Tesla and the Lithium Market: Facts, Myths and Predictions

By: Joe Lowry

Originally published by Joe Lowry on November 4, 2015. Click here to view the original article.
Tesla has been a great contributor to the current level of interest in the lithium market. The 3rd Quarter earnings call was yesterday and the updated estimate for 2015 vehicle deliveries is slightly north of 50,000 cars. In reality, Tesla is currently a (very high end) rounding error in the global car market.
Whether Tesla ultimately becomes a success like Apple & Google or goes the way of Myspace (certainly a possibility) is unclear. What is clear is that nobody on the planet creates buzz in the industry like Elon Reeve Musk.
So with their current car production, the emergence of Tesla Energy and the work in progress that is the Nevada Gigafactory – what is Tesla’s current and future impact on the lithium market?

Fun facts to know and tell:

• Tesla isn’t currently a significant purchaser of lithium hydroxide or any other lithium chemical.

Comment: No surprise here, Tesla buys lithium batteries not lithium. All the talk about Tesla direct lithium demand and “contingent contracts” is part of an emerging story that will take years to play out. Over time, Tesla may source lithium chemicals for their cathode supplier via Panasonic in Japan or produce cathode themselves but that hasn’t happened yet and is not likely to happen for a few years.

• If all the lithium currently used in Tesla’s batteries were purchased by Tesla directly, their share of the global lithium market would be less than 2%.

Comment: That is not a typo – Tesla gets a disproportionate amount of attention when the lithium market is discussed. By contrast, the Chinese battery market will consume almost 20% of the lithium produced globally in 2015.
Even if Tesla produces 300,000 vehicles by 2020, the total amount of lithium required for their batteries will still be under 8% of the growing world market. Tesla is significant but not of a size where they can dictate terms to the limited world of lithium suppliers.

 Predictions:

•  Neither of the companies that Tesla has “contingent” supply agreements with will be producing commercial quantities of any lithium chemical by 2020.

Comment: Tesla is a company full of smart people. They know the current reality of the lithium market but persist in trying to create the fiction that they are the 300 pound gorilla in the lithium world and will ultimately source below current cost of production. Not going to happen…. Even smart people can be blinded by arrogance.

On the other hand, Tesla is well aware but will not admit that lithium price is NOT very important to their future; however they seem to ignore the fact that lithium availability is critical. If the lithium price doubles it will not dampen demand for EVs. Do the math, there is currently less than $500 of lithium hydroxide in a Model S 85 KWH battery. Yes, they need cheaper batteries to make the Model 3 a profitable reality but that victory will not come in the lithium market. The REAL risk they are taking by not aligning with major suppliers is that they could find themselves without adequate lithium at a critical time in their growth (late 2017 or 2018).
Why Tesla is wasting their time with “play dough” lithium projects is a question only they can answer. In any case, by allowing their name to be associated with these projects, they are effectively encouraging bad investment decisions by “true believers”.
I hope Tesla is very successful since it will drive lithium demand and investment; however anyone investing in Tesla’s “virtual” lithium suppliers is likely to lose and lose big. Another paradox of the “cult of Tesla”.
 
After more than two decades with a major lithium producer holding senior leadership positions at lithium operations in the US, Japan and China; Mr. Lowry formed Global Lithium LLC – an advisory firm that works with lithium producers, users, investors, hedge funds and governments on four continents. He has an extensive network of contacts with the leadership of the world’s leading lithium suppliers and users. His knowledge of lithium supply and demand, pricing, the lithium ion battery market and industry trends enables him to provide unique insights into the world of lithium.