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Could Tesla Mine Its Own Lithium?

Rene Anthony

Sunday, April 10, 2022

Sunday, April 10, 2022

Always one to approach things with a unique take, Elon Musk is talking about the prospects of Tesla mining its own lithium.

Always one to approach things with a unique take, Elon Musk is talking about the prospects of Tesla mining its own lithium.

Hot on the heels of opening new factories in Berlin and Texas, and shortly after announcing plans for a second stock split in two years, Elon Musk is raising the prospect that Tesla (NASDAQ: TSLA) could look at mining its own lithium.

Last week, the visionary tech magnate tweeted: 

Price of lithium has gone to insane levels! Tesla might actually have to get into the mining & refining directly at scale, unless costs improve. There is no shortage of the element itself, as lithium is almost everywhere on Earth, but pace of extraction/refinement is slow

Why might Tesla want to mine its own lithium?

The answer is quite straightforward and boils down to the fact that lithium is a major input in electric vehicle batteries. Why lithium? It is the lightest metal and also the least dense solid element, both of which underpin its significant power-to-weight ratio.

With lithium prices skyrocketing over recent years, it has had an impact on production costs for Tesla, and the broader auto industry. 

Tesla still boasts industry-leading margins, but it has pushed through a series of price hikes to retain these margins. The development of a budget EV targeting the US$25,000 mark has also been delayed as it develops new batteries.

By taking control of its own battery supply chain, overseeing the entire mining to marketing process, Tesla could decrease its dependence on lithium producers and potentially gain more control over costs. In effect, the company would no longer be a price-taker, something it currently faces by virtue of the fact that lithium producers have largely been able to stipulate selling prices.

Just take a look at the growth in lithium prices over the last decade. In the last year alone, lithium prices have soared more than 450%.

š�”‹ Lithium price ($/tonne):

2022: $78,032

2021: $17,000

2020: $6,800

2019: $11,310

2018: $14,660

2017: $12,070

2016: $8,840

2015: $5,110

2014: $4,680

2013: $4,750

2012: $4,450

World of Statistics (@stats_feed) April 8, 2022

For a better representation, just take a look at the Benchmark Lithium Price Index from  Benchmark Mineral Intelligence.

Could Tesla Mine Its Own Lithium?

With prices trading in a parabolic manner, and no shortage of lithium deposits across many jurisdictions throughout the world, Musk is making the case that there is upside if it can bring its lithium supply in-house.

Has Tesla previously considered mining lithium?

It is not the first time Musk and Tesla have looked at taking matters into their own hands to secure their own lithium supply. 

In 2020, the company attained mining rights over 10,000 acres of lithium-rich clay deposits in Nevada, which followed unsuccessful negotiations that sought to acquire Cypress Development Corp, an explorer that was trying to extract lithium from clay deposits in southwest Nevada.

In the immediate aftermath of the breakdown in negotiations, Musk put forward a plan for Tesla to get directly involved in lithium mining in order to cut battery costs. Nothing has come of those plans since, with the economics and low recovery rates associated with stripping lithium from clay deposits often cited as an impediment. 

The company was said to be focusing on developing a process to extract lithium using sodium chloride, or table salt, rather than costly chemical reagents. Since then, however, Tesla has sought to attain its future lithium from suppliers like Piedmont Lithium (ASX: PLL), leveraging the expertise of dedicated players in this space.

With Elon Musk at the helm, you never quite know what to expect. Tesla has made a name for itself over the years in acting as a pioneer in the EV space, even making its own silicon chips as other auto-makers deal with the fall-out of a global semiconductor shortage. Could it separate itself from its peers again by mining its own lithium? Watch this space.

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