Cobalt Excitement Rises as Tesla Begins Model 3 Battery Production

Tesla’s chief technical officer has said that lithium-ion battery production for the upcoming Model 3 is underway “right now.”

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All eyes are once again on Tesla (NASDAQ:TSLA) as the company prepares to launch its new electric car model next month.

Most recently, JB Straubel, Tesla’s chief technical officer, said that lithium-ion battery production for the Model 3 is underway “right now.” Speaking at an Energy Fair last weekend, Straubel said the Model 3 will use “2170 cells.”

Tesla and its partner Panasonic (TSE:6752) have been producing the cells at Tesla’s Nevada-based gigafactory since January, but until recently they were all being used in second-generation powerwalls and powerpacks. The batteries, so named because they measure 21 millimeters by 70 millimeters, have been described by Tesla CEO Elon Musk as “the highest energy density cell in the world, and also the cheapest.”

The company is aiming to raise its annual electric vehicle output to 500,000 cars by 2018, and is mass producing lithium-ion batteries to power them. By next year, Tesla’s gigafactory is expected to have a battery production capacity of 35 GWh per year, nearly as much as entire rest of the world combined.

Tesla’s plans have stoked enormous interest in lithium, as well as cobalt, another essential component in lithium-ion batteries. Lithium-ion batteries contain about 11 kilograms of cobalt, and demand for the metal is expected to jump from 46,000 tonnes in 2016 to 76,000 tonnes by 2020.

As a result, cobalt prices have been surging since the beginning of the year. In January, cobalt was trading at $32,750 per tonne, but currently prices are sitting at $58,500 per tonne — that’s an increase of more than 70 percent in just six months.

And the market could tighten even further in the next years as supply concerns continue to rise. Most cobalt is mined in the political unstable Democratic Republic of Congo (DRC), and even with new production expected from Glencore (LSE:GLEN) and ERG’s operations in the top-producing country, a deficit could be just around the corner.

“In the next few years only five new cobalt mines are due to come online, and they will add about 50,000 tons of cobalt per year. That is certainly not enough to support the demand in the market,” Stephan Bogner of Rockstone Research said at this year’s International Metal Writers Conference.

Earlier this year, Tesla also announced that it will reveal locations for “probably four” more gigafactories by the end of 2017. Just yesterday (June 20), the company signaled a possible agreement with China to build new facilities in Shanghai.

According to Bloomberg, China has identified new-energy vehicles as a strategic emerging industry, and aims to boost annual sales of plug-in hybrids and fully electric cars by 10-fold in the next decade — another reason for investors to get excited about cobalt demand and closely watch the green technology revolution.   

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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