Strategic Lithium Alliances in the EV Era: How SQM and Codelco's Joint Venture Reshapes Supply Chain Security and Investment Opportunities

The global transition to electric vehicles (EVs) and renewable energy systems has thrust lithium into the spotlight as a critical enabler of decarbonization. As demand for lithium-ion batteries surges, securing stable, sustainable, and geopolitically resilient supply chains has become a priority for governments and investors alike. In this context, Chile's recent partnership between state-owned Codelco and lithium giant SQM represents a landmark strategic alliance that could redefine the lithium landscape. By combining Codelco's state-backed mining expertise with SQM's operational mastery at the Salar de Atacama, the joint venture not only strengthens Chile's position as a lithium leader but also offers compelling investment opportunities in a sector poised for long-term growth.

A State-Private Partnership for Lithium Supremacy

Chile, already the world's second-largest lithium producer, is accelerating its dominance through a 35-year joint venture between Codelco and SQM. The agreement, approved by Chile's National Economic Prosecutor's Office in April 2025The National Economic Prosecutor's Office approves a partnership agreement between Codelco and SQM^[2], grants Codelco a controlling stake (50% plus one share) in SQM's Atacama operations, a site that has supplied lithium for over 25 yearsCodelco and SQM sign partnership agreement^[3]. The partnership is structured in two phases: SQM will manage operations until 2030, after which Codelco will assume control until 2060Codelco and SQM sign partnership agreement^[3]. This transition ensures continuity while aligning with Chile's national lithium strategy, which aims to capture more value from its critical mineral resourcesCodelco, SQM near final deal on joint lithium mining^[5].

The venture's scale is ambitious. By 2031, it is projected to increase Chile's lithium carbonate equivalent (LCE) production to 280,000–300,000 tons annually, a 65% increase from current levelsCodelco-SQM Lithium Deal: Reshaping Chile's Mining Future^[4]. This output would account for roughly 10% of global demand, solidifying Chile's role as a cornerstone of the EV battery supply chainSQM’s SWOT analysis: lithium giant faces market volatility, eyes growth^[6]. Moreover, the Chilean state is set to receive 85% of the operating margin starting in 2031 through taxes, Corfo payments, and Codelco's profitsCodelco and SQM sign partnership agreement^[3], ensuring that the country's lithium wealth directly supports its energy transition goals.

Supply Chain Security and Strategic Implications

The Codelco-SQM alliance addresses a critical vulnerability in the EV supply chain: overreliance on a few producers. Currently, Australia and China dominate lithium production and processing, respectively, creating bottlenecks and geopolitical risksInside Codelco & SQM's Lithium Supply Chain Alliance^[1]. By leveraging the Salar de Atacama—one of the world's richest lithium reserves with low production costs—Chile is positioning itself as a counterbalance to this concentrationCodelco, SQM near final deal on joint lithium mining^[5]. The joint venture's focus on sustainable practices, including a 70% reduction in greenhouse gas emissions by 2030Codelco and SQM sign partnership agreement^[3], further aligns with global decarbonization mandates, making Chile's lithium more attractive to ESG-conscious investors and automakers.

From an investment perspective, the partnership mitigates risks for both parties. SQM secures long-term access to high-grade lithium resources, while Codelco gains entry into a sector with growing demand. For investors, this stability could translate into reduced volatility compared to other critical mineral projects. For example, unlike lithium projects in politically unstable regions, the Codelco-SQM venture benefits from Chile's transparent regulatory framework and strong institutional supportCodelco, SQM near final deal on joint lithium mining^[5].

Market Dynamics and Financial Outlook

Despite lithium prices hitting four-year lows in 2025 due to global oversupplySQM’s SWOT analysis: lithium giant faces market volatility, eyes growth^[6], the Codelco-SQM venture is designed for long-term resilience. Analysts project prices to rebound to $16,000 per tonne by 2028 as EV demand acceleratesSQM’s SWOT analysis: lithium giant faces market volatility, eyes growth^[6], a trajectory that would amplify the venture's profitability. SQM's financial health is also a key factor: the company's SWOT analysis highlights its reliance on price recovery but notes that the joint venture could enhance operational efficiency and investor confidenceSQM’s SWOT analysis: lithium giant faces market volatility, eyes growth^[6].

However, challenges remain. Tianqi Lithium, a major SQM shareholder, has contested the deal's transparencyCodelco and SQM sign partnership agreement^[3], while pending approvals from Chinese antitrust regulators and Chile's nuclear energy commission add uncertaintyCodelco-SQM Lithium Deal: Reshaping Chile's Mining Future^[4]. These hurdles underscore the need for investors to monitor regulatory developments closely.

A Model for the Future of Critical Minerals

The Codelco-SQM partnership reflects a broader trend: resource-rich nations are reasserting control over critical minerals while collaborating with private firms to ensure efficiency. This model contrasts with China's dominance in lithium processing and Australia's export-focused approach, offering a third pathway that balances state sovereignty with market dynamismCodelco, SQM near final deal on joint lithium mining^[5]. For investors, the venture highlights the importance of aligning with projects that address both supply chain security and sustainability—two pillars of the energy transition.

Conclusion

As the EV era accelerates, strategic alliances like Codelco and SQM's will play a pivotal role in shaping the lithium supply chain. By combining Chile's lithium endowment with Codelco's state-backed scale and SQM's operational expertise, the joint venture not only secures a critical resource for the energy transition but also creates a compelling investment case. While short-term price volatility and regulatory risks persist, the long-term outlook for lithium—and by extension, this partnership—remains robust. For investors seeking exposure to the EV revolution, the Codelco-SQM alliance offers a rare blend of geopolitical stability, environmental responsibility, and growth potential.