Tesla Gets 5-Year Lithium Hydroxide Deal With China’s Yahua

We’ve written at length about the vast need for lithium if the electric vehicle market is going to keep growing at the pace it’s been growing at. Lithium is abundant on Earth, but it takes years to set up lithium mines and manufacturing facilities to get that lithium ready for use in a battery, so it’s not a resource issue, but rather a business and investment issue.

I’ve spoken at length with experts from RK Equity about this, and have interviews lined up with other battery experts at Benchmark Minerals and BloombergNEF. One thing I’ve gleaned from analysts so far is something many Tesla fans would tell you: Tesla will be one of the first to secure necessary lithium supplies. The concern is less about Tesla not having enough lithium (though, it is a hurdle Tesla is working to clear from multiple angles, including possibly mining its own lithium). The greater concern is that automakers and battery companies slow to invest will be left with inadequate lithium supply or overly expensive lithium.

News this week confirms the forecast that Tesla will continue to secure its future, its rapid growth. According to Reuters, “China’s Sichuan Yahua Industrial Group Co. said on Tuesday it had signed a deal to supply battery-grade lithium hydroxide to Tesla Inc. for the next five years.”

We don’t know how much lithium Tesla is securing or how many vehicles the lithium will be used in, but the contract value is $630 million to $880 million for the period 2021–2025. The information was gathered through a Sichuan Yahua Industrial Group filing with the Shenzhen Stock Exchange, where it is listed.

You may recall Tesla CEO Elon Musk saying that Tesla gets its lithium from Australia.

However, when we dug into that, it turned out that wasn’t 100% true. Here’s what I wrote in July after talking to Rodney Hooper of RK Equity about this matter:

Lithium doesn’t just get scooped up in Australia and put into Tesla batteries in Giga Nevada.

The precursor mineral used to create lithium carbonate or lithium hydroxide is spodumene concentrate. Tesla, in particular, uses a lot of lithium hydroxide (due to its preferred battery chemistry, NCA, using high nickel cathode).

Albemarle and Ganfeng turn spodumene concentrate from Australia into lithium hydroxide in China. This lithium hydroxide then gets shipped to Sumitomo in Japan, where the cathode material for Tesla’s battery cells is produced before getting shipped across the world again to Panasonic in Gigafactory 1 in Nevada.

Here are more details from Rodney himself:

“Australia mines spodumene concentrate and ships that to China for processing. Albemarle and Ganfeng convert the spodumene concentrate into hydroxide and ship that to Japan (for Tesla cells). Tesla cells contain hydroxide made from spodumene concentrate from Albemarle and Ganfeng who have chemical conversion plants in China. So Tesla cells definitely have hydroxide from these China based converters. … Tesla cells do not contain hydroxide made from Chinese producers whose material is not yet qualified by the supply chain. This qualification process can take up to 2 years. Hydroxide exports from Chinese conversion plants (mostly Albemarle, Ganfeng and Livent) are responsible for more than 80% of the hydroxide used in high nickel cathodes in South Korea and Japan.

“In addition, Albemarle and Livent reprocess material (carbonate) made in the US, Chile and Argentina in the US into hydroxide and ship that to Japan.”

You can listen to part of that interview with Rodney and RK Equity’s Howard Klein here:

The Reuters report also mentioned the fact that Tesla already sources lithium from Ganfeng.

Concerning Yahua itself, the news outlet also wrote about its recent manufacturing expansion. “In May, Yahua put a 20,000 tons per year lithium hydroxide plant into operation, more than doubling its previous capacity, even as prices languished at multi-year lows amid oversupply and a knock to lithium demand brought about by the coronavirus pandemic.” It appears that Yahua either knew Tesla was knocking, knew it would come knocking, or hoped it would come knocking.

Yet again, China’s quick movement in a burgeoning market has led to it getting a sizable chunk of market growth. We’ve seen this with solar power and many other industries, and I’ve previously spoken with RK Equity about the matter. In fact, Howard termed China “the OPEC of battery production.” This new deal between Tesla and Yahua helps to confirm that. For more on the topic, see:

Voodoo Economics & Lithium — Lithium Supply = 15% of 2023 Global EV Sales Target

Lithium & Nickel & Tesla, Oh My!

The Battery & Mining Catch-22 Threatening The EV Revolution

Tesla’s Lithium & Nickel Sourcing — Australia? Bolivia? China?