A Mayan Cautionary Tale for the Battery Value Chain

There are countless theories that attempt to explain the extended decay of the Maya empire, from the absurd (ascension to their native planet), to the more likely (a mix of disease, political infighting, Spanish aggression, and resource traps). Earlier this year I visited Chiapas, Mexico — traversing Maya archeological sites, from Yaxchilan, an incredible jungle site only accessible by river along the Guatemalan border, to Palenque, a site known for its precise architecture reflecting advanced laws of mathematics and cosmology mastered by the Maya, similar to Chichen Itza and Tikal.

At Palenque, local guides believed only 2% of the site had been discovered due to dense forest cover and a lack of equipment for proper excavation, an astonishing fact given deforestation was a huge factor in the empire’s decay. Their ecosystem collapse is hypothesized to be a result of the extreme demand for timber for use in the production of caliza (limestone). The Maya used caliza to build everything from pyramids to basic tools and even childrens toys; as the civilization advanced, the demand for caliza, and therefore timber accelerated the arrival of a crippling resource trap.

Mark Twain famously said, “history never repeats itself, but it often rhymes.” Following my time in Chiapas, and in closer study of the rapid expansion of the battery value chain across Latin America, I write this article as a call to action, and for fear that we are beginning to hear history rhyme once more.

Across the Americas, I believe there is a critical decision to be made as we look forward to the next decade of electrification and the primary materials that enable it. How are we going to safely, humanely, and efficiently fuel the wholesale transition to electrification of western economies?

My response is driven by a few critical macro factors.

1. Covid-19 brought any industry that bet long on globalization and cutting corners on supply chains to their knees. Large players adapted quickly by repatriating what they could with support from governments while remaining smaller players still struggle to reclaim supply and margins.
2. Nearshoring and its free spirit cousin, remote work, are a growing continental reality for the Americas leading to deeper commercial ties, especially across the innovation ecosystem.
3. Russian invasion of Ukraine is a warning shot to the United States on the geopolitical risks surrounding energy and primary materials security.
4. China continues to grow its control of the battery production value chain, from buying and operating a flurry of cobalt and lithium mines across the DRC and Zimbabwe, to controlling nearly 59% of global refining, compared to the United States (3%) and Canada (3.5%).

Leaders in government across the west and their major partners in the mining and refining industry understand that outsized coordination is needed to meet the 32% growth in battery demand by 2030 across an increasingly complex value chain consisting of mining, refining, components, transportation and storage, and recycling. Startups have a huge role to play in the transformation at every stage of the chain.

Supporting battery powered vehicle demand is the most obvious challenge (90% responsible for 2030 demand). Compared to traditional combustion engine vehicles — EV’s require 6x as many minerals. Lithium, one of the three critical minerals required in battery production alongside cobalt and nickel, based on IEA’s Scenario, will experience a 42-fold increase in demand by 2040. To support the growing demand, Benchmark expects that more than 300 new mines are needed by 2035.

Now, consider the risk that China might pull the rug on mineral supply should the US-China tension reach a breaking point, most likely over a swift and opportunistic invasion of Taiwan as they observe NATO and the west as having their hands full as conflict in Ukraine drags on. What would stop China from cutting contracts or 10x prices on 3-year cobalt and lithium supply agreements to American auto OEMs if the United States decides to stand forcefully with Taiwan? A tight position for a democratic president looking towards re-election, still licking the wounds from a hasty exit from Afghanistan, an ongoing conflict in Ukraine, and an inflationary domestic economy.

Such a shock in supply would set back a decade of progress in battery electrification, cripple OEMs, scare VCs and growth equity, and put nearly all corporate 2050 net zero commitments completely out of reach.

Fortunately, the Inflation Reduction Act anticipated this (to a degree). For example, by adding requirements that EV passenger vehicles eligible for $7,500 in tax credits must have a certain share of their components sourced from the US or allied countries, giving OEMs some initial incentive to restructure their supply chain, offering a window of opportunity to friendly neighbors. Domestic battery startups such as Ascend Elements and Lilac Solutions have been among the immediate beneficiaries of receiving tens to hundreds of millions in government grants.

Unfortunately, it’s not enough. The supply and demand gaps continue to grow year over year and there is more investment required exposing the United States and its allies to critical supply risk. The west, and the planet, simply can’t afford it.

One solution is to rapidly ramp up battery material mining in Argentina, Chile, and Bolivia, increase US and Canadian refining capacities, and ensure American OEMs secure sufficient “reserves” contracts — right? Not so fast. By solving one problem, we often create another. The period of classical Maya collapse (beginning late 8th century) reflects a grave miscalculation surrounding the ecosystems tipping point, where deforestation to power its growth resulted in catastrophic food and agricultural production risk. If the West is too hasty and does not innovate on its efficient excavation of critical minerals we risk learning a painful, and familiar lesson.

The macro trends will set the stage, but local innovators in the next 1–3 years need to build and scale products to not only ensure the efficiency, safety, and sustainable transport of these new and existing mining operations, but to also expand the product offerings to identify and lower scope 2 emissions for major mineral producers. Diplomacy and trade have a role to play here, but I believe the opportunity for startups amidst this shift will be enormous.

Specifically, breakthrough technology startups will be critical to supporting the efficient expansion of Latin American critical mineral mining infrastructure in the next decade. Tools that enable efficient use of water, labor and electricity, identification of new drilling sites, and smart extraction equipment. Identifying and enabling offtakers to effectively negotiate purchasing and ensure transparency in the marketplace as a flurry of emerging buyers come to market.

To better contextualize the size of the opportunity today, mining companies in Latin America alone spend over US$15 billion annually on machinery, auxiliary services and technology. In terms of expanding operations, Chile alone has a mining investment and project pipeline for 2026 of US$22 billion in execution and US$31 billion in evaluation. Chile currently has 22% of the world’s copper reserves and 48% of the world’s lithium reserves.

There is a critical ethical question to consider here that provides a unique challenge to founders in this industry. Protecting ecosystems and communities that live adjacent and are impacted directly by mining operations are included and considered, startups need to play an active role in protecting natural and human ecosystems as they support the evolution of the mining operations across the Americas. This means bringing communities together in designing solutions, identifying and mitigating the impacts of mining operations, and never underestimating the positive influence that startups can have in influencing incumbent corporate priorities.

Two emerging startups I have recently connected with are advancing the cause in Latin America, Muon Vision and Mineral Forecast. Tancredi Botto and his team of physics, mining, and geospatial experts are building a set of tools that offers major mine operators the ability to use passive, non-invasive X-ray imaging technology that can be used to visualize the percolation of process fluids across leaching heaps and any application where density measurements are of key importance to improve safety and productivity. Santiago-based, Harvard Innovation Labs spinout Mineral Forecast is using Artificial Intelligence to target discovery rates with solutions layered over existing customer data sets. This is just the beginning.

Fortunately, solutions are emerging globally that can be adapted to the western value chain. Kobold Metals, backed by Breakthrough Energy Partners is a Zambia based AI platform looking to leverage AI for more efficient copper exploration. French startup I-ROX leverages pulse power to break down mineral ores and rocks, lowering emissions from drilling technology at mine level. Impact Energy Partners recently backed Nth Cycle to improve metal and mineral recycling in large mine operations. I am encouraged to see these solutions gain early traction locally, but eventually that the best solutions will be scaled wherever critical minerals are being extracted, and it is the job of corporations, governments, and global VCs to accelerate this process.

The Maya empire exceeded its ecological tipping point in pursuit of rapid expansion, the west has an opportunity to pause, study the history, and move forward in ensuring our battery based economy of the next century does not create unintended ecological consequences that our grandchildren will pay for.

If you are building something in the space, or think I am completely wrong, I would love to connect!

E-mail: chris@daluscapital.com