Tesla waves a $1b cheque in Australian miners’ faces, urges local battery metals processing

Tesla Australia battery metals mining miners lithium nickel rare earths ESG
Although Tesla is offering itself as a customer, Australia still has to come up with the goods.

Electric vehicle maker Tesla is definitely one for making big announcements, and the latest one is the prospect of the company buying as much as $1 billion a year of battery metals from Australian miners.

In a speech in Canberra to mining industry leaders, Tesla chair Robyn Denholm predicted that her company could soon consume “more than” $1 billion a year in Australian produced lithium, nickel, rare earths, and other battery metals.

The promise of Tesla is that Australia’s reputation as a commodity exporter and adoption of ESG (environment, social corporate governance) practices is enabling it to become a supplier of climate change solutions.

The speech is garnering significant attention, with Sydney-based investment adviser Peter Switzer sending out a note headed “Who needs China when Australia has Tesla?”.

Not so fast, everyone.

Tesla is already a big customer

For one thing, a good part of that back-of-the-envelope sounding $1 billion is already making its way into Australian miners’ bank accounts.

Three-quarters of lithium now being used in Tesla cars already comes from Australia — as does a third of its nickel requirements.

Each electric vehicle contains about $5,000 worth of metals, according to Tesla figures.

This explains why Ms Denholm made it clear to the Australian Minerals Council that Tesla already has confidence in Australia as a source.

Australia will have to do its own heavy lifting

For one thing, Ms Denholm did have a rather key caveat — that miners, manufacturers and governments must hurry up innovation to make this country a new energy super-power.

Yes, the Federal Government has outlined plans over 10 years to create downstream processing of critical metals.

But, so far, a plan is what it remains.

And, in answer to Mr Switzer, China has the bulk of critical metals processing capacity while the US is now trying to grapple with the challenge of building the capacity from the ground up.

Lynas Rare Earths (ASX: LYC) is going downstream with its rare earths processing, but the key part of that strategy is the proposed plant located in Texas.

Further, there is no timeline specified by Tesla, and this looks very much like a cart-before-the horse scenario.

Two years ago, Tesla boss urged nickel miners (including those in Australia) to increase metal output to satisfy the auto maker’s increasing demand.

Then, as now, it was left to the miners to do the hard yards without any guarantees from Tesla.

Tesla had a disappointing April

Apart from handing out advice to Australia (and others, in the case Tesla boss Elon Musk jawboning the cryptocurrency market), Tesla has a few issues of its own, according to a client note overnight from Dan Levy at Credit Suisse.

The car maker’s shares took a 4% dip in New York trading on Wednesday and are off 14% in 2021 so far (contrasted to the S&P 500 gaining 12% over the same period).

Mr Levy reported that Tesla had 29% of the global auto market in March, but that in April this market share had plunged to 11%. He found that Tesla had lost market share in China, Europe and the US.

Tesla, like other automakers, has faced shortages of semiconductors.

Bloomberg is reporting that it polled 44 analysts, a quarter of whom had a “sell” on Tesla.

It may be the nudge Australia needs

Ms Denholm does know Australia, having worked for Toyota Australia in the 1990s when the nation’s car industry was still buoyant.

She noted in her speech the prospect of Australia manufacturing lithium-ion batteries and even of making electric vehicles.

“There would be 10 times less carbon pollution if Australia’s world-class spodumene is converted to lithium chemicals locally in Western Australia,” Ms Denholm told her audience.

“Tesla estimates that, last year, Australia supplied approximately 49% of the world’s [spodumene] but 0% of the refined product suitable for battery cells.”

Australia’s hard rock (spodumene) lithium exports are projected by Federal Government to reach $1 billion this year.

However, Reuters was getting ahead of itself headlining its report of the speech “Tesla to buy more than $1bn of Australian battery minerals a year”.

Tesla is offering itself as a customer for more of what we could produce, but Australia has to come up with the goods — both raw materials as well as downstream products.

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