Recent news of Tesla planning to build its own lithium refinery in the US begs the question: is this type of integration a viable option for electric vehicle manufacturers?
Elon Musk is not exactly known for thinking small.
So no one should be surprised when the Tesla chief executive officer and world’s richest person floats the idea of buying a mining company to further aid the growth of his company.
The thinking goes that such a move would give Tesla, a leading electric vehicle (EV) manufacturer valued in excess of $US500 billion, more control over the critical minerals vital to the batteries at the heart of its vehicles.
“(Buying a mining company is) not out of the question,” Musk said when asked about the possibility earlier in this year.
“We will address whatever limitations are on accelerating the world’s transition to sustainable energy.
“It’s not that we wish to buy mining companies, but if that’s the only way to accelerate the transition, then we will do that.”
But it seems buying a mining company and controlling the critical minerals vital for EV manufacturing – lithium, nickel and the like – may not be the only way for Tesla to accelerate the renewable transition.
The US-based automotive company has told the Texas Comptroller’s Office that it is assessing the feasibility of building a battery-grade lithium hydroxide refining facility on the Gulf Coast of the state to support its production of EV batteries.
Tesla said the facility, which the company indicated would be the first of its kind in North America, will process “raw ore material into a usable state for battery production”.
If the plant is approved, Tesla said construction could begin as early as the December quarter of 2022, paving the way for first commercial production in the December quarter of 2024. The plan would see Tesla ship final product from the refinery by trucks and rail to various manufacturing sites to support the supply chain for large-scale EV batteries.
Credit intelligence provider Fitch Solutions believes the proposed facility represents an “important shift” in EV manufacturers’ upstream strategy.
“We believe that the increasing popularity of the lithium-iron-phosphate cell will drive further interest from other automakers to develop similar projects,” Fitch said in a recent report, ‘Tesla refining project embodies the future of EV supply chain’.
“This planned project … offers strong synergy potential for the local EV supply chain as the US, Canada and Mexico all look to increase lithium mining.”
“You can’t lose”
Musk, for his part, has not been shy about his thoughts on the need to increase lithium refining as the world moves towards a future powered by renewables and driven by EVs.
“You can’t lose,” he said of lithium refining in Tesla’s second-quarter earnings call.
“It’s licensed to print money.”
However, the proposed refining facility is not without its risks.
Lithium supply continues to be an issue in the EV sector and there is a concern over Tesla’s ability to secure a cost-effective, long-term source of the mineral to support the plant. However, other EV manufacturers could also be getting in on the lithium-refining act.
“We expect to see additional automakers looking to vertically integrate their upstream operations in the EV supply chain by also onshoring or nearshoring refining facilities, particularly in North America and Europe, where refining capacity is low,” Fitch said in its report.
“We believe that the main concern underpinning Tesla’s refining project is to secure a cost-effective, long-term source of refined lithium … confirmed by the surge of lithium prices to record highs in September 2022.”
The demand for lithium is becoming ever stronger throughout the world.
The Australian Government’s Resources & Energy Quarterly for the September quarter of 2022 highlighted the insatiable demand for the battery
metal, which is being primarily driven by the EV sector.
“Despite faltering global economic growth in the June quarter, sales and production of electric vehicles continued their rapid growth trend,” the report said. “Global sales of all types of EVs increased 36 per cent in the year to June 2022 compared with the same period in 2021 – with Chinese sales up 110 per cent, European sales up 6 per cent, and North American sales up 27 per cent.
“In China, total EV sales have averaged almost half a million vehicles a month so far in 2022, reaching a peak of 650,000 vehicles in June.”
Fitch believes the recent passing of the Inflation Reduction Act in the US offers further support to automakers’ vertical integration plans.
“The US Inflation Reduction Act, passed in August 2022, has driven automakers to source EV battery metals from regionally-based producers and refiners,” Fitch said.
“This is because the bill has introduced a critical metals policy to its EV tax credit, requiring that 40 per cent of metals included in EV batteries must be extracted or processed in North America, or in a country that the US has a free trade agreement with.
“This project will also contribute to Tesla’s goal of reducing its battery price by creating a local, reliable source of refined lithium, and ensure that Tesla vehicles will qualify for US EV tax credits under the recently passed (Inflation Reduction Act) bill.”
As EV manufacturers build more cars to keep up with demand, the need for lithium has soared, sending prices to record levels.
The Resources & Energy Quarterly predicted prices for spodumene concentrate – a raw lithium material – to rise from an average of $US598 per tonne (t) in 2021 to $US2730/t in 2022 and $US3280/t in 2023, before pulling back to $US2490/t in 2024.
Prices for lithium hydroxide – a refined version of spodumene – are expected to lift from an average of $US17,370/t in 2021 to $US38,575/t in 2022 and $US51,510 in 2023, before cooling to $US37,650/t in 2024.
Miners urged to move faster
Looking at the lithium mining market more broadly, current production will fail to meet growth in demand for lithium-ion batteries that are needed for much of the world to meet global climate goals, according to Rio Tinto’s minerals chief Sinead Kaufman.
“We see, as others do, an enormous demand for lithium as a building stock for lithium-ion batteries,” Kaufman said at the Battery Gigafactories Asia Pacific conference in Perth in September. “Forecasts show that light electric vehicles will make up about 50 per cent of the light vehicles on the road by 2030.
“Which means that lithium consumption … needs to surge way above anything that’s currently been planned to be mined.
“With every project in the world that’s projected to come on, we’ll still be short by 50 per cent of the amount of lithium that’s required to build the electric vehicles.”
While prices will continue their climb in the coming years, the Resources & Energy Quarterly expects Australian lithium production to increase from 247,000 tonnes of lithium carbonate equivalent (LCE) in the 2021–22 financial year (FY21) to 387,000 tonnes in FY23 and 469,000 tonnes of LCE in FY24.
Relative scarcity and booming prices, combined with a global push towards decarbonisation and hugely increased demand, may create the perfect storm that sees EV manufacturers like Tesla take steps to vertically integrate their production processes and invest in mining companies or, indeed, mineral refining facilities.
“Ultimately, lithium is one of the major limiting factors to how big that actual demand number ends up being,” Andrew Miller, chief operating officer of battery metals price reporting agency Benchmark Mineral Intelligence, said at the Battery Gigafactories Asia Pacific conference.
“Fundamentally, that demand is not going anywhere.”
This feature appeared in the November issue of Australian Mining.