on peer-negotiated agreements rather than commodity exchanges. An original "very preliminary" estimate for the Salar de Olaroz by lithium expert Keith Evans in 2008 suggested it could yield 300,000 tonnes of the mineral. Eighteen months later, Orocobre is being more optimistic, suggesting a 1.5 million-tonne reserve. That would put it at five per cent of what Evans estimates as the world lithium carbonate reserve.

Toyota Tsusho must also secure a loan from the Japanese government to cover at least 60 per cent of the project's development costs.