The popularity of electric vehicles (EVs) is surging as the world embraces cleaner and more sustainable transportation options. Factors such as environmental consciousness, government incentives, advancements in battery technology and a growing charging infrastructure have all contributed to this upward trajectory.
Tesla Inc (NASDAQ: TSLA) is the first and foremost company associated with this change in technological mindset, and a handful of questions have arisen in previous years regarding this upward trajectory and the future of electric vehicles in general. Among them are questions regarding the constituent components of the electric vehicle battery, and more specifically, lithium.
So where does Tesla gets it lithium from? Mostly, the answer is China.
Almost 40 per cent of the suppliers providing materials for Tesla’s electric vehicle batteries are Chinese companies, according to a Nikkei analysis.
This highlights China’s significant presence in a strategically vital sector. China emerged as the largest supplier of materials for Tesla’s lithium-ion batteries, making up 39 per cent of the 61 companies categorized under “storage battery” in the American electric vehicle manufacturer’s supply chain.
These findings pose complex implications as countries intensify regulations and increase investments to secure materials crucial for economic security. China seems to be gaining an advantage in the global market for battery materials, which are essential for EV manufacturing.
However, Tesla doesn’t rely on a single source for its lithium supply.
By the close of 2021, Tesla had entered into a fresh three-year lithium supply agreement with Ganfeng Lithium Co Ltd (SZSE: 002460) (SEHK: 1772), one of the leading lithium producers globally, commencing in 2022.
Furthermore, Livent Corporation (NYSE: LTHM) and Albemarle Corporation (NYSE: ALB) have existing supply contracts with Tesla. In 2020, China’s Sichuan Yahua Industrial Group (SHE: 002497) also established an agreement to supply Tesla with battery-grade lithium hydroxide for a five-year period.
Beyond major companies, however, Tesla has further diversified its lithium sourcing by engaging with junior mining companies for upcoming production.
Liontown Resources (ASX: LTR), for example, is slated to provide Tesla with lithium spodumene concentrate from its Kathleen Valley project for an initial five-year period starting in 2024, subject to Liontown’s commercial production launch by 2025.
While negotiations between Tesla and Core Lithium (ASX: CXO) regarding lithium supply from the Finniss project fell through in October 2022, the lithium firm remains open to future discussions.
Additionally, in January 2023, Tesla amended its agreement with Piedmont Lithium (ASX: PLL), which is now set to supply spodumene concentrate from the North American Lithium operation, developed in partnership with Sayona Mining Limited (ASX: SYA), delivering approximately 125,000 MT of spodumene concentrate to Tesla from the latter half of 2023 to the end of 2025.
However, it’s essential to note that Tesla’s electric vehicle supply chain is more intricate than simply procuring lithium from miners; the company collaborates with battery manufacturers like Panasonic Holdings Corporation (TYO: 6752) and Chinese battery manufacturer, Contemporary Amperex Technology Co. Limited (or CATL) (SHE: 300750), who, in turn, engage with various chemical companies to secure their own lithium supply arrangements.
Read more: What are the top five largest lithium companies in the world?
Musk starts construction on its own lithium refinery in Texas
Musk is also looking to produce lithium in-house and break his company’s reliance on other companies.
Tesla officially initiated construction on a lithium refinery in Texas in early May, marking it as the sole U.S. automaker to engage in lithium refining.
Musk has indicated that this facility will generate sufficient battery-grade lithium to power one million electric vehicles by 2025, potentially establishing Tesla as the largest lithium processor in North America. Despite this move, Tesla will continue to maintain relationships with existing suppliers such as Albemarle and Livent as it strives to achieve its 2023 sales target of approximately 1.8 million vehicles worldwide.
Presently, the United States contributes just 1 per cent of the world’s lithium production, with Australia, Chile, and China taking the lead. The EV tax credit introduced by the Biden administration aims to stimulate domestic sourcing and production of battery materials, reducing the United States’ dependency on China, which houses 60 per cent of the world’s lithium refining capacity and nearly 80 per cent of the global lithium-ion battery production capacity.
Musk stated that the company’s goal is to complete construction of the refinery by next year, with full-scale production scheduled for 2025. He characterized this timeline as “remarkably rapid when compared to conventional industry standards.”
According to documents filed with the Texas Comptroller, Tesla has committed $375 million for the construction of this facility. This represents Tesla’s most recent foray into Texas, a journey that commenced with the relocation of its headquarters from California to the state in 2021.
The automaker injected nearly $6 billion into its Austin gigafactory in the previous year. Furthermore, in January, Tesla disclosed its intention to invest an additional $770 million in expanding the factory to encompass cathode and drive unit manufacturing, along with the establishment of a battery cell testing site.
Tesla shares dipped 3.4 per cent to USD$247 on Friday on the NASDAQ exchange.
joseph@mugglehead.com
