Tesla yet to nail down lithium supply

By Myles McCormick
Published: Monday, 21 December 2015

Minimal lithium from current deals pre-2020; Gigafactory due to come online late 2016.

Tesla Inc. is likely to be forced into paying high market prices for the lithium needed to prodcue lithium-ion (Li-ion) batteries at its Reno, Nevada-based Gigafactory in the US for the facility’s initial years of operation, the UK’s Financial Times (FT) has reported. 

Neither of the companies the electric vehicle (EV) manufacturer has signed up to provide lithium hydroxide supply deals is due to produce substantial amounts of the material before 2020. As a result, Tesla could be left short as it looks to bring the Gigafactory online by the end of 2016.

"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," Joe Lowry, founder of consultancy, Global Lithium, told the FT

"The most likely outcome is Tesla will pay high market prices for lithium through at least the end of the decade," he added. 

In August, Tesla signed its first lithium supply deal with UK and Canada-listed Bacanora Minerals Ltd, which is in the process of developing the Sonora project in Mexico. The announcement caused uproar among Nevada politicians who had hoped Tesla would use a local supplier, given the $1.3bn in tax breaks it had been provided to locate the plant in Reno.

Bacanora hopes to complete a prefeasibility study (PFS) at Sonora in Q1 2016.

A further deal was signed in September with Canadian explorer Pure Energy Minerals Ltd, which is in the process of bringing its Clayton Valley project online, 365km away from the Gigafactory. It aims to complete a preliminary economic assessment (PEA) of the site in Q2 2016.

Both deals were subject to a number of conditions and were set at prices below the market level. 

The three major lithium producers – Albemarle Corp. and FMC Corp., headquartered in the US, and SQM in Chile – have been unwilling to supply lithium at the prices demanded by Tesla, according to the FT.

Meanwhile, recent reports by the Chilean press have suggested that Tesla may be looking to arrange a supply deal with Chilean state-owned Codelco, the world’s largest producer of copper. 

According to local newspaper, Pulso, senior Tesla executives met with Chilean government officials to propose a cooperation arrangement with the copper miner.

Pulso reported that Codelco has been working for some on a plan to exploit lithium reserves contained within the salares of Maricunga and Pedernales in north-central Chile.

However, Codelco does not currently have any involvement in lithium extraction or any of the necessary infrastructure or expertise to pursue such a venture, meaning a partnership with a third party operator would likely be required were the deal to proceed.

A move by Codelco into the lithium industry would be in line with the recommendations of the National Lithium Commission of Chile, published earlier this year.

The report proposed "the creation of a state-controlled business, dedicated to the exploitation of the salt flats, especially lithium, which would favour a private-public partnership business model, incorporating shared value as a guiding principle".