Elon Musk sends nickel soaring after urging more production, offering ‘giant’ contract

Tesla chief executive Elon Musk has sent out a call for more nickel to be mined and produced, adding that his automaker company could offer a “giant” long term contract for the producer.

That was enough to send nickel prices on the London Metal Exchange soaring on Thursday, the price rising 4.5% to close at US$13,689 per tonne, while turnover reached its highest in four months.

Nickel is a key ingredient for batteries used in Tesla electric vehicles (EV). The company is reportedly moving away from using cobalt in batteries because of rising costs of the metal as well as ethical concerns surrounding it, its production being still dominated by the Democratic Republic of Congo.

It was reported in June that Mr Musk had signed a contract with Glencore whereby the latter would supply cobalt produced at its DRC mines.

Mr Musk is looking to cut the cost of batteries – a major factor in the sticker price for EVs.

The Tesla chief executive made this pledge on Wednesday: “Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way”.

In order to lessen use of cobalt and reduce battery costs and its flow-on into the cost of EVs to the consumer — the latter a significant hurdle to lifting sales volume — the company is now urging miners to produce more nickel.

Nickel is vital to batteries because it makes them more energy dense. In other words, the use of nickel makes the battery last longer between re-charges, so the car has a great a greater range.

Tesla is also looking to produce trucks and other projects that means it will require even more nickel.

According to reports, Tesla is now sourcing nickel-cobalt-manganese batteries from South Korea and batteries combining nickel and cobalt from Japan.

British commodity analyst Wood Mackenzie is predicting that nickel consumption in EV batteries will rise 64% by 2025.

Nickel sector has seen disruptions

Yet that is only half the story.

Mr Musk’s call for more nickel comes against a background of disruptions in the nickel mining sector due to the COVID-19 pandemic and problems with its price.

At the beginning of 2020, nickel was trading at US$14,070/t but in March fell to US$11,055/t when the virus fears hit commodity prices.

Mines and nickel refineries were disrupted across the world.

One particular case in the giant Ambatovy nickel and cobalt project in Madagascar which is expected to be shut until the end of the year

Part-owner Sumitomo Corporation this month reported impairment losses of 55 billion yen (A$728 million) from its investment in Madagascar’s Ambatovy nickel and cobalt mine for its first financial quarter.

Sumitomo said the write-off was needed because of the mine closure and its own analysis of the nickel price outlook.

Mr Musk clearly needs nickel miners to get back into operation.