Nanalyze

The Likely Provider of Lithium for Tesla’s Gigafactory

We recently wrote an article titled “Don’t Invest in Lithium Mining Companies” and a number of our lovely readers commented that some lithium junior mining companies are of interest because “Tesla (NASDAQ:TSLA) needs lots of lithium for their gigafactory”. This is a fair conclusion to arrive at, but not too probable given what we know. Are we to believe that TSLA has not already secured the raw materials needed for this $5 billion lithium battery factory to operate? That’s not likely and would show poor planning on the part of Elon Musk, a businessman who has achieved an almost cult-like status for being a visionary. Let’s take a closer look at TSLA’s needs for lithium.

According to Goldman Sachs, the TSLA “gigafactory” could require the equivalent of 15,000 tons to 25,000 tons of lithium carbonate annually at full capacity which would consume 17% of global lithium output. That’s massive, make no mistake. In an article published by Bloomberg last year, Goldman goes on to say that this demand will serve to “ease a forecast oversupply and benefit producers like Rockwood Holdings Inc”. Rockwood was one of the three biggest producers of lithium before being acquired earlier this year by Albermarle (NYSE:ALB), a $5.7 billion specialty chemicals company. According to Goldman Sachs materials analyst Robert Koort:

“We continue to see a near-term oversupply scenario for lithium as likely,” Koort, who rates Rockwood neutral, said in the note. “An inflection in pure battery electric vehicles may help ease oversupply of lithium around 2020.”

So why does Goldman mention Rockwood? As we stated in our previous article, Rockwood is one of the three major suppliers of lithium who are responsible for 90% of global lithium production. When Albemarle Corporation (ALB) bought Rockwood earlier this year, they inherited the Chemetall-Foote lithium “mine” which is the largest lithium mine in the U.S. located in Silver Peak Nevada, and just a 3.5 hour drive from the Tesla “gigafactory”. Using the word “mine” is a bit misleading though since the mine, Chemtall-Foote, is actually an operation which extracts lithium salts from an old lake bed through brine evaporation. The concentrated brine is then pumped to a production plant at Silver Peak where it is converted into lithium carbonate, the basic raw material for lithium compounds.

Now one piece of information shows us that there was some advance knowledge of TSLA’s decision to pick Nevada last year as the site to develop their gigafactory. In July 2010, Rockwood (now ALB) announced that they would double the capacity of their Chemetall-Foote mine in Silver Peak Nevada. 50% of the project funding or $28.4 million was provided by a grant from the U.S. Department of Energy to quote “expand and upgrade the production of lithium materials for advanced transportation batteries“. That’s a pretty compelling statement. 4 years later, TSLA announces that their gigafactory will be built in Nevada. Here’s where the Chemtall-Foote lithium production facility is located in relation to the gigafactory:

Tesla_Factory_Map

So based on the analysis of leading investment bank Goldman Sachs, ALB stands to benefit from TSLA’s demand for lithium and the oversupply of lithium in the market should resolve itself by 2020, even with Tesla consuming 17% of global lithium output. This leads us to believe that it is highly likely that TSLA will be procuring their lithium from ALB for their gigafactory, and the Chemetall-Foote mine seems well positioned to fill some or all of that demand. ALB states that sales of lithium for electric vehicle batteries are up 30% year to date. The Company expects this to the largest driver of lithium growth over time and currently sells lithium to Panasonic, a partner in the TSLA gigafactory. ALB’s latest corporate presentation even makes mention of how much lithium a TSLA electric vehicle needs:

Albemarle_Lithium_Chart

Being a $33 billion company, TSLA is not likely to depend on junior miners to supply their lithium. They will likely stick with one of the three biggest lithium producers in the world, ALB. In their latest corporate presentation, ALB claims to be the #1 global provider of lithium now ahead of FMC and SQM. Maybe 5 years from now, ALB will have a supply problem and look to acquire lithium junior mining companies. The more likely scenario is that they’ll ramp up production at Silver Peak in anticipation of the increase in demand using a mine they own which is already producing and which is just a 3.5 hour drive from the Tesla “gigafactory”. Maybe they’ll start bringing in lithium from their Chilean operation. One thing we do know for certain is that Tesla won’t be committing any of their capital to lithium junior mining companies, no matter what those flashy PowerPoint presentations say.

UPDATE – August 29, 2015: Bacanora Minerals and Rare Earth Minerals signed a long-term lithium hydroxide supply agreement with Tesla on condition that over the next 2 years the Sonora Lithium Project reaches certain milestones. This will require Bacanora/Rare Earth to secure significant financing through debt and/or equity of which Tesla has the right to participate. This represents one of the lithium suppliers for Tesla, but not the only one.

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  • While Silver Peak is indeed the closest lithium “mine” to Tesla’s “Gigafactory”, the facility currently doesn’t have the capability to produce the grade of lithium (battery-grade lithium hydroxide) that Tesla ultimately needs (via the cathode manufacturer Sumitomo Metal Mining and the battery manufacturer Panasonic). This material is currently produced in North Carolina using lithium carbonate imported from Chile (and possibly Silver Peak). Rockwood is not the only source of lithium hydroxide for Tesla. Unfortunately the junior lithium mining companies rely on public information, which is rarely a good barometer of what’s really happening in this market (no one wants to put their cards on the table), but on the flip-side the unknown does make a good story to tell investors. Don’t write them all off, however, because existing producers are resource/capacity constrained in the longer-term, but the chance of successfully entering the market or getting bought out for most lithium projects is slim.

    • Nanalyze

      Very insightful commentary Robert, thank you for that!

    • Nathanael

      Rockwood may build their own carbonate-hydroxide conversion facility; they can see the handwriting on the wall, carbonate demand is down and hydroxide demand is up.

  • Mike McRae

    Quite where Goldman Sachs get their figures from is suspect, ‘The battery plant that Tesla co-founder Elon Musk has called a “gigafactory” could require the equivalent of 15,000 tons to 25,000 tons of lithium carbonate annually at full capacity, Goldman analysts led by Robert Koort said in a report today. That estimate exceeds a Feb. 26 Bank of America Corp. prediction the facility would use 9,000 tons.’
    Tesla sold 31,655 vehicles last year, which I generously put at 1893 tons of Li possibly rising to 2800 tons if they ever sell 50,000 veheicles this year, so the Bank of America Corp. prediction is much nearer a viable estimation. There is a lot of claimed interest in the Tesla home storage ‘Powerwall’ , however until they publish confirmed orders or deposits for this product, that is all it is. Double that amount to include home storage makes 5600 tons annually for 2016, multiply that by any annual percentage to get a an amateur estimation of Tesla requirement for Li.
    Mr Baylis is correct in his assumption ‘ the chance of successfully entering the market or getting bought out for most lithium projects is slim.’ With everybody and their granny rushing into opening Li mines there is a very real chance that there will be an over supply situation in about five years time. The key will be in cost of production; take the junior miner Bacanora Minerals who have a sizeable deposit of Hectorite Clay in Sonora, Mexico mentioned in replies to your previous article. The cost of extracting Li from this material is unknown, estimates range from the official 2014 BCN estimate of $1958 to the David ‘Gatwick Gusher’ Lenigas comment that Western Lithium (who also have a Hectorite Clay deposit) are looking at a stripped out price of $3500 or more per ton. A sizeable deposit of lithium bearing material is interesting and has potential providing they can raise enough interest to transform from exploring to economical production, a problem all juniors face. Apart from the massive GS estimate I agree with you article.

    • Nanalyze

      Thank you very much for those insights Mike. It’s strange that Bank of America and Goldman would have such differing estimates. Going from exploring to economical production for any junior miner requires huge amounts of capital and that’s a pipe dream for most. What will happen typically is that they will issue shares religiously and talk about all the “progress” being made but the reality is they are not getting anywhere near the amount of capital needed to commercialize their reserves.

    • Nathanael

      The estimates vary based on estimates of Tesla sales, particularly for the commercial/industrial PowerPack.

  • Mrjames

    why are you so sure tesla would not be interested in a junior lithium miner, surely if there is a junior with vast amounts of lithium bearing clays that is cheaper to extract and more environmentally friendly than brines,and is also a short distance from the tesla giga-factory.
    Then if I was elon I would be thinking I could get in with this company early, help to fund it to production with an offtake agreement for enough lithium hydroxide for my vision, and with the money I will save I can discount my battery costs by at least 30%. Step up REM AND BCN Hermosillo Mexico. Research them (you may change your mind. All the best

    • Nanalyze

      Thank you for the comment James. We’ll take a look at the project you mentioned. Would Tesla look to get in with a promising junior miner or leave that task to the experts like Albermarle to handle? Regarding reducing the costs of battery production by 30%, that assumes that a majority of the cost of producing a lithium battery is tied to the cost of lithium. Does anyone have any insights into just how much the cost of lithium affects the overall cost of producing a lithium battery?

      • Check-mate

        “Would Tesla look to get in with a promising junior miner” — they just have! “Rare Earth And Bacanora Sign Lithium Supply Deal With Tesla Motors”

        • Nanalyze

          What a timely piece of news, thank you for posting that! Note that this is a “conditional long-term lithium hydroxide supply agreement” and does not yet involve Tesla investing in a junior mining company per the below:

          This will require the Sonora Lithium Project Partners to secure significant financing through debt and/or equity. Tesla has the right to participate in any such financing or other capital transactions. Bacanora and REM will be pursuing next steps to raise finances in order to achieve this goal. There can be no assurance that the conditions to supply product under the Supply Agreement will be met or that the agreement will prove to be economic.

          http://www.marketwatch.com/story/bacanora-announces-sonora-lithium-project-signing-lithium-supply-contract-2015-08-27-231732735

        • John Endries

          $600MM needed to produce a viable production plant. It’s an option if ALB significantly raises the price of Li. Currently, ALB is 50% of world production, and now they own Rockwood (Silver Peak).

        • John Endries

          Rare Earth And Bacanora deal is a total head-fake for the near term.

      • Mrjames

        Looks like I was closer to the truth than you guys then. All the best

        • Nanalyze

          You called that one spot on Mr James, 8 days before. Here’s what you said:

          why are you so sure tesla would not be interested in a junior lithium miner, surely if there is a junior with vast amounts of lithium bearing clays that is cheaper to extract and more environmentally friendly than brines,and is also a short distance from the tesla giga-factory.
          Then if I was elon I would be thinking I could get in with this company early, help to fund it to production with an offtake agreement for enough lithium hydroxide for my vision, and with the money I will save I can discount my battery costs by at least 30%. Step up REM AND BCN Hermosillo Mexico. Research them (you may change your mind. All the best

          That’s a pretty accurate forecast. However, Tesla has not funded them yet and the question still remains, how much is the cost of the lithium for a battery relative to the total cost to produce the battery?

          • John Endries

            OK, you are not Elon Musk and clays and minerals are not more environmentally friendly than brine production. Plus, all the countries involved are not concerned with environmentally friendly mines, just the US.

            Cost and regulatory risk (years to pass environmental regulation) are so high as to make the Juniors non-viable. Rockwood expansion was 50% funded by US Dept of Energy. Add in the Int’l risk of Sonorra makes this a bad bet for outside investors.

            Like war, business strategy is wrought with misdirection, contingency plans, head fakes, backup plans, etc., shell corps, etc. to create the illusion that Tesla has viable options. They don’t. ALB has this wrapped up, including Rockwood/Silver Peak/Chem-Foote which they now own.. The best Tesla can do is keep Li prices from skyrocketing by creating the impression that Juniors will eventually produce (they won’t, but they will consolidate) and continue to convince US government to supply the development money instead of Tesla. What Tesla WILL spend tangible time on is making deals with FMC and developing supply processes that cover short-term interruptions from ALB. There was a 3rd significant supplier, Rockwood, but ALB bought them out.

  • Yes, we all know that Tesla is building a giga-factory to build batteries – and that it will require a lot of lithium… but what about the other LI battery factories that are being built? Where is Warren Buffet’s BYD battery factory, or the other non-giga factories going to get their lithium?

    I still say that LI is a good investment: in fact, I honestly believe that Lithium will become the new oil.

    Gene Grossman – author – LegalMystery.com

    • Nanalyze

      Thank you for the comment Gene. What’s interesting about lithium is that it is not traded like other commodities. This means that speculators can’t come in and drive the price up. This would imply that the only way to hedge the cost of lithium as an input would be to secure long term contracts. It’s really quite a fascinating topic. Regarding lithium being the next oil, the problem is that if you believe that then how do you get pure play exposure? 90% of lithium is produced by companies for which lithium makes up a small part of their revenues. This means you would then turn to junior mining companies and that seems to be about as risky as investing in an OTC company. But if you really believe it will be the next oil, then the thing to watch is the growth of lithium revenues for any one of the three major producers.

      • Nathanael

        Worse for any pure-play attempt, there are *lots* of unexplored lithium deposits, so the barriers to entry are really low.

  • Joe Lowry

    This article is full of incorrect assumptions:
    1) Tesla doesn’t buy lithium at this point and is not likely to for a few years. Sumitomo Metal Mining makes most of the cathode for Panasonic batteries. They have enough existing capacity to supply the gigafactory at well over 60% of their planned capacity. Tesla is unlikely to make cathode anytime soon and SMM is unlikely to build capacity in the US before their existing capacity is used.
    2) Tesla uses hydroxide not carbonate. Rockwood’s “new” hydroxide plant in King’s Mountain, NC has operational problems that are yet to be solved which limits the amount of high quality hydroxide they can make from the already undersized 5,000 MT plant. FMC was formerly the main source for lithium hydroxide used by SMM. Now the business is split and half comes from China. So much for Rockwood having an advantage. Luke Kissam (Albemarle CEO) recently stated Albemarle/ Rockwood wouldn’t have new hydroxide capacity until 2019 or 2020 – they plan to toll material in China to make up the shortfall. Wow great idea – validate your competitor’s capability by selling their product under your brand.
    3) NEWSFLASH – check ALB’s SEC filings on capacity via their 10K – Silver Peak capacity wasn’t doubled.

    • Nanalyze

      Thank you very much for your critical assessment Joe. It’s great to be challenged! Here’s a response to each of your points.

      1)This is a good point. We didn’t say that Tesla is buying lithium now but rather that they’ve already thought through where they expect to procure their lithium and most likely secured this through contracts with Albemarle.

      2)We’ve seen differing statements regarding the type of lithium Tesla uses. We also noted that Panasonic is said to be securing lithium from China which backs up what you are saying.

      3)This is interesting. We would assume that if the U.S. Department of Energy was involved then the grant would have certain milestones to be met and that the money wouldn’t just be pissed away for lack of a better term. If the mine didn’t double the capacity, it doesn’t change the thesis which is that Albemarle will be their primary supplier.

      What we’ve noticed in researching this article is that you will find a great deal of conflicting information in the public domain. This mean we look to major media outlets and SEC filings to try and uncover what’s actually going on. Do you happen to have handy the production estimates for Silver Peak from the 10-K?

    • presto

      “2) Tesla uses hydroxide not carbonate.”
      Why are propagating lies about the type of lithium Tesla needs?

      http://www.energyandcapital.com/articles/elon-musks-lithium-revolution/4937
      “Make no mistake; that factory is going to need 15,000 tons of lithium carbonate per year just to start. “

    • Veronica

      Not exactly true mister Lowry. Eventhough I respect you as the leading Lithium expert. This is the statement concerning the Silver Peak Rockwood “Mine” on their website: “Silver Peak, NV, USA
      In the 1960s, Foote pioneered the production of lithium carbonate from brine with the opening of the Silver Peak, NV plant. In 1984, the world’s richest commercial brine deposit went on stream at Salar de Atacama in the desert of northern Chile. Today, the Silver Peak and Salar de Atacama plants combine to produce in excess of 60 m mt of lithium carbonate equivalents per year. In addition to lithium carbonate, Rockwood Lithium produces in Silver Peak special lithium hydroxide grades.”

    • Nathanael

      “They have enough existing capacity to supply the gigafactory at well over 60% of their planned capacity. ”

      That can’t possibly be right. In fact, I’m sure it’s wrong. Did you make an apples-to-oranges comparison?

  • Tisadam

    I agree with Mr James comment above. Why would a visionary like Elon continue to use less environmentally friendly produced Lithium when he can get his hands on loads of the stuff cheaper and from clay just down the road at the soon to be producing REM/BCN Sonora Lithium project?

    • Nanalyze

      Thank you for the comment Tisadam. It’s likely that Tesla will leave it to a subject matter expert to handle this, i.e. one of the world’s biggest producers. Their core competency is building batteries, not “mining” lithium. They’ll likely saddle someone else with that risk.

  • TdTOS

    I also agree, Musk is a businessman a innovative and progressive one at that. I see no reason why he wouldn’t take on a junior with attractive deposits, located in the Americas (preferably north) far more lax legally/politically and also if this junior happens to be able to produce/extract at efficient levels particularly when dealing with brine deposits. I would be extremely interested in the comp especially if it had a particularly innovative and green piece of technology that allowed it to produce Li from these deposits, refine oil, produce different grades of fuel, efficient to operate, and be self sustaining…..

  • Graham Williams

    A rising star in the Lithium arena would have to be a junior West Australian mining company ‘Pilbara Minerals Ltd (ASX; PLS)’ with what is purported to be the second largest Hard Rock Lithium discovery in the world

    • Ib Uybulio NN

      Hi Graham,

      Wow! Just had a quick look through the latest releases from PLS. Is that for real! Some of those grades are closing in on 2%? Too bad though, as it looks like the Chinese may wrap this one up going by the MOUs, unless US or EU players get involved. Send Elon a link haha

      Nanalyse … “Their core competency is building batteries, not “mining” lithium. They’ll likely saddle someone else with that risk”. Whats to stop him/them from taking a stake in an up and coming junior (like PLS for e.g.) to shore up supply?

      • Graham Williams

        Perhaps an American might read this and make contact with Elon to advise him what is happening in Western Australia and the Hard Rock Lithium discovery?

  • Alan Rodgers

    The big problem with this article is that Tesla/Panasonic do not purchase Lithium or Lithium Hydroxide. They will purchase electrolyte from a company that manufactures the electrolyte for the batteries. The Lithium that is used in the electrolyte is LiPF6 (Lithium Hexafluorophosphate). All this Lithium everyone is talking about is purchased by chemical companies that in turn manufacture the “Lithium Salt” and sell it to electrolyte manufactures, that in turn make the electrolyte to sell to Tesla/Panasonic.

    So the location of the Lithium mine has little impact on the gigafactory, it all has to be sent to someplace else to so that LiPF6 can be manufactured. Again, Tesla, GM, Nissan, LG, Panasonic etc do not buy Lithium, they buy electrolyte that contains Lithium.

    • Nanalyze

      Thank you for the comment Alan. That’s an interesting piece of information. Ultimately though, the electrolyte used by Tesla will contain lithium that most likely come from Albermarle based on the evidence we’ve seen so far.

    • Nathanael

      I’m pretty sure Tesla’s going to cut the electrolyte manufacturer out of the mix. Their policy has consistently been to simplify the supply chain by vertical integration, and the electrolyte manufacturer is doing something trivial.

    • gridflash

      Interesting point Alan. Do you think they’re manufacturing cathodes and anodes or buying them?

  • Dave

    Please note the baconora/rare earth minerals release today. Tie in with tesla. Sonora in Mexico will prove to be the largest deposit in the world.

    • Nanalyze

      Noted Dave. As soon as the dust settles we’ll update the article to add this key piece of information.

  • Chimpus

    The announcement this morning that the BCN & REM joint venture Sonora lithium project has signed a supply contract with Tesla is a major piece of news for all concerned. Yes there are caveats within the deal, as there always are, but if Tesla had any significant doubts about this deal they would not have signed.

    • Nanalyze

      That is a major piece of news indeed! We’ll update the article to include that key piece of information once we’ve had a chance to digest the press releases.

    • gridflash

      Let me suggest that Tesla’s ‘significant doubts’ are buried in the caveats of the deal, which is what we do in the semiconductor business….

  • maestro investor

    I’m putting in $10,000 each into BCN and REM…this news is massive and will make me a millionaire this time next year..trust me!

    • Nanalyze

      This is a planned future supply agreement with just one of the suppliers of lithium for Tesla. Who even says they can produce lithium profitably or even meet the milestones Tesla has laid out? If that amount represents a small chunk of your overall portfolio then you can certainly speculate but it wouldn’t be prudent to make an all in gamble.

  • Chris Keik

    just to clear any Doubt about REM !
    Lithium TESLA RECENT AGREEMENT
    The company involved is :-
    On the – LONDON STOCKMARKET –
    AIM LISTED ——–REM ,rare Earth Minerals .
    NOT, Is Not as:-
    U.S.A. Listed
    U.S.,rare earth mineral s Inc..

  • Bill McArthur

    Dear Nanalyze/Joe/Or whoever you are,

    When I saw this title I thought is was a joke. Then I thought someone was saying it’s time to take profits on Lithium stocks. That was a argument I could have listened to. However, when I saw that the date was Aug 2015…I was disgusted.

    Before I get into detail…you have no business going near a computer and posting your business thoughts on a blog. NOT only did you miss one of the most profitable calls in a long time. You had the gaul to actually state people not to invest. Your actions may has caused damage to people livelihoods. Most news outlets, not that your a journalist will state facts on both sides…then let the reader make their mind up.

    Your comments and tone are pompous. Your lack of knowledge of the subject is breathtaking. I’m speechless when I see you write comments like this…

    Any lithium “junior mining stocks” with promises of “valuable reserves” trying to ride on the coattails of Tesla should be avoided like the plague.

    If you’d researched the market you would realize the story is not the big 3 but, China. You probably don’t even know how many E-bike they buy every year?
    These “Junior mining stocks” are real business with real backgrounds and real assets. Your US or Canadian based. I’m Canadian but, live in Australia. While in Canada I knew there’s a world outside of North America.

    Then you had the gaul to write another article on Lithium stocks. I’m thinking here you’ll apologize to your readers and admit you got it totally wrong and you don’t know anything about Lithium stocks. NOPE…your still the expert. You claim…”TSLA is not likely to depend on junior miners to supply their lithium. They will likely stick with one of the three biggest lithium producers in the world, ALB.” AND…”One thing we do know for certain is that Tesla won’t be committing any of their capital to lithium junior mining companies, no matter what those flashy PowerPoint presentations say.”

    How do you know this?

    The mind boggles where you think this stuff up. GXY…That small junior stock has gone from 1 cent to 44 cents and it’s STILL cheap. They have 3 of the best Lithium assets in the world and are shipping Lithium NOW. There SDV project will match the other Lithium Triangle salta lakes. I doubt you even know what the Lithium Triangle is.

    You then don’t even have the courage to add a real name to the article. Nanalyze? Then you say in your about us the you take positions. So you are probably promoting your stocks. I could go on but, you aren’t worth it. I’m sure you’ll delete this…because you can. That will just be more proof. Then I’ll send this you other Lithium blogs and forum to warn investors to stay away from your site if they wish to every to make money from the markets.

    BTW. Are you licensed to give financial advice ?

    Bill McArthur

    • Nanalyze

      Hi Bill McArthur,

      Thank you very much for your critical commentary. It sounds like you are a speculator, not an investor. Based on your knowledge of the topic, it would seem like you know the difference between the two. You can speculate as much as you like with junior lithium mining stocks or OTC stocks, but in the long run you are very likely to lose your money investing in them. You may want to brush up on your history of pump-and-dumps and “lithium mining stocks”.

      We hope you’re market timing calls are treating you well.

      Regards,

      Joe

    • John Endries

      Bill McArthur, with all your crazed rhetoric, it get the strong impression you are all those things you accuse nanalyze, especially giving “advice” without a license and pumping the stocks you own. Nanalyze did not give advice and his wording is very tempered. We don’t need promoters, we need facts and verifiable references.

  • Curt Grabham

    Enjoyed reading commentary and comments. Hope to see more on this subject.

  • Bosko

    How about Lix & Orrp? Any feedback would be great. Thank you in advance.

  • http://goo.gl/u1pRr9

    Any lithium “junior mining stocks” with promises of “valuable reserves” trying to ride on the coattails of Tesla should be avoided like the plague.

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