As the energy transition continues to unfold, US electric vehicle (EV) pioneer Tesla (NASDAQ:TSLA) has been making moves to secure supply of the raw materials it needs to meet its production targets.
Lithium in particular has caught the attention of CEO Elon Musk. Back in 2020, the battery metal had a spotlight moment at Tesla’s Battery Day, when Musk shared that the company had bought tenements in the US state of Nevada, and was looking for a new way to produce lithium from clay — a process yet to be proven at commercial scale.
Since then, lithium prices went on to hit all-time highs before swiftly declining throughout 2023 and have remained subdued into the first half of 2024. Prices for other key battery metals have also decreased as EV sales growth has fallen across most global markets in the face of economic uncertainty and higher interest rates. According to Goldman Sachs research, EV battery costs are at record lows are are forecasted to fall by 40 percent between 2022 levels to 2025.
In a mid-2023 Tesla earnings call, Musk seemed relieved to see prices for the battery metal had declined. “Lithium prices went absolutely insane there for a while,� he said. Lower battery prices will bring EVs closer to cost parity with internal combustion engines vehicles, leading to wider adoption and increased demand.
Most lithium mining happens in Australia from hard-rock sources and in Chile from brines. But lithium refining is dominated by China, which currently accounts for more than 75 percent of global lithium processing capacity.
Read on to learn more about where Tesla gets its lithium, how much lithium is in a Tesla battery and what the EV maker is doing to better secure its lithium supply chain.
Which lithium companies supply Tesla?
Tesla has deals with multiple lithium suppliers, some of which are already producing and some that are juniors developing lithium projects.
At the end of 2021, Tesla inked a lithium supply deal with top lithium producer Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460). Under the agreement, the Chinese company began providing products to Tesla for three years starting in 2022. Major miner Arcadium Lithium (NYSE:ALTM) also has supply contracts in place with the EV maker, and China’s Sichuan Yahua Industrial Group (SZSE:002497) agreed to supply battery-grade lithium hydroxide to Tesla through 2030.
The company also holds deals with junior miners for production that is yet to come on stream. Liontown Resources (ASX:LTR,OTC Pink:LINRF) is set to supply Tesla with lithium spodumene concentrate from its AU$473 million Kathleen Valley project. The deal is for an initial five year period set to begin this year, and production is currently expected to begin in mid-2024.
In January 2023, Tesla amended its agreement with Piedmont Lithium (ASX:PLL,NASDAQ:PLL), which is now set to supply the US automaker with spodumene concentrate from the past-producing North American Lithium operation — a project Piedmont is developing with Sayona Mining (ASX:SYA,OTCQB:SYAXF).
Even though Tesla has secured lithium from all these companies, the EV supply chain is a bit more complex than buying lithium directly from miners. Tesla also works with battery makers, such as Panasonic and CATL (SZSE:300750), which themselves work with other chemical companies that secure their own lithium deals.
What are Tesla batteries made of?
Tesla vehicles use several different battery cathodes, including nickel-cobalt-aluminum (NCA) cathodes and lithium-iron-phosphate (LFP) cathodes.
Tesla is known for using NCA cathodes developed by Japanese company Panasonic (OTC Pink:PCRFF,TSE:6752). This type of cathode has higher energy density and is a low-cobalt option, but has been less adopted by the industry compared to the widely used nickel-cobalt-manganese (NCM) cathodes. Aside from that, South Korea’s LG Energy Solutions (KRX:373220) supplies Tesla with batteries using nickel-cobalt-manganese-aluminum (NCMA) cathodes.
As mentioned, it wasn’t just lithium that saw prices climb in 2021 — cobalt doubled in price that same year, and although it has declined since then, the battery metal remains essential for many EV batteries. Most cobalt mining takes place in the Democratic Republic of Congo, which is often associated with child labor and human rights abuses, fueling concerns over long-term supply.
That said, not all Tesla’s batteries contain cobalt. In 2021, Tesla said that for its standard-range vehicles it would be changing to lithium-iron-phosphate (LFP) cathodes, which are cobalt- and nickel-free. At the time, the company was already making vehicles with LFP chemistry at its factory in Shanghai, which supplies markets in China, the Asia-Pacific region and Europe.
In April 2023, Tesla announced that it planned to use this type of cathode chemistry for its short-range heavy electric trucks, which it calls ‘semi light.’ The company is also looking to use LFP batteries in its mid-sized vehicles.
At the top of this year, Tesla made moves to produce LFP batteries at its Sparks, Nevada battery facility in reaction to the Biden Administration’s new regulations on battery materials sourcing, especially on those sourced from China. Reuters reports Tesla battery supplier CATL will sell idle equipment to the car maker for use at the plant, which will have an initial capacity of about 10 gigawatt hours.
What company makes Tesla’s batteries?
Tesla works with multiple battery suppliers, including Panasonic, its longtime partner, as well as LG Energy Solutions, the second largest battery supplier in the world. They supply the EV maker with cells containing nickel and cobalt.
China’s CATL has been supplying LFP batteries to Tesla for cars made at its Shanghai plant since 2020. It’s also been reported that BYD Company (OTC Pink:BYDDF,SZSE:002594) is supplying Tesla with the Blade battery — a less bulky LFP battery — which the car manufacturer has used in some of its models in Europe.
How much lithium is in a Tesla battery?
How much lithium do Tesla batteries actually contain? That question is tricky because many factors are at play. Typically, it depends on battery chemistry, as demonstrated by the chart below, as well as battery size.
For example, the standard Tesla Model S contains about 138 pounds, or 62.6 kilograms, of lithium; it is powered by a NCA battery which has a weight of 1,200 pounds or 544 kilograms.
The amount of lithium in a Tesla battery can also vary based on model and year as the battery chemistries and weights are often changing with each new iteration. For example, the newer Tesla Model S Long Range reportedly contains as much as 771 pounds, or 350 kilograms, of lithium.
Back in 2016, Musk said batteries don’t require as much lithium as they do nickel or graphite — he described lithium as ‘the salt in your salad.’ As the chart below shows, the metal only makes up about a 10th of the materials in each battery.
Metal content of battery chemistries by weight.
Chart via BloombergNEF.
But a key factor to remember is volume — given the amount of batteries Tesla needs to meet its ambitious goals, it could hit a bottleneck if it can’t secure a steady supply of raw materials. Of course, this is true not just for Tesla, but for every carmaker producing EVs today and setting targets for decades to come.
For that reason, demand for lithium-ion batteries is expected to soar in the coming years. By 2030, Benchmark Mineral Intelligence forecasts that demand will grow by 400 percent to reach 3.9 terawatt-hours. Over the same forecast period, the firm sees the current surplus in the lithium supply coming to end.
Where is Tesla’s lithium refinery?
Tesla broke ground on its in-house Texas lithium refinery in the greater Corpos Christi area of the state last year. Tesla’s lithium refinery capacity is expected to produce 50 GWh of battery-grade lithium per year. Musk said in late 2023 that construction of the lithium refinery would be completed in 2024, followed by full production in 2025.
Will Tesla buy a lithium mine?
For carmakers, securing lithium supply to meet their electrification goals is becoming a challenge, which is why the question of whether they will become miners in the future continues to come up.
But mining lithium is not easy, and despite speculation, it’s hard to imagine an automaker being involved in it, SQM’s (NYSE:SQM) Felipe Smith said. “You have to build a learning curve — the resources are all different, there are many challenges in terms of technology — to reach a consistent quality at a reasonable cost,â€� he noted. “So it’s difficult to see that an original equipment manufacturer (OEM), which has a completely different focus, will really engage into these challenges of producing.â€�
Even so, OEMs are coming to the realization that they might need to build up EV supply chains from scratch after the capital markets’ failure to step up, Benchmark Mineral Intelligence’s Simon Moores believes. Furthermore, automotive OEMs that are making EVs will in effect have to become miners.
“I don’t mean actual miners, but they are going to have to start buying 25 percent of these mines if they want to guarantee supply — paper contracts won’t be enough,â€� he said.
However, last year Musk made it clear to investors that Tesla is more focused on developing its lithium refining capabilities, rather than getting into the mining game.
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
