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Comparing EV Battery Commodities: Lithium, Nickel, and Graphite

November 10, 2020
Thanh Doan

Self-Sourcing versus Purchasing of Battery Raw Materials

Tesla has been on a manhunt to secure its lithium supply chain as prices for the raw material are always in a state of perpetual flux.

Tesla’s aggressive outlook on securing their lithium supply chain led to them buying out Piedmont Lithium, a move that could potentially save them $150 million every year. This requires a sizable investment from Tesla at over $750 million (to buy Piedmont Lithium, build their mine, and construction of a chemical plant to convert ores to LiOH).

Experts argue that this ‘self-secure’ arrangement will pay for itself in the course of the next 4 years. More importantly, it will give Tesla complete control over its lithium supply chain and make them immune to price hikes. Tesla’s arrangement with Piedmont guarantees its supply of Lithium for up to 10 years. While Piedmont’s mine isn’t operational yet, it will deliver the product to Tesla by 2022.

This classic approach to self-sourcing vs. purchasing allows Tesla to lower the cost of its battery commodities battery costs to an extremely competitive range. Competitors like General Motors, Volkswagen, and Ford would have a much harder time keeping up with Tesla’s aggressive pricing strategy. This either completely decimates their profit margins or forces them to increase prices so prohibitively high that it will push consumers away.
The new deal sent Piedmont stocks soaring well past 395%. Piedmont’s ultimate aim is to become an integrated spodumene miner and lithium hydroxide producer. It already owns Kings Mountain, North Carolina and is looking to arrange a second facility, which may be arranged by the end of 2020.

The Difficulty in Mining Lithium

Lithium mining has been traditionally difficult with a complicated supply chain. For starters, Lithium isn’t shipped in usable form to suppliers. Instead, they are sold as lithium hydroxide and lithium carbonate to battery makers.

Miners extract lithium from salt brines found in ancient seas from places such as Chile’s Atacama Desert, and in hard rock minerals such as spodumene. Piedmont will provide Tesla with 160,000 tons of concentrated spodumene. This will be converted to lithium hydroxide used to make a battery cathode, which will be put into battery cells for Tesla EVs.

Lithium Mines and Lithium Hydroxide Supply

This is Tesla’s current lithium supply chain:

This would be Tesla’s new lithium supply chain with Piedmont Lithium:

Tesla will be able to reduce the extra number of steps required in processing, the number of middle-men, long shipping times, and of course, their carbon footprint by self-producing lithium with Piedmont. It’s a win-win deal that gives them significant leverage over their competitors.
Lithium Mines and Lithium Hydroxide Supply – Price Estimates

Stocks Value

Battery price spike predictions

The price per kilowatt-hour for battery packs in EVs has reduced drastically, from $1,100/kWh to $156/kWh in 2019. This is a drop of about 87 percent. Experts believe that Tesla should be able to kick off the price below $100/kWh by 2023.

Annual cost savings

Tesla is scheduled to save over $150 million by partnering with Piedmont Lithium.

Other Commodities to Consider: Nickel and Graphite

The dynamics for the two battery commodities, nickel and graphite, are largely dictated by supply and demand curves, as well as their relative performance to lithium. For now, electric vehicles are largely engaged in securing their lithium supply. However, recent price hikes and strained supply chains have raised concerns over the long-term viability of these commodities.

How Nickel Could Affect the Market

Nickel is valued for delivering higher energy density and greater storage capacity at lower costs. However, less than half of the world’s nickel is suitable for EV batteries (also known as Class 1 nickel). BloombergNEF suggests that Class 1 Nickel will out-run supply within the next year, and the growing dependence on Li-ion EV battery suppliers could be the final nail in its coffin.

In fact, in 2018, only about 6% of nickel was used in EV batteries, while about 70% went into making stainless steel. It’s clear that most EV manufacturers are looking towards alternatives.
How Graphite Could Affect the Market

Graphite has an inferior energy density compared to lithium-ion batteries. In theory, Lithium can hold 10 times the number of electrons as graphite, which explains why lithium in batteries has much higher energy densities. Graphite is traditionally used as an anode in lithium-ion batteries.

However, the graphite industry is known for its high pollution levels and is under pressure to reduce their environmental impact. It is still too early to predict how the graphite supply chain will influence prices for lithium and/or electric vehicles.

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