Tesla will build a lithium hydroxide chemical plant in Texas in what is the first move by an automotive company into lithium chemical production, Benchmark Mineral Intelligence can confirm.
The EV maker will build a spodumene conversion facility adjacent to the Terafactory / Gigafactory 5 in Austin, Texas in what has a typically aggressive start up target of Q4 2022.
This adds to Tesla’s plans to build a cathode facility in Texas in what Elon Musk describes as “part of our cell production plan”.
It also adds to news from the CEO’s Twitter yesterday that: “We are only doing high energy nickel ourselves”, pointing to an additional nickel chemical production facility onsite in what is emerging as a battery materials hub for the USA and increasing control of the mid-stream of the battery to EV supply chain.
The new conversion / refining plant will turn hard rock spodumene concentrate into lithium hydroxide for direct use in its battery cells – a process that traditionally occurs in China using Australia-sourced spodumene.
Benchmark understands that Tesla will use a hydrometallurgical process to turn its spodumene concentrate into lithium hydroxide, eliminating the use of sulphuric acid. However, this process has not yet been built at commercial scale so will provide an additional hurdle for Tesla.
Tesla’s VP Drew Baglino, senior vice president of powertrain and energy engineering, revealed at Tesla’s Battery Day that this would be a “sulphate free process… 33% reduction in lithium costs.”
The announcement, however, got confused with the lithium clay project rather than the spodumene conversion facility he was referring to.
Lithium clay confusion, spodumene direction
As part of this lithium hydroxide plan, Piedmont Lithium – a lithium developer aiming to produce spodumene from North Carolina – today, announced an off-take with Tesla for “approximately a third” of its 160,000 tpa spodumene output each year for a five year period.
The deal equates to 8,000 tonnes lithium hydroxide a year with deliveries aiming to start between July 2022 and June 2023.
Benchmark expects this to be just over half of Tesla’s needs for the Terafactory in 2023, the first expected full year of its 4680 format lithium ion battery production.
The delivery dates will give a clearer indication for when Tesla begins to both start producing lithium hydroxide in Texas and the start-up of the Terafactory.
Benchmark anticipates the Terafactory will be at 15GWh capacity for the full year of 2023 as it ramps to an expected 150GWh by 2029, three times the size of Tesla’s battery cell operations in Nevada (the original Gigafactory), Berlin, and Shanghai.
Elon Musk revealed his ambition to have 1TWh or 1,000GWh of Tesla battery cell capacity by 2030, however. For context, the lithium ion battery market in 2020 is expected to be 210-220GWh yet in 2014 when Tesla announced the Gigafactory it was 60GWh in size.
Despite a flurry of Tesla Battery Day announcements, confusion reigned over Tesla’s lithium direction in particular the EV makers plans’ to extract lithium from Nevada-clay, which Benchmark understands is more of an early stage idea than a supply solution.
Tesla’s foray into lithium chemical production is a clear indication that the EV and battery cell maker favours the spodumene route for near term lithium supply. It is also a strategy to get a tighter grip on what is a China dominated supply chain and control the sway of industrial power towards the US.
The EV maker will need to enact a number of spodumene supply deals not only to secure short term supply from active producers in addition to Piedmont Lithium but also long term volume in an increasingly competitive market place.
Simon Moores, Managing Director, Benchmark Mineral Intelligence said:
“Lithium’s foundations for the 21st century are beginning to shift in what is a China dominated part of the lithium ion battery and electric vehicle supply chain.
“Tesla is the first automotive OEM to enter lithium production – a watershed moment. And it does so without having to mine lithium from the ground.”
“Not only will it allow Tesla to control costs at this supply chain step, it will once again see the spodumene trade flows point towards the USA instead of China, a market that has dominated spodumene conversion for a generation through majors such as Tianqi and Ganfeng Lithium.
“It will also significantly bolster its negotiating power on its future lithium hydroxide contracts once it harnesses the ability to produce a consistent battery ready lithium hydroxide and scales capacity.
“Tesla has clearly come to the realisation that it cannot rely on the upstream of the supply chain or investors to expand quickly enough for its needs.
“It has now taken some of that responsibility away from the miners and chemical producers and once Tesla gets to grips with the lithium refining process, scale will be introduced and we expect that post-2022 ramp to be rapid.
“Due to inactivity in developing new raw material supply and the lack of a long term strategy, we are starting to see this sway of industrial power move downstream towards the auto OEMs.
“This will also send warning shots to nickel.”
Andrew Miller, Product Director at Benchmark Mineral Intelligence said:
“With Tesla entering the upstream of the lithium ion battery supply chain at the conversion stage the company does not have to become a lithium miner, a skill-set and company culture that is entirely different to creating chemically refined materials.
“Controlling the lithium conversion from the raw material – spodumene concentrate – means they can not only reduce the cost but also control the quality of the lithium hydroxide output more closely.
“This is additional evidence that lithium will remain a speciality chemical that is tied to and tailored for the needs of the end users, rather than a commodity.
“In addition, Tesla’s efforts to move upstream will likely be replicated by other auto manufacturers, and in other areas of the supply chain. Having control of advanced material costs into the EV supply chain is an increasingly important factor in lowering battery prices.”
Tesla and spodumene: the charts you need to know
Tesla’s is officially upstream
It was in 2012 when JB Straubel and Elon Musk understood that Panasonic, their supplier of 18650 lithium ion battery cells, would not be willing to scale in line with Tesla’s ambitions.
At that point, the Tesla team devised the Gigafactory in Nevada, a lithium ion battery megafactory that would house 35GWh of cell capacity, more than the entire world produced in 2010.
This sparked a global battery arms race where the world has witnessed the rise of these battery megafactories from 3 in 2015 to 167, as assessed by Benchmark in August (Subscribe or Learn More, select Lithium ion Battery Cells from this form).
This was Tesla’s first step upstream from electric vehicles into lithium ion battery cell production.
Today, in September 2020, Tesla has taken the next step in condensing the EV supply chain into lithium chemicals, officially classified as the upstream portion of the supply chain.
It allows Tesla to take closer control over the quality and, most importantly, the cost of its lithium hydroxide.
2. Lithium refining is leaving China and going global
The production of lithium chemicals, predominately lithium carbonate and lithium hydroxide, through the refining or conversion of spodumene concentrate has been dominated by China for a generation, despite having historical roots in the US.
While traditionally seen as a higher cost option to lithium brine mining in Chile and Argentina, the evolution of the supply chain into a lithium ion focused one has benefited spodumene’s predictable nature, especially for investors and automotive OEMs looking for certainty.
In 2016, when we witnessed the first lithium price spike since 2009, new spodumene operations were the first to benefit from an influx of investor cash.
The world saw spodumene mining operations rise from only 1 – Talison Lithium operating the Greenbushes Mine in Australia – to 7 mines.
Mt Marion (Mineral Resources/Ganfeng) and Mt Cattlin (Galaxy Resources) were the first to enter production in 2017. 2018 saw another four mines reach the market, namely Pilbara Minerals, Altura Mining, Alliance Mineral Assets and AMG Lithium (Brazil).
Of the total 7 spodumene producers by the end of 2018, 6 were located in Australia. Low prices have already forced one of those operations (Alliance Mineral Assets) to suspend production, while four of the remaining five have a large proportion of their production already tied up, either via offtake or ownership structure.
Of course, building a spodumene mine is no guarantee that the lithium locked in the rock will enter a lithium ion battery.
For this, a high specification chemical refining process or conversion needs to happen and nearly 100% of this capacity is located in China, in addition to a small tolling plant in Russia.
By 2023, however, this lithium chemical refining capacity – which is where Tesla has chosen to play – will have expanded significantly outside of China including Tesla in Texas, USA; Toyotsu Lithium in Japan, POSCO in South Korea, and AMG in Germany.
Australia is also building significant lithium chemical capacity via Tianqi Lithium, Albemarle, and SQM/Wesfarmers, among others.
The below infographic shows the spodumene mining and refining landscape in 2020.
3. Spodumene prices rose to above $900/tonne, now less than half
The prices that incentivised an influx of new spodumene operations into the market in 2017, have more than halved from their peak at over $900/tonne.
Lower prices accompanied by significant backlogs in spodumene inventories mean most producers are operating at far below capacity in 2020. This does not, however, mean new availability will necessarily be abundant when the market turns.
Much of the idle capacity from these operations is already committed to established converters and although Tesla has their own agreements in place for raw material inputs, price levels at the sub-$400/tonne mark we see today will not incentivise the addition of new supply to meet the future needs of all battery producers.
With the need to sustain these new operations ahead of the expected surge in demand, higher pricing will be required in the medium-term, and more active involvement upstream in the supply chain from auto OEMs could play a role in turning the excess supply narrative which is weighing heavily on producers today.
4. Auto OEMs need to follow China’s midstream dominance of the EV supply chain
The Benchmark chart below shows that despite general understanding, the majority of raw materials to make lithium ion batteries are not located in China.
Of all key battery raw materials produced in 2019 – lithium, cobalt, nickel, graphite and manganese – only 23% were from China.
Yet, of the key chemical refining stage where Tesla has chosen to enter, 80% of battery grade chemicals were made in China. This capturing of the upstream supply chain without the need to actually own the extraction step ensures China’s dominance of the downstream: cathodes, anodes and battery cells.
5. Tesla supply chain aggression needed to stay ahead
In 2016, when the Gigafactory was officially opened, the scramble to supply the raw material contracts was intense.
Major lithium producers and developers of future mines, were all keen to win the contract to supply lithium hydroxide for the Gigafactory as much for the kudos as it was the biggest lithium contract from a single supplier of all time.
This was at a time when we had 3 lithium ion battery megafactories in the pipeline. Tesla could call the shots back then and the upstream would react favourably.
Today, we have witnessed a global battery arms race where 167 lithium ion battery megafactories or gigafactories in now the pipeline to 2029.
Of this 167, 85 are now operational and they are all competing for the same raw material, especially Tesla’s major battery partners of LG Chem and CATL.
As Benchmark‘s independent analysis has continually said for many years, hope is not a strategy for raw material supply security and with Tesla’s step into the lithium chemical space, it has taken a significant grip on the future trade flows of these raw materials.
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