Tesla Withdraws Bid to End Syrah Graphite Deal

Tesla (NASDAQ:TSLA) has withdrawn its notice of intent to terminate its natural graphite supply agreement with Syrah Resources (ASX:SYR,OTCPL:SYAAF) after determining the miner has made sufficient progress to remedy an alleged product default.

In a recent release, Syrah said the automaker accepted that the company has demonstrated it is producing conforming active anode material (AAM) samples from its 11,250-ton-per-annum processing facility in Vidalia, Louisiana.

Syrah added that it is currently in advanced stages of qualification testing approvals with Tesla.

The dispute began in June 2025 when Tesla issued a default notice claiming Syrah failed to deliver conforming AAM samples for battery production.

The original contract, signed in December 2021, requires Syrah to supply 8,000 metric tons of AAM per year over an initial four-year period at an undisclosed fixed price.

Global battery material prices have seen a recent significant decline. Market prices for natural graphite AAM dropped by approximately one-third from around US$6.90 per kilogram in December 2021 to $US4.60 per kilogram in September 2025.

Syrah also holds a separate contract to deliver 7,000 tons of AAM annually to Lucid Group (NASDAQ:LCID) under a floating-price mechanism, which allows a qualification period extending until January 1, 2027.

Maintaining the Tesla agreement affects Syrah’s compliance with its government debt facilities. The company has a US$98 million loan from the US Department of Energy (DOE) secured by the Vidalia plant, which is currently under a two-year forbearance agreement effective July 30, 2025.

The DOE retains the right to terminate that forbearance if the Tesla contract is cancelled.

As of December 31, 2025, Syrah reported total debt of US$291 million. This includes the in-default DOE loan and an in-default US$68 million Tranche 1 loan from the US International Development Finance Corporation (DFC).

The DFC loan is secured by Syrah’s Balama mine in Mozambique, which provides the primary feedstock for the Vidalia facility. Balama operations were halted for approximately one year ending in June 2025 due to local protests, triggering a force majeure and the subsequent debt defaults.

Furthermore, the Vidalia facility faces competitive pressures from lower-cost offshore producers. China's BTR New Material Group (BJSE:920185) commenced production at an 80,000-ton-per-annum Indonesian AAM plant in August 2024.

BTR’s capital cost for the Indonesian expansion was approximately US$6,000 per ton of capacity, compared to Vidalia’s initial construction cost of US$18,600 per ton of capacity.

Furthermore, the Indonesian joint venture was Syrah's largest customer in 2025, purchasing 30,000 tons of natural graphite from the Balama mine or 55 percent of the mine’s total sales volume that year. This allows the offshore facility to manufacture tariff-compliant AAM using the same African raw materials at a lower operating cost than domestic US processing sites.

Syrah guides that steady-state operating costs at Vidalia's current 11,250-ton capacity will be between US$4.30 and US$4.80 per kilogram, assuming it sources natural graphite from Balama at US$425 per ton.

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