Where Will Tesla’s Big Battery Factory Get Its Lithium Supply?

Tesla Motors Inc. has not yet lined up long-term lithium supply deals for the battery “gigafactory” it is building in Nevada, the Financial Times points out. Without such supply, it says, the facility’s touted ability to make enough lithium-ion batteries for 500,000 electric cars by 2020 is unclear.

Lithium suppliers are not an immediate issue because Tesla’s EV output remains relatively low and for now the company buys rather than makes its own battery cells. But that will change over the next two years as the company ramps up production of two more electrics: the Model X crossover and mass-market Model 3.

Tesla has predicted the scale of its $5 billion Nevada plant will immediately drive down battery prices 30% or more. The company also considers lower battery costs a vital part of its business model.

Analysts tell FT that Tesla has been demanding potential suppliers come through with low prices and contingent contracts. Several have declined. The carmaker has announced provisional supply deals with two mines in Mexico and Nevada, but neither will be ready to produce lithium in high quantities until after 2020, according to FT.

The London-based newspaper cites Benchmark Mineral Intelligence, a global consultancy on the battery supply chain, that estimates Tesla’s factory eventually will need about 24,000 metric tons per year of lithium hydroxide raw material. The firm says last year’s global market for that compound totaled 50,000 metric tons. 

Most of the world’s supply of lithium comes from Argentina, Bolivia and Chile. But analysts say efforts to develop capacity in Nevada and Mexico are likely simply because of their proximity to the Tesla battery plant.