Battery Metals

EV Maker Tesla in Talks to Ink Cobalt Supply Deal with Glencore

Battery Metals

Tesla’s US$5 billion EV plant in Shanghai delivered its first cars last month, and has a capacity of about 150,000 Model 3 cars per year.

Electric car maker Tesla (NASDAQ:TSLA) is in talks to sign a long-term cobalt supply deal with top producer Glencore (LSE:GLEN,OTC Pink:GLCNF) for its new factory in Shanghai, according to sources quoted by Bloomberg.

Tesla’s US$5 billion electric vehicle (EV) plant in Shanghai delivered its initial cars late last month. Its first facility outside the US is expected to have a capacity of about 150,000 Model 3 cars per year.

A final agreement between the companies is yet to be signed, with sources declining to give details about the size and value of the supply deal.

Despite previous comments from CEO Elon Musk saying Tesla plans to reduce the cobalt in its batteries to “almost nothing,” the talks with Glencore seem to be pointing in a different direction.

Cobalt is an essential element in the lithium-ion batteries used to power electric cars, with most of its production coming from the Democratic Republic of Congo (DRC) — where mining has often been linked to child labor and human right abuses.

Tesla’s potential deal with Glencore is the latest from an automaker trying to lock up supply of “sustainable” or traceable cobalt not associated with artisanal or illegal sources in the DRC.

Glencore’s cobalt output comes primarily from its Katanga and Mutanda mines in the DRC. Last November, Mutanda, the world’s largest cobalt mine, was shut down due to “no longer being economically viable,” according to the company. Glencore also produces cobalt as a by-product at its nickel mines in Australia and Canada.

Last year, the Swiss company inked a deal with carmaker BMW (OTC Pink:BYMOF,ETR:BMW) to supply cobalt from its Murrin Murrin mine in Australia.

Carmakers are not the only part of the supply chain looking to secure the metal — battery makers have also been on the hunt for cobalt supplies.

In 2019, Glencore signed long-term cobalt deals with Belgium-based Umicore (OTC Pink:UMICF,EBR:UMI), Europe’s largest producer of battery materials for the EV industry; Chinese battery materials maker GEM (SZSE:002340); and Korean battery maker SK Innovation (KRX:096770).

These agreements reflect the trend of more downstream players in the EV value chain being keen to secure long-term supply of cobalt, a crucial element for EV mass production, Roskill Director Jack Bedder told the Investing News Network (INN) previously.

“Despite many refiners favoring spot purchases, Roskill believes large cobalt consumers, including those who supply automakers, will still opt for a long-term purchasing strategy as raw material security and sustainability remain the main concerns for end users,” he added.

Similarly, Fastmarkets Head of Battery and Base Metals Research William Adams recently told INN he expects to see more of this type of long-term deal in 2020.

“While the present market may be in the doldrums, those in the supply chain know only too well where this market is going, and security of supply is all important,” he said.

Cobalt prices have been declining for the past several months, with many experts predicting 2020 will not see much of a change in performance until the second half.

On Wednesday (January 15), shares of Glencore were trading at GBP 241.35. Meanwhile, Tesla was down 3.16 percent, closing at US$518.50.

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

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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