Chinese Top Lithium Producer Ganfeng Jumps on Tesla Deal

Shares of Chinese top lithium producer Ganfeng Lithium (SHE:002460) jumped more than 10 percent on Friday (September 21) after the miner signed a supply deal with electric car maker Tesla (NASDAQ:TSLA).

Ganfeng said it will supply lithium hydroxide products for Tesla’s batteries from 2018 to 2020, but the deal could be extended by three years.

“The agreement will help Ganfeng build a healthy long-term relationship with Tesla,” the company said, “which will help improve the company’s profitability, and benefit its long-term development.”

According to Benchmark Mineral Intelligence, US-based Tesla is estimated to produce at least 26 Gwh of batteries between January 2018 and March 2019 — using around 20,000 tonnes of lithium hydroxide.

But once the company reaches its Nevada gigafactory target of 35 Ghw, it may need as much as 28,000 tonnes of lithium hydroxide, the London-based firm forecasts.

Aside from its Nevada gigafactory, which is operated by Panasonic (TYO:6752), Tesla also plans to open a US$2-billion plant in Shanghai, with an annual capacity of 500,000 cars.

The Ganfeng-Tesla deal is another sign that electric car makers continue to look for ways to secure supply for the expected increase in electric car sales. In fact, US-based Tesla had already signed a lithium deal with Australia’s Kidman Resources (ASX:KDR) last May.

Meanwhile, earlier this month, Ganfeng agreed a deal with battery maker LG Chem (KRX:051910) to almost double its supply of battery materials from 2019 to 2025.

Ganfeng has now locked in the sector’s two biggest supply pacts, Simon Moores, managing director of Benchmark Mineral Intelligence, told Bloomberg. “These deals are dwarfing the size of the entire lithium hydroxide market from only a couple of years ago,” Moores added.

As of 1 p.m. EST on Friday, shares of Ganfeng Lithium were trading at CNY 32.02.

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