Tesla's raw material shift could set a wider precedent

Tesla's attempt to move into raw materials production could pave the way for other carmakers as they attempt to transition to mass market electric vehicle (EV) production, ushering in the pursuit of more vertically integrated supply chains for the auto sector.

Raw materials have always been a key obstacle to EVs going mass market. Until now, most carmakers have relied on a more separated, globalised supply chain. Tesla's move into the space could go some way to meeting a projected 1.79mn t/yr demand by 2030, according to Chile's state mining agency Cochilco .

Last week, Tesla unveiled plans to produce lithium from clay in the Nevada desert, and today it announced an agreement with Piedmont for the supply of lithium spodumene from the mine developer's North Carolina deposit.

But Tesla chief executive Elon Musk may look further than lithium, with market participants predicting supply bottlenecks for cobalt and nickel in the coming years. "I'd just like to re-emphasise, any mining companies out there, please mine more nickel," said Musk during Tesla's last quarterly conference call. "Wherever you are in the world, please mine more nickel... Tesla will give you a giant contract for a long period of time, if you mine nickel efficiently and in an environmentally sensitive way."

While Musk has said before that he wants to end cobalt use in Tesla batteries, other battery producers, such as CATL and LG Chem, have also expressed that interest in the past, but all still use cobalt in some cells. Even if Tesla does move away from cobalt, other battery producers will not.

US cobalt prices were last assessed at $15.40-16/lb on 22 September while Chinese nickel sulphate prices were assessed at Yn27,500-32,000/mt ex-works, their highest in nine months.

A new round of mining investment If carmakers become more willing to involve themselves in raw materials, it would spark a round of investment in smaller, more localised mining projects.

Some of the world's largest auto companies, such as Volkswagen and Toyota, could enter the mining industry.

So far, most have been comfortable with long-term agreements with large battery makers like LG Chem and CATL, but events this year could cause a shift in attitudes. Car companies will also be reluctant to cede first mover advantage to Musk again, as they did in the first phase of EV development.

"If you do not control your battery technology and raw materials supply chain, you will get left behind," president of First Cobalt Trent Mell said in response to Tesla's battery day event. "Simply put, the supply of EVs will grow too quickly for mines, refiners and cell manufacturers to keep up and there will be casualties as established automotive companies move towards an electric future."

While Tesla has a history of buying small engineering firms such as Maxwell and software companies, it may be tempted by small scale battery metal miners in North America, such as First Cobalt.

Other carmakers too, could see smaller scale, local mining operations as attractive investments. There are several small scale lithium projects in Europe that could be bought or invested in by carmakers seeking to control their supply chain.

As carmakers emerge from the Covid-19 crisis they will be reviewing supply arrangements. Investing in localised mining could insulate them from global shocks, such as the coronavirus, and contribute to overall sustainability targets, adding extra incentives for moves like Tesla's.

"Tesla's strategic decision to vertically integrate into battery manufacturing is a harbinger of things to come and a warning to other EV manufacturers on the strategic importance of controlling supply chains," said Mell.

By Thomas Kavanagh

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