The Elon Musk-led US carmaker is reportedly now in talks to secure long-term lithium supply from major Chilean producer SQM.
Tesla (NASDAQ:TSLA) is in talks to secure long-term lithium supply from Chile’s SQM (NYSE:SQM), the Financial Times reported.
Lithium is a key component of the lithium-ion batteries used to power electric cars, and demand for the metal is expected to increase significantly in the next decade as the electric car revolution unfolds.
The US carmaker could agree to build a processing plant in Chile to produce the high-quality lithium it needs for its batteries, Eduardo Bitran, executive vice president of Chilean development agency Corfo, told the news outlet on Monday (January 29).
“With an increasing supply of lithium, Chile is key for any company that wants to become global in electro-mobility,” Bitran said. “Being close to Chile or having a strategic alliance in Chile becomes a strategic factor for a company like Tesla.”
Chile is one of the world’s top lithium-producing countries, and together with Argentina and Bolivia is part of the “lithium triangle,” which hosts the world’s largest reserves of the metal.
SQM, which has brine assets in the South American country, recently reached a deal with Corfo to expand its lithium output in Chile. On Monday, Bitran told Reuters that the country is also open to negotiating an additional quota of lithium for SQM to meet potential future demand from Tesla.
“While the talks are at an early stage, the US carmaker could invest in processing technology to produce the lithium hydroxide used by its car batteries directly from the brine beneath Chile’s desert,” Bitran said.
Tesla could also bring in a partner to make battery cathodes in the country, because Chile has some of the world’s cheapest solar power, he added.
Elon Musk’s company has been struggling to meet battery production for the Model 3, which began in June of last year. Tesla and its partner Panasonic (TSE:6752) have been producing the battery cells at Tesla’s Nevada-based gigafactory since January 2017.
The US carmaker is not the only company hoping to secure long-term supply of the raw materials used in electric car batteries. In fact, Volkswagen (FWB:VOW) has been looking to secure long-term lithium and cobalt contracts since last year without success.
“All auto makers are now fully aware of the need for secure, long term lithium supply but none have yet locked in long term contractual agreements,” Benchmark Mineral Intelligence analysts recently said, estimating that a number of lithium/auto deals will be struck in the next 24 months.
On Monday, shares of SQM closed down 1.65 percent, at US$54.98, in New York. Meanwhile, Tesla’s share price closed up 1.95 percent at US$349.53.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.