The Black Forest holds a secret to making electric cars greener

With the critical resource for battery-powered cars usually coming from far-flung regions using methods that scar the landscape, Vulcan Energy Resources Ltd.’s 1.7 billion-euro ($2 billion) project could be key for Europe’s ambitions to become the world’s first climate-neutral continent. 

“We will produce a product locally that’s not only cheaper but also greener than the alternatives,” Horst Kreuter, Vulcan’s managing director in Germany, said in an interview.

The company — backed by Australia’s richest woman Gina Rinehart — has signed supply agreements with Renault SA, Jeep-owner Stellantis NV and Korean battery manufacturer LG Chem Ltd. Last week, it landed its biggest fish: a five-year deal with German auto giant Volkswagen AG.

The Australian miner has now contracted most of its lithium production and plans to start deliveries by 2026 at the latest. 

But there are doubts. The project is based on technology that hasn’t been deployed on a wide scale, and there have been signs of local opposition over risks that pumping lithium-laced brine to the surface could cause tremors.

Short-seller J Capital Research criticized the group as being too optimistic. Vulcan said the October report was “false and misleading” and sued the firm.

Read More: Vulcan Energy accused of misleading investors with positive PFS — report

Despite the concerns, the project is pushing ahead as it addresses the rising concerns over the environmental impact of building battery-powered cars. From lithium to cobalt, manufacturing a zero-emission vehicle involves even more hard-to-get resources than conventional cars and that comes at a cost to the environment.

Amid intensifying global jostling for dominance of the electric-vehicle sector, the International Energy Agency in May recommended that Western governments consider stockpiling critical minerals such as cobalt, nickel and lithium. Already, automakers are stepping up battery-recycling efforts and pushing for a foothold in mining to gain greater control over the resources needed to make electric cars. 

Volkswagen has set up a facility in Germany to eventually reuse 90% of battery components. Mercedes-Benz maker Daimler AG is backing an initiative for more sustainable production of cobalt, which has been linked to human rights abuses. Tesla Inc. struck a nickel deal with BHP Group Plc in July and agreed to a cobalt pact with Glencore Plc in June.

But the key resource is lithium. It was rarely needed in the petroleum-based economy, but some 8 kilograms (18 pounds) are required for a modern electric car.

Right now, the silvery-white metal generally comes from open-pit mines in Australia or from South America, where there are concerns about water waste and toxic materials released from massive evaporation pools. The raw materials are then shipped to Asia for processing. By the time the lithium ends up in European or American electric cars, a lot of carbon dioxide has been emitted. 

As the transition gathers pace, BloombergNEF expects demand for the minerals in lithium-ion batteries to grow fivefold by 2030. A global index of lithium prices has more than tripled this year, buoyed by surging electric-car sales in China, the U.S. and Europe.

Automakers are under pressure to clean up their supply chains to meet sustainability targets, and Vulcan says Germany’s lithium can play a role.

For decades, geothermal plants in the Upper Rhine Valley have been pumping up hot fluids from beneath the earth’s surface to generate electricity — a form of renewable power. The facilities never bothered about the lithium in the brine, but Vulcan plans to add an extraction step before the fluid is reinjected.

Related Article: Vulcan Energy buys German geothermal plant to power lithium extraction

About half of the electricity created in the process would power the lithium production, while the other half could be sold. Vulcan has set up a small pilot plant and in late September produced its first batch of battery-grade lithium. It plans to start larger-scale production in 2024, Kreuter said.

There are challenges to Vulcan’s method. The brine is a complicated slurry including potassium, iron, manganese and sodium — impurities that need to be filtered out before the lithium can be put into batteries.

Public opposition has derailed new geothermal projects, and locals are on the alert after past incidents. In the Black Forest town of Staufen, dozens of buildings suffered cracks following geothermal drilling in the early 2000s. Just a few miles across the Rhine in France, authorities last year shuttered a geothermal plant near Strasbourg after boring sparked minor earthquakes.

Producing commercial quantities of the metal from deep-well brines has never been done before, and Vulcan still has to prove it can source the money to set up the plants. So far, the company has raised about 200 million euros.

Still, with lithium demand booming, the concept is catching on. BMW AG invested in Lilac Solutions, a U.S. startup backed by Bill Gates that aims to extract lithium via a similar method from California’s Salton Sea. German utility EnBW AG is also studying the feasibility of producing deep-well lithium in the Rhine valley.

Kreuter said he’s confident Vulcan can convince regulators and the public that its project will make lithium production more sustainable. For the company, the economics of the plan are just as attractive.

“We can fund production of the brine via the sale of renewable energy,” Kreuter said. On top of that, “we don’t have the costs of developing and operating a mine.”

(By Stefan Nicola, with assistance from Phoebe Sedgman)