Their revenues were affected by lower sales prices, which were decreasing quarter-over-quarter starting at the beginning of 2023 as a result of the capacity and inventory excess in the battery supply chain. Our lithium sales volumes guidance for this year considers an expected growth around 5% to 10% based on the contracted sales volumes for the year as well as market estimates and conditions we are seeing at the moment. We believe lithium demand could grow another 20% this year, China remains the biggest demand and supply market for lithium products and is still going through the stocking of both battery materials and lithium chemicals inventory accumulated in the past years. That, coupled with an estimated incremental supply makes it challenging at the moment to expect our sales volumes to increase above provided guidance.

Nevertheless, depending on the timing of new supplies and any potential production curtailments, we could revisit our guidance as we advance through the year. Later in this call, we will discuss in more detail our lithium market views and electric vehicles market dynamics. In the Iodine business, we reached record high production volumes during 2023, producing over 13,000 metric tons of iodine and increasing our sales volume despite global demand contraction seen during last year. We expect to see some demand recovery in the iodine market during 2024 with relatively stable prices as seen at the end of last year and stable sales volumes with a potential upside subject to lack of any incremental volumes from the competition. We believe SQM, as industry leader, is the only global iodine producer, which has been able to materially increase its supplies in the recent years.

In the Fertilizer business, we saw some sales volumes recovery and market prices stabilizing. We expect to see positive demand growth in the potassium nitrate market, driven by increased demand and product availability and expect our sales volumes to grow accordingly. In the meantime, we will focus on cost improvements and new market opportunities for our products. Finally, I would like to thank the SQM team for dedication and unified vision is sustaining our leadership position in our key markets at consistently delivering rate performance year-over-year. Thank you. Before we move to the Q&A, I would like – it's going to be something different today, I would like to address one of the issues that has been brought up in the conversation with investors especially in the last two months, probably related to the future of the electric vehicle industry.

For this discussion, I have invited to this meeting, Gonzalo Aguirre. Gonzalo is responsible for lithium market intelligence at SQM and could help us to visualize better EV battery industry. Thank you for being here, Gonzalo. And I have some questions. I think we're going to get on 10 to 15 minutes in order to go through these. But I think it's very important in order to have an outlook of the industry in the future. Gonzalo, my first point is, as you know, in the recent weeks, it has been reported in the press that the U.S. and other countries are considering delaying deadlines for requiring minimum percentage of electric vehicles in new cars. How do you think this will affect electric vehicle penetration in the long term?

Gonzalo Aguirre: Well, it's true that we have seen some news, many of them coming from the U.S. However, it's essential to remember that the U.S. market, while significant, currently represents slightly less than 20% of the global car sales. On the other side, looking back one year, when there were concerns about 2023 being a challenging year for EVs due to the end of the subsidies in China, macroeconomic factors and bury sentiments, but still Global EV sales for 2023 were even higher than initial estimates and closed the year with more than 14 million units sold. In China, they already went through these very same doubts, feeling the market couldn't sustain itself without support. They no longer have relevant subsides, just some tax exemptions, but the industry continues to grow incredibly.

It's not an industry that could collapse if subsidies are removed. I would like to put emphasis on a topic that often overlooked. It is important not to forget the product that we are talking about. If we look at the models on the market, we have already reached performance levels much higher than what we expected a few years ago, ranges over 250 miles in many models, and we are even reaching the 70 to 100 rule that it's 100-mile fast chargers in as quick as seven minutes. I don't know who can say that these numbers are not at the same level or even better than their ICE equivalents. The future of this industry is not based on government incentives, but on competitiveness, performance and obviously, on the positive impacts on the environment.

Ricardo Ramos: Yes, Gonzalo, but at similar performance level that suppose similar performance between two alternatives, are EVs more expensive, really?

Gonzalo Aguirre: But less and less every day. Thanks to the price competition between manufacturers, we see that in recent years, prices have fallen sharply. Today, the most popular EVs in the U.S., the Tesla Model Y can be purchased new for about $35,000. And to make a fair comparison, when we look at the total cost of ownership, which considers how much someone will spend for some years since electric vehicles require less maintenance and a lower cost to move around, we see that the gap between EVs and ICEs has been narrowing a year after year that's across all segments. And according to some analysis, light vehicles are already in the money. In Europe, countries like Norway have achieved over 80% EV penetration last year, aiming to end ICE sales from next year and others like Sweden are following not far behind with close to 60%.

With no reason why in the mean term, EV cannot be on the same cost or even lower than its traditional equivalent. Since successful companies such as Tesla, Hyundai, KIA and several Chinese producers have shown us that they can be extremely cost efficient when producing an EV and continue delivering cars of the highest quality. Yes.

Ricardo Ramos: Yes. But if you think it's reasonable to expect in some way, higher price of lithium in the future, if you consider significant additional supply and additional demand, in particular, where you think that doubling or tripling the demand for lithium if we're positive about electric vehicles. This surely will affect the cost and the way it competes electric vehicle. What's your opinion about that?

Gonzalo Aguirre: I understand. Maybe the approach is concerned, let's do a simple exercise with numbers. If we take an electric car like the Tesla like I said before, to manufacture that battery, it takes approximately 50 kilos of lithium carbonate equivalent per car, okay? Now if we think about some price, let's say, $20 a kilo, lithium costs would mean a total of $1,000 per car. We are talking about less than 3% of the total price and each additional dollar of the lithium price affects the final cost of the car by only $50. As you can see, lithium is not so relevant to the price. At least it should not be a variable that affects the demand for EVs in the future. Obviously, as in all industries, producers will try to lower costs as much as they can.

And finally, the price will be linked to the total margin costs that include investments of all the products needed to satisfy the demand. Today, the cost of batteries is high, basically due to the significant investments in R&D that have allowed huge improvements in their performance. It is reasonable to expect that for stabilization of R&D expenses as well as the economies of scale in the EV production will allow significant reaction in total costs. There is no reason to think that in the long-term, EVs should be more expensive than their traditional counterparts. If the EV being sold is a good car and it's competitive, at least the price of lithium should not be a factor that prevents its adoption.

Ricardo Ramos: Okay. And what's about the – some opinion related to the potential negative environmental effects of lithium mining?

Gonzalo Aguirre: Yes, maybe we can take SQM alliance with Codelco as a good example. It shows signs of the industry leadership with full commitment to environmental standards. We can see that projects like Salar Futuro marked an extraordinary step in the right environmental direction, and we'll set the standard that will be required to the entire industry. New products will need to incorporate this environmental standards into their costs, given that they will be a minimum requirement in the industry. This way, the entire industry will aim to be sustainable. It is also important to note that the use of batteries in BSS makes the energy transition viable due to the operational intermittency of the renewable sources, which certainly has a very direct effect on reducing the environmental impact from the use of fossil fuels in the electric grid.

Ricardo Ramos: Yes. Talking about the electric grid, there's also doubt and some people think about the electric grid and the availability of fast-charging stations if they can support the expected growth of the electric vehicles.

Gonzalo Aguirre: The thing is that this concern has always existed since the early days of the EVs. China is a solid example that these elements are not the real constraints. In three years, they increased their annual sales over 6x without this effect causing major problems. As demand grows, charging stations should follow quickly. It's not a very complex technology. It's fast charging, it's really simple. Additionally, for example, in the U.S., there are several Federal incentives and subsidies to encourage the installation of chargers to the point that today, it is estimated that 125 new chargers are being installed every day. And also, last year, we saw some declarations involving seven of the largest OEMs to jointly develop charging networks throughout the market.

EVs can be complemented to a sustainable power generation. Without going any further, again, we can see, for example, companies like SQM investing in our U.S. start-up, electric era that is going to fast charging networks backed by stationary lithium batteries so that electricity can be purchased at times of lower cost and then be stored for a car to be charged during the day. All of this helping to soften the demand and optimize the grid generation and distribution.

Ricardo Ramos: Finally, and I think it's very interesting, but finally, what do you think about the lithium demand in the long-term, we think in the long-term? And how do you think the supply can respond to this potential demand?

Gonzalo Aguirre: Well, if we look at 10 years from now, I think that maybe for 2023, it's reasonable to think that more than 50% of new car sales worldwide should be EVs. It is also reasonable that average batteries are going to be more powerful than the current ones. And we must not forget that increase that we are seeing and expecting in BSS [ph] due to its role in the energy transition goals that different countries have set. This together with batteries going to buses and trucks could add another 600,000 tons to demand. So if we consider all of this, it would seem reasonable to think in something near 4 million tons of lithium carbonate equivalent, which is kind of a fourfold increase from last year demand. We're at the beginning of an EV revolution, and their performance has greatly exceeded expectations.

I think that a significant portion of the market was waiting for some important issues like range and charging times to stabilize at a point where they feel it's comfortable. And I think that's already been achieved. Well, we have already reached levels where people are getting excited. Just look how everyone, everywhere is talking about EVs. It is one of the mandatory conversation topics. This is why, in the medium term, we should continue to see demand growing. Lithium batteries are extraordinary. There may be technologies that are better in a certain aspect, but when we consider all the qualities together, it is clearly the unquestionable leader and has the extra advantage that there is already a well developed ecosystem that supports production and additionally, if we look ahead and also consider, for example, some of the comments from battery manufacturers, its price should continue to trend downward from now on.

Should we expect lithium being replaced? Maybe for some niche uses, but not in a relevant way. Now, to answer the last part of the question, based on the behavior that we have been able to observe in the market in the recent years and all the announcements of projects that plan to enter, I believe that, yes, we should have lithium supply for those volumes. However, I also think that it's reasonable to that the total cost of those last tons produced will be much higher than the current prices. The demand should be growing to 2 million, 3 million, 4 million, and each step should require supply entering the market. So there should be a variety of projects of different costs to supply this product in the market.

Ricardo Ramos: Thank you, Gonzalo. Please stay with us because probably you will receive some questions during the Q&A. I hope you will receive some challenge of your assumptions. I hope it will. Irina,

that's it. We can go to the Q&A I think.

Irina Axenova: Perfect. Thank you, Gonzalo. Thank you, Ricardo. And Chris, we can open the line for questions.

Operator: Thank you. We will now begin our question-and-answer session. [Operator Instructions] Today's first question comes from Joel Jackson with BMO Capital Markets. Please proceed.

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