How Tesla is feed­ing its in­sa­tiable ap­petite for lithium and nickel

▶ Tesla’s Elon Musk is build­ing his own power-cell sup­ply chain ▶ “The world is go­ing to need a lot more lithium ion bat­ter­ies”

Bloomberg Businessweek (North America) - - Contents - -Dana Hull and Joe Deaux

How im­por­tant area met­als to Tesla? Just check out the names of some con­fer­ence rooms at its new $5 bil­lion gi­gafac­tory in Ne­vada: Lithium, Nickel, Cobalt, Alu­minum. They’re used to make lithium bat­ter­ies, and Chief Ex­ec­u­tive Of­fi­cer Elon Musk needs un­prece­dented quan­ti­ties of the met­als to reach an am­bi­tious goal: pro­duc­ing 500,000 elec­tric ve­hi­clesve­hicl a year by 2018. That’s two years ear­lier than orig­i­nally planned be­cause of about 373,000 pre­orders for the Model 3 sedan, which the com­pany will start de­liv­er­ing in late 2017.

And that’s no small task. When the fac­tory was an­nounced in 2014, Tesla said it would pro­duce more lithium bat­ter­ies an­nu­ally by 2020 than were pro­duced world­wide in 2013. The ac­cel­er­ated sched­ule to sup­ply the Model 3, the au­tomaker’s first mass­mar­ket car, doesn’t leave much time to cre­ate a com­plex sup­ply chain that in­cludes ex­panded min­ing and ex­plo­ration op­er­a­tions. It also pits Tesla against con­sumer-elec­tron­ics com­pa­nies, which use the bat­ter­ies in ev­ery­thing from mo­bile phones to lap­tops, and car­mak­ers in China, where the gov­ern­ment wants 5 mil­lion elec­tric and other new-en­ergy mod­els on the road by 2020. “The world is go­ing to need a lot more lithium bat­ter­ies. Tesla knows that it’s go­ing to have to source the raw ma­te­ri­als them­selves, and they are com­pet­ing with China,” says Simon Moores, a man­ag­ing di­rec­tor at Bench­mark Min­eral In­tel­li­gence.

“They need to in­vest in new sup­ply, and they are con­duct­ing a global search.” Tesla’s Model S sedan, which starts at $66,000 be­fore fed­eral or state in­cen­tives, con­tains more than 7,000 bat­tery cells, which Tesla de­vel­oped with Ja­pan’s Pana­sonic. They’re work­ing on larger cells for the Model 3, which will have a high­ca­pac­ity bat­tery with en­hanced en­ergy den­sity, Pana­sonic said in an e-mail. En­ergy den­sity, mea­sured as kilo­watt hours per kilo­gram, helps de­ter­mine range: The more hours of power packed into a car’s bat­tery, the more miles a

ve­hi­cle can travel on a sin­gle charge.

To se­cure the huge num­ber of cells it needs and drive down the cost, Tesla is col­laps­ing the sup­ply chain and bring­ing bat­tery-cell pro­duc­tion in-house in a move rem­i­nis­cent of Henry Ford in the 1920s. Ford’s mas­sive Rouge com­plex in Michi­gan made most of the com­po­nents, in­clud­ing en­gines, glass, and steel, used in its assem­bly plants and was sup­plied by Ford-owned iron mines and lime­stone quar­ries. Ford even owned and op­er­ated a rub­ber plan­ta­tion in Brazil.

Musk’s vi­sion now in­cludes Tesla buy­ing So­larcity, of which he is also chair­man, so his most pas­sion­ate cus­tomers can get rooftop so­lar pan­els, elec­tric­ity stor­age units, elec­tric cars, and charg­ing units from Tesla.

For its bat­ter­ies, Tesla typ­i­cally uses for­mu­la­tions in­clud­ing lithium, nickel, cobalt, and alu­minum ox­ide. To find a steady and af­ford­able sup­ply of these ma­te­ri­als—key to keep­ing the base price of the Model 3 at about $35,000—the com­pany is re­cruit­ing staffers to scour the globe. It hired Rene Leblanc, a for­mer en­gi­neer at FMC Lithium, ear­lier this year. It’s also look­ing for a Toky­obased sup­ply-chain an­a­lyst will­ing to travel fre­quently to China and South Korea to work closely with sup­pli­ers.

De­spite all the buzz about lithium, Musk re­minded in­vestors at Tesla’s May 31 share­holder meet­ing that the metal is “just the salt on the salad,” ac­count­ing for only about 2 per­cent of the ma­te­rial in Tesla cells. Yet it’s key to mak­ing bat­ter­ies recharge­able, and even that small per­cent­age doesn’t ex­empt Tesla from the laws of sup­ply and de­mand. It’s com­pet­ing for the metal with com­pa­nies in Asia, where China, Ja­pan, and Korea ac­count for more than 85 per­cent of cur­rent lithium ion bat­tery out­put, ac­cord­ing to re­searcher CRU Group.

“Tesla has spent a lot of time work­ing with all the dif­fer­ent lithium com­pa­nies,” in­clud­ing some tiny star­tups, JB Straubel, the chief tech­nol­ogy of­fi­cer, said at the share­holder meet­ing. The goal is to make sure “they’re in­vest­ing on the right time­line to have the ca­pac­ity ready when we need it.” Tesla has signed sup­ply agree­ments with Pure En­ergy Min­er­als, which is ex­plor­ing a lithium de­posit in Ne­vada’s Clay­ton Val­ley, and Ba­canora Min­er­als, which plans to de­velop a lithium de­posit in Sonora, Mex­ico.

Mac­quarie Re­search es­ti­mates the lithium mar­ket will show a deficit of about 4,500 met­ric tons be­fore turn­ing to a slight sur­plus in 2017 and 2018. But with­out sig­nif­i­cant new sup­ply com­ing on­line, Mac­quarie pre­dicts a global short­age of al­most 46,000 tons, equal to 16 per­cent of to­tal de­mand, by 2021.

The cost of nickel is a big­ger fac­tor. At the May 31 meet­ing, Musk said “the main de­ter­mi­nant of the cost of the cell is the price of nickel in the form that we need it.” Prices in May 2014 surged past $21,000 a met­ric ton af­ter In­done­sia, the big­gest pro­ducer of the mined metal un­til 2013, an­nounced it would ban the ex­port of all un­re­fined ores. Since then prices have plum­meted more than 50 per­cent, to about $9,190 a ton on June 21, as other coun­tries, notably the Philip­pines, in­creased out­put and stock­piles re­mained near record highs.

Tesla, which doesn’t use much cobalt in its bat­ter­ies, is try­ing to get rid of it and add nickel, Straubel says in an in­ter­view. Sup­plies out­paced de­mand in 2015 by about 1,285 tons but should turn to a deficit this year, last­ing through 2020 and help­ing boost the price to $15 a pound by then, from about $10.80 now, ac­cord­ing to Mac­quarie.

One metal for which Tesla is un­likely to see short­ages or higher costs is alu­minum. China, with 55 per­cent of the metal’s out­put last year, is the world’s big­gest pro­ducer and con­sumer of it. (The U.S. and Canada ac­counted for about 8 per­cent of pro­duc­tion.) Pro­duc­tion in China has con­tin­ued at a steady pace de­spite a global glut, partly to avoid mas­sive job cuts and losses at banks that sank huge loans into smelt­ing fa­cil­i­ties. Gold­man Sachs ex­pects a sur­plus of about 1.25 mil­lion met­ric tons this year, while Har­bor In­tel­li­gence, an alu­minum re­searcher, pre­dicts the glut will con­tinue through 2021. If that’s the case, few will be hap­pier than Musk.

The bot­tom line Tesla, which uses thou­sands of lithium ion bat­tery cells in each of its cars, is try­ing to se­cure am­ple sup­plies of met­als.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.