SQM's Lithium JV with Codelco and Its Implications for Global Supply Chains

The global energy transition hinges on a single element: lithium. As electric vehicles (EVs) and renewable energy storage systems redefine industrial demand, lithium has emerged as the new oil-a commodity whose supply chains will shape the 21st century. At the heart of this transformation is a pivotal partnership: Sociedad Química y Minera de Chile (SQM) and Codelco, Chile's state-owned copper giant, have formed a joint venture (JV) to dominate lithium production in the Atacama Desert. This analysis evaluates the strategic and financial viability of SQM's expanded lithium position, contextualizing its alignment with surging storage demand and global supply chain dynamics.

Strategic Rationale: A Phased Power Grab in the Lithium Gold Rush

The SQM-Codelco JV is a masterstroke of long-term planning. By structuring operations in two phases-SQM leading from 2025 to 2030, followed by Codelco's 30-year stewardship until 2060-the partnership leverages SQM's operational expertise and Codelco's state-backed scale. This phased approach ensures continuity while allowing for technological innovation and environmental adaptation. By 2030, the JV aims to produce 300,000 tonnes of lithium carbonate equivalent annually, a figure that would cement Chile's dominance in a market where it already accounts for 29% of global production, according to Investing.com.

The strategic value extends beyond production. The Atacama salt flats, with their high lithium concentration in brine deposits and arid conditions ideal for solar evaporation, offer a natural cost advantage. SQM's 25 years of experience in lithium extraction here provide a critical edge over rivals. Meanwhile, Codelco's government ties ensure regulatory alignment with Chilean President Gabriel Boric's vision of state control over lithium, a resource deemed vital to national sovereignty, as noted in DiscoveryAlert.

Financial Viability: Balancing Risk and Reward

While specific investment costs for the JV remain undisclosed, SQM's recent financial performance suggests robust capital allocation. In Q2 2025, the company reported revenue of $2.08 billion, far exceeding expectations of $1.08 billion, driven by soaring lithium prices and EV demand, as reported by WSAU. SQM's net margin of 11.28% and three-year revenue growth of 22.4% underscore its ability to fund expansion, according to Grand View Research. However, the company's moderate leverage and exposure to market volatility-lithium prices swung 30% in 2024-highlight risks.

The JV's phased structure mitigates some of these risks. SQM's initial five-year lead allows it to optimize existing infrastructure and refine extraction methods before Codelco's long-term involvement. This reduces upfront capital outlays while ensuring returns during a period of peak lithium demand. By 2030, when Codelco assumes control, the Chilean state will capture 85% of operating margins, aligning national interests with corporate efficiency, as detailed in Metal.

Global Supply Chain Implications: Stability vs. Geopolitical Tensions

The JV's success hinges on navigating a complex regulatory landscape. China's conditional approval of the partnership, granted on November 10, 2025, mandates fair pricing, supply continuity for Chinese battery manufacturers, and transparency in major supply changes, as reported by DiscoveryAlert. This reflects Beijing's dual strategy: securing access to critical minerals while avoiding direct ownership that could disrupt global competition. Similar conditions from the EU, Brazil, and South Korea indicate a broader trend of regulatory scrutiny for cross-border mineral deals.

Yet, the JV's potential to stabilize supply chains is undeniable. By 2030, global lithium demand is projected to grow at a 18.2% compound annual rate, reaching $74.81 billion, driven by EVs and energy storage, as noted in DiscoveryAlert. The Atacama's low-cost production and SQM-Codelco's vertical integration could moderate price volatility, a persistent challenge in the lithium market. For instance, the partnership's focus on cleaner extraction technologies and water conservation-Codelco aims to reduce inland water use by 60% by 2030-addresses environmental concerns that have plagued lithium's reputation.

Strategic and Financial Viability: A Calculated Bet

The SQM-Codelco JV is a calculated bet on the energy transition's trajectory. Its phased structure balances SQM's agility with Codelco's long-term vision, while regulatory approvals from China and other key markets reduce geopolitical friction. Financially, SQM's strong balance sheet and the JV's focus on cost optimization position it to capitalize on rising storage demand. However, risks persist: legal challenges from competitors like Tianqi Lithium and the inherent volatility of commodity prices could test the partnership's resilience.

For investors, the JV represents a high-conviction play on lithium's role in decarbonization. While specific revenue projections for 2025–2030 remain opaque, the alignment with global demand forecasts and Chile's strategic push for lithium dominance suggest a compelling long-term outlook. As the world races to electrify its economy, SQM and Codelco's collaboration may well define the next era of energy supply chains.