Elon Musk’s recent musings that high lithium prices may force Tesla Inc to make its own supply of the electric vehicle battery metal have fueled hopes by some that the billionaire entrepreneur will instead opt for a buyout of an established mining company.
The auto giant already has supply contracts for nickel, lithium and a range of other EV metals from suppliers across the globe. But it needs more, and industry analysts say Tesla may soon realize that building a mine or processing facility from scratch is not as easy as it sounds and the automaker should instead consider a buyout.
“Price of lithium has gone to insane levels! Tesla might actually have to get into the mining & refining directly at scale, unless costs improve,” the Tesla chief executive tweeted earlier this month. Lithium prices are up more than 80 per cent this year and nickel prices have gyrated heavily amid trading turmoil in London.
The billionaire entrepreneur had already complained about “significant” jumps in raw materials costs for Tesla, which has raised prices of its vehicles twice this year.
“Should management be serious about entering the lithium space, we think the most likely route would be an acquisition of an existing lithium company,” said Morningstar lithium analyst Seth Goldstein.
Shares of junior miner Lithium Corp jumped more than 30 per cent on April 13 after unsubstantiated reports that it and its Nevada brine deposits had been sold to Tesla, a rumor the company denied. Shares of larger lithium producers, such as Albemarle Corp, reacted little to Musk’s tweets.
“Elon, if you want to talk to us, come and say hello,” said Tom Lewis, Lithium Corp’s CEO, who said the buyout rumors likely were an “orchestrated plan to pump (our shares) up a bit.”
Amid the minerals talk, Musk last week made a $43 billion cash offer to buy social networking platform Twitter Inc .
“If you’re going to spend $43 billion and you run Tesla and you understand better than anyone Tesla’s future lithium needs, you might want to spend a lot less and buy a lithium company or two,” said lithium industry consultant Joe Lowry.
‘A HUGE DISCONNECT’
Tesla has never operated a mine, but it is building a lithium processing plant in Texas and may need to build a nickel refinery.
“There’s a huge disconnect in this country about metals refining,” said Corby Anderson, who teaches metallurgy at the Colorado School of Mines. “And yet the public expects the materials to be available to do the things they want.”
U.S. President Joe Biden said this month he would use a Cold War-era piece of legislation to boost government funding for metals processing, though not for new mines.
In January, Tesla said it will buy 75,000 tonnes of nickel concentrate from Talon Metals Corp’s proposed Tamarack mine project in Minnesota, starting in 2026.
Musk asked the mining industry in 2020 to produce more nickel “in an environmentally sensitive way,” and Talon has said it has plans to honor that request.
But it is not clear what Tesla will do with that nickel concentrate, which needs to be smelted into a product known as matte and further refined before it can be used to build battery parts.
The United States does not have any facilities to do that processing, with the exception of a small salt byproduct facility. Canada has a handful of nickel smelters and refineries, though it mines more than those facilities can handle and relies on refineries in Norway and the United Kingdom.
That means Tesla would either have to build its own facilities to process nickel, or rely on overseas companies, thus boosting the nickel’s carbon footprint.
Musk has hinted the company may have a new method to turn nickel into the material needed for battery cathodes, but has not provided details. Tesla did not respond to a request for comment.
The automaker also recently struck a deal with Brazilian mining company Vale SA to supply nickel, according to media reports. Vale declined to comment.
For lithium, Tesla is building a plant in Texas that will convert spodumene concentrate - processed rock containing the metal - into lithium hydroxide, a key building block for EV batteries.
The automaker applied for Texas permits for its facility last year, according to state records, though it is unclear when that facility will open.
A lithium supply deal with Piedmont Lithium Inc was put on hold last year. Tesla also has lithium supply deals with Liontown Resources Ltd, Ganfeng Lithium Co and Core Lithium Ltd.
Musk’s tweets, analysts said, are likely born from a desire to push down spot lithium prices. Most lithium producers, though, prefer to sell the metal on long-term contracts with fixed prices that help them plan for future demand.
Livent Corp and Albemarle, which are also Tesla suppliers, have said they will not build more processing plants if automakers fail to sign long-term deals.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.