Power station: a Tesla Model S charges its batteries
On the edge of the Nevada desert, Tesla, the electric carmaker, is building the world’s largest battery plant.
The mile-long, so-called Gigafactory is expected to boost demand for lithium, the raw material used in the batteries that power most electric cars.
But the company has yet to announce any lithium supply deals with big producers, leaving it unclear where it will source the lightweight natural material it will need to start producing batteries by 2017 with Panasonic, its partner.
The Gigafactory is set to supply batteries for the 500,000 cars Tesla hopes to produce by the end of the decade, as well as to power homes. The company hopes that by supplying its own batteries it can cut its costs per kilowatt-hour by more than 30 per cent, crucial for the mass-market uptake of electric vehicles.
But that will require secure, long-term supplies of lithium, more than 70 per cent of which is found in Chile, Argentina and Bolivia. Due to growth in demand for electric batteries, the global lithium market is approaching a shortage, with no new supply coming on stream next year, say analysts. At the same time, battery factories being built in China are set to increase demand for lithium.
“Raw material availability is probably the biggest challenge facing the Gigafactory outside of the need for basic demand,” says Benchmark Mineral Intelligence, a consultancy in London. “It is also the only area of the electric vehicle supply chain where Tesla does not have ownership and control.”
The company tried to buy Simbol Materials, a California-based lithium start-up, in June 2014 but it has since gone into receivership, said a person familiar with the matter.
“The current strategy seems to be no direct investment but leveraging the Tesla name by signing ‘contingent’ contracts at unachievably low prices with junior mining companies who have never produced lithium chemicals,” says Joe Lowry, a market expert and founder of Global Lithium, a consultancy.
“The most likely outcome is Tesla will pay high market prices for lithium through at least the end of the decade,” adds Mr Lowry, who formerly worked for FMC Lithium, one of the big producers.
So far two companies have announced supply deals with Tesla, and neither is expected to produce substantial amounts of lithium until after 2020. That could leave the company short of the lithium it needs when its factory starts operating — or trying to sign supply agreements when the price of lithium hydroxide is higher.
Tesla will need about 24,000 tonnes annually of lithium hydroxide, according to Benchmark Mineral Intelligence, out of a market last year of 50,000 tonnes.
Elon Musk, Tesla’s founder, has said the company will seek to use lithium from Nevada, where Albemarle’s Silver Peak mine is the only operation producing the material in the US.
The mine produced 870 tonnes when it was owned by Rockwood in 2013 before Albemarle bought the company for $6.2bn last year, according to the latest available data.
Analysts say Albemarle of Baton Rouge, FMC Lithium of Philadelphia and SQM of Chile, the big producers of lithium, have not been willing to supply at the prices Tesla has demanded.
“Tesla is not the biggest piece of the pie,” one smaller producer says. “It’s the dog that barks that doesn’t bite.”
Tesla says none of the announced supply agreements is exclusive and that not all its lithium will come from these suppliers.
FMC Lithium says it is in continuous sourcing discussions with many of the leading electric vehicle manufacturers, including Tesla. Albemarle says it cannot discuss any information related to its supply agreements. SQM did not respond to a request for comment.
In August, Bacanora Minerals, which is in the preliminary stages of developing the Sonora project, a lithium plant in Mexico, said it had signed a conditional agreement with Tesla to supply lithium hydroxide. That sent Bacanora’s shares up by about a quarter on the day.
Last month the Toronto-listed company raised £8.8m through issuing new shares for the project, which is not expected to start its first phase of production until the first half of 2018.
In September Mr Musk said on Twitter that the Bacanora deal “is not exclusive and has many contingencies”.
The same month, Pure Energy Minerals said it had entered into an agreement with Tesla for the “potential” supply of lithium hydroxide. The Toronto-listed company plans to produce this from the project in Nevada, in the same basin as Albemarle, about three and a half hours’ drive from the Gigafactory.
The company said the agreement sets a “predetermined price that is below current market rates and is aligned with Tesla’s goal to continuously reduce the cost of its lithium ion batteries”.
As the factory comes into production that is likely to spur other small producers in the US, according to analysts.
“You’re going to see a lot more people digging for lithium brine in Nevada,” one producer adds. “For just its closeness to the factory.”
©Bloomberg
