Why Tesla’s focus on Lithium is a wrong move

(Forbes9) – Lithium mining today, so why not nickel mining tomorrow? That’s a question which investors in Tesla and other electric car (EV) makers ought to consider as a raw material rush heats up.

Right now, there’s not a shortage of most metals used in EV batteries, with the possible exception of cobalt, which makes Tesla’s decision to stake a claim to its own 10,000 acre patch of lithium-rich clay in Nevada quite interesting.

A second U.S.-focused lithium deal added to the intrigue with Tesla signing a five-year contract with a small company which has plans to produce lithium in North Carolina.

It also led to these questions; how far up the mineral supply chain is Tesla prepared to go to guarantee future supplies, and does it need to become a miner, which means exposure to an entirely new set of business risks?

Securing future supplies of battery metals appears to have become a priority for Tesla which is working towards the release of more affordable EVs.

But, in lowering the cost of a standard Tesla to around $25,000 there could also be a big increase in demand for battery metals and that means ensuring that essential material is on hand with lithium top of the list, but with nickel not far behind.

Cobalt Supply Risk

Of the cocktail of metals used in the current generation of metals it is cobalt that represents the greatest supply risk thanks to it being largely sourced from high-risk countries in central Africa, such as the Democratic Republic of Congo.

Tesla’s solution to cobalt risk is to redesign its batteries so they use minimal amounts of cobalt with the plan being to eliminate the metal altogether.

Lithium and nickel are different because the chemistry of the current generation of batteries requires large amounts of both, and of the two it is nickel which seems more likely to face a future period of short supply.

The outlook for lithium, according to a detailed analysis published last week of the metals market by Morgan Stanley, an investment bank, was for abundant supply and little evidence of a price increase, at least in the short term.

No Shortage Of Lithium, Yet

A boom-time price for lithium carbonate of $18,000 a ton in 2017 has given way to a lithium price today around $5500/t, with a slide to $5400/t by 2023 forecast by Morgan Stanley, with higher prices in future years.

A stampede into lithium mining three years ago has created a global glut which will take years to shift, and even then there are mothballed lithium mines waiting for a price signal to resume production.

It’s into that market of an already over-supplied, and easy to produce lithium, that Tesla reckons it can produce raw material cheaper than specialist miners.

But if the plan at Tesla is to secure access to its own raw materials, which is what car makers such as Ford did in their early years, then the battery metal which could be most important to Tesla is nickel

Price is one reason why Tesla might be looking at its own supplies of nickel with a strong recovery developing as the primary market for the metal, stainless steel, picks up, especially in China.

From $5 a pound as recently as March nickel has risen to trade around $6.50/lb and is forecast by Morgan Stanley to top the $7/lb mark next year.

Environmental sustainability is another issue with questions routinely raised about a mining and processing technology called Nickel Pig Iron which has caused problems in country’s such as Indonesia and the Philippines.

If Tesla is serious about ensuring future supplies of essential raw materials then nickel ought to be top of its mining plans.

Tim Treadgold
I studied geology in the 1960s and worked for a small mining company before getting a start in journalism during the 1969 nickel boom. Since then I’ve covered repeated…