Where Does Tesla Get its Lithium?
Unlike some of its rivals, US electric vehicle pioneer Tesla (NASDAQ:TSLA) has been making moves to secure supply of the raw materials it needs to meet its production targets.
In recent years, lithium has caught the attention of CEO Elon Musk. Back in 2020, lithium had a spotlight moment at Tesla’s Battery Day, when Musk shared with investors that the company had bought some tenements in Nevada and was looking for a new way to produce lithium from clay — a process yet to be proven at commercial scale.
Since then, lithium prices have been on an uptrend, hitting all-time highs and currently holding on to gains. As a result of price spikes, not only for lithium but other key battery metals, battery costs have increased. Raw materials currently make up about 80 percent of battery costs, up from around 40 percent back in 2015, according to Benchmark Mineral Intelligence.
“Price of lithium has gone to insane levels,” Musk tweeted back in April. “There is no shortage of the element itself, as lithium is almost everywhere on Earth, but the pace of extraction/refinement is slow.”
Most lithium mining happens in Australia, from hard rock, and Chile, from brines. But lithium refining is dominated by China, which currently accounts for more than 75 percent of global lithium processing capacity.
“I’d like to once again urge entrepreneurs to enter the lithium refining business. The mining is relatively easy, the refining is much harder,” Musk said on a July earnings call, adding there are software-like margins to be made in lithium processing. “You can’t lose, it’s a license to print money.”
Do Tesla batteries have lithium and cobalt?
It wasn’t just lithium that saw prices climb last year — cobalt doubled in price in 2021. Most cobalt mining takes place in the Democratic Republic of Congo, which has been often associated with child labour and human right abuses, fueling concerns over supply of this battery metal in the long term.
In its batteries, Tesla is known for using nickel-cobalt-aluminum (NCA) cathodes developed by Japanese company Panasonic (TSE:6752). This type of cathode has higher energy density and is a low cobalt option, but has been less adopted by the industry compared to the widely used nickel-cobalt-manganese (NCM) cathodes. Those aren’t the only cathodes containing cobalt that Tesla plans to use; South Korean LG Energy Solutions is working on supplying Tesla with batteries using nickel-manganese-cobalt-aluminum cathodes.
That said, not all Tesla’s batteries contain cobalt. For its standard-range vehicles, Tesla said last year it was changing the battery chemistry it uses to lithium-iron-phosphate (LFP) cathodes. This type of cathode is cobalt- and nickel-free. At the time, the company was already making vehicles with LFP chemistry at its factory in Shanghai, which supplies markets in China, the Asia-Pacific region and Europe.
How much lithium is in a Tesla battery?
For those interested in the electric vehicle space, it is a fair question to ask — how much lithium is there really in a Tesla battery? The answer is that even though it might not be huge compared to other raw materials, it can become a hurdle for any EV maker if there’s not enough, and enough of the right quality.
Back in 2016, Musk said batteries don’t need as much lithium as they need nickel or graphite — describing lithium as “the salt in your salad” — saying it is about 2 percent of the cell mass.
Metal content of battery chemistries by weight.
Chart via BloombergNEF.
But a key factor to remember is volume — given the amount of batteries Tesla needs to deliver its ambitious goals, if it can’t secure a steady supply of raw materials, it could hit a bottleneck. Of course this is true not just for Tesla, but for every carmaker producing EVs today and setting targets for decades to come.
In fact, demand for lithium is expected to soar in coming years. By 2030, Benchmark Mineral Intelligence forecasts lithium demand will reach 2.4 million metric tons (MT) lithium carbonate equivalent — much higher than the forecasted 600,000 MT of supply expected to be produced in 2022.
Which lithium companies supply Tesla?
There is not only one company that supplies lithium to Tesla. At the end of 2021, Tesla inked a fresh three-year lithium supply deal with top lithium producer Ganfeng (OTC Pink:GNENF,SZSE:002460). The Chinese company will provide products to Tesla for three years starting from 2022. Top lithium producers Livent (NYSE:LTHM) and Albemarle (NYSE:ALB) also have supply contracts in place with the US EV maker, and China’s Sichuan Yahua Industrial Group (SZSE:002497) agreed to supply battery-grade lithium hydroxide to the EV maker back in 2020 for a period of five years.
The company also holds deals with junior mining companies for production that is yet to come on stream. Australia’s Liontown Resources (ASX:LTR) is set to supply Tesla with lithium spodumene concentrate from its AU$473 million Kathleen Valley project. The deal is for an initial five year period set to begin in 2024, conditional on Liontown starting commercial production by 2025.
Core Lithium (ASX:CXO), another ASX-listed company, also signed a deal with Elon Musk’s Tesla to supply the car company with up to 110,000 MT of lithium oxide spodumene concentrate from its Finniss lithium project over four years. Core will begin supplying Tesla in the second half of 2023.
Even though Tesla has secured lithium from all these companies, the EV supply chain is a bit more complex than buying lithium directly from miners. Tesla also works with battery makers, such as Panasonic or CATL (SZSE:300750), which themselves work with other chemical companies that secure their own lithium deals.
Will Tesla buy a lithium mine?
For carmakers, securing lithium supply to meet their electrification goals is becoming a challenge, which is why the question on whether they would become miners in the future continues to come up.
As mentioned before, back in 2020, at the company’s Battery Day event, Musk surprised the lithium industry by saying Tesla had acquired rights to lithium-rich clay deposits in Nevada, saying it had found a way to mine the material in a sustainable and simple way — using table salt and water.
But mining lithium is not an easy task and one that, despite speculation, is hard to imagine an automaker being involved in, SQM’s (NYSE:SQM) Felipe Smith said at an event in June.
“You have to build a learning curve — the resources are all different, there are many challenges in terms of technology — to reach a consistent quality at a reasonable cost,” he said. “So it’s difficult to see that an OEM, which has a completely different focus, will really engage into these challenges of producing.”
Original equipment manufacturers (OEMs) are coming to the realization that they might need to build up EV supply chains from scratch after the capital markets’ failure to step up, according to Benchmark Mineral Intelligence’s Simon Moores. Furthermore, automotive OEMs that are making EVs will in effect have to become miners.
“I don’t mean actual miners, but they are going to have to start buying 25 percent of these mines if they want to guarantee supply — paper contracts won’t be enough,” he said.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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