As we previously reported, Sichuan Yahua Industrial Group made an announcement at the end of December that its subsidiary, Yahua Lithium, signed a 5-year lithium supply agreement with Tesla. The contract’s value is reported to be a range of $630-880 million. Yahual Lithium will provide battery-grade lithium hydroxide to Tesla from 2021 through 2025. Here’s a bit more information and commentary on that deal.
Yahua Lithium was established in 2016 to manufacture lithium chemicals. It commissioned the Ya’an plant in May 2020 with 20ktpy of capacity for battery-grade lithium hydroxide. It also has State Lithium and Blossom Lithium operations, and together these operations will result in an increase in the total lithium compounds capacity to 32ktpy lithium hydroxide and 6ktpy lithium carbonate.
Roskill, a management consultancy that has experience in researching and consulting in metals, minerals, and chemical industries, pointed out that Yahua Lithium has successfully broken into the supply chain of Tesla. The company also noted that this agreement highlights the need for OEMs to secure large and long-term deals that will ensure supply security as the quantities of lithium hydroxide needed in the future will probably increase rapidly — something we pointed out in our earlier coverage as well. The blog post noted:
“Given the fact that Tesla has ambitions to move a portion of cell manufacturing in-house using its own designs/IP in future, securing long-term contracts for LiOH supply at an early stage will be vital to meeting its aggressive demand requirements and defending its enviable market share for EV sales.”
Further, S&P Global Market Intelligence noted that with this deal Tesla demonstrated “huge demand” for battery-grade lithium hydroxide and that this should be seen as a positive catalyst for battery materials.
Daiwa analysts Dennis Ip and Leo How wrote a note on December 29 on this topic. In this note, they pointed out that this deal appears to translate to a total of 63,000 to 88,000 tonnes of battery-grade lithium hydroxide supply, or 12,600 to 17,600 tonnes per year. “We see this deal being positive to the battery material sector as a whole, particularly for lithium producers with heavy lithium hydroxide exposure,” the Daiwa note said.
The analysts also wrote that Ganfeng Lithium Co. Ltd, which is another Chinese lithium company, is most likely going to continue to be the major supplier of lithium hydroxide to Tesla, which has been sourcing from them since 2018. Perhaps Tesla chose Yahua since it’s more localized and regional. Perhaps it wants to increase competition on the market. Perhaps it just needs more lithium hydroxide. The company also plans to have a domestic supply of spodumene online in 2022 from the Lijagoumine in Sichuan.
“The agreement … does not specify which factory to be supplied and we suspect the deal may be a preparation for the ramp-up of Model Y production in Giga Shanghai from 2021E onwards,” the Daiwa analysts wrote.
Simon Moores from Benchmark Mineral Intelligence noted that stocks of lithium hydroxide are expected to face a “serious” shortfall after 2027, which would theoretically drive prices up. The deal between Tesla and Yahua shows “why investors are excited about hydroxide.” He also said, “The reality is we are facing an imminent shortfall of both [lithium] carbonate and hydroxide.”
Fun Unrelated Fact About Spodumene
This is just a random, fun fact about the mineral spodumene, which produces the high-grade lithium that everyone loves. Spodumene also produces kunzite, which can be cut and faceted into gemstones. This gem is known for its lithium content. I’ve recently studied this gem since adding a small piece to my own collection.
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