Soaring lithium prices have electric vehicle makers circling resource explorers
As lithium and other critical mineral prices continue to sky-rocket, electric vehicle-giant Tesla may resort to mining its own supply, while it and other manufacturers lock-in offtake with aspiring miners.
Lithium is essential to electric vehicles and other renewable energies and its price has rapidly risen from US$17,000 per tonne in 2021 to more than US$78,000/t this year.
Tesla co-founder and chief executive officer Elon Musk tweeted during the week saying the soaring lithium price “has gone to insane levels”.
“Tesla might actually have to get into the mining and refining directly at scale, unless costs improve,” he said.
Lithium is preferred in electric vehicle manufacturing as it’s the lightest metal and allows batteries to contain a high power-to-weight ratio.
Tesla unveiled plans to delve into the lithium mining industry two years ago but could finally make it a reality after Musk has become astounded at the recent move in prices.
The car giant first attempted to secure rights to mine lithium previously in 2020 in Nevada, however the deal fell through.
Musk also noted the exploration and mining process could be improved, with there being no real shortage in the mineral itself world-wide.
“There is no shortage of the element itself, as lithium is almost everywhere on earth, but pace of extraction/refinement is slow,” he tweeted.
Manufacturers circle advanced explorers
The rocketing price and predictions of supply shortages has prompted Tesla and other EV manufacturers to go direct to advanced explorers and miners to lock-in their lithium requirements.
Last month, Core Lithium (ASX: CXO) revealed it had inked a binding agreement with Tesla. Under the deal, Tesla will purchase up to 110,000t of spodumene concentrate from Core’s proposed Finniss operation in Australia’s Northern Territory.
Over in Argentina, lithium brine developer Lake Resources (ASX: LKE) announced only this morning a deal with a car manufacturer.
Ford Motor Company has signed a memorandum of understanding to purchase about 25,000t per annum of lithium chemicals from Lake’s Kachi project in Argentina.
Ford vice president of electric vehicle industrialisation Lisa Drake said the electric vehicle manufacturer was “sourcing deeper into the battery supply chain”.
“This is one of several agreements we’re exploring to help us secure raw materials to support our aggressive EV acceleration,” Ms Drake added.
Why are lithium prices rising?
According to the Benchmark Mineral Intelligence, lithium prices have risen by more than US$70,000/t over the last decade.
The astronomical rise sits at more than 490% in the last year alone.
The price surge has put the squeeze on EV manufacturers, including Tesla, with its cheapest vehicle now priced at more than US$46,000.
Analysts attribute the rapid lithium price inflation to global microchip shortages and political uncertainty as a result of the ongoing crisis with Russia’s invasion of the Ukraine.
Director of Supply Chain and Logistics Technology at the University of Houston Margaret Kid says the uncertainty in the world and shock of the saga with Russia-Ukraine has caused a disruption for all.
“Supply chains do factor in geopolitical risks.”
“However, this current round of sanctions is extraordinary and unprecedented even in the complex world of commodities,” she said.
Tesla an early mover on advanced explorers
Tesla’s move on Core, follows earlier deals to cement its own supply of critical battery metals.
Late last year, Tesla locked-in a binding offtake agreement with Syrah Resources (ASX: SYR).
In this agreement, Tesla will purchase about 8,000tpa of natural graphite anode material from Syrah’s vertically integrated facility in Vidalia.
In September 2020, Tesla also approached US-focused Piedmont Lithium (ASX: PLL).
Tesla signed a binding sales agreement to purchase about 160,000tpa annum of Piedmont’s proposed spodumene output from its namesake project in North Carolina.
Other lithium juniors that could be potential offtake targets
With Tesla and other manufacturers circling juniors, what other ASX-listed explorers could be the next target for a new supply deal?
In Nevada, ioneer (ASX: INR) is advancing its Rhyolite Ridge lithium-boron project to provide a US domestic supply of lithium chemicals.
The project is close to numerous gigafactories including ones owned by Tesla, Panasonic, LG, Toyota, and Ford.
Another advanced brine explorer is Galan Lithium (ASX: GLN) with its flagship Hombre Muerto West project in Argentina.
Over in the Democratic Republic of Congo, AVZ Minerals (ASX: AVZ) is progressing the world’s largest undeveloped hard rock lithium resource at its Manono project.
Back in Australia, Kalamazoo Resources (ASX: KZR) has leapt on to the lithium train via a joint venture with the world’s second largest lithium producer SQM.
SQM is exploring for lithium across Kalamazoo’s tenements in the Pilbara, with the joint venture aiming to discover and develop major deposits in Australia.