EV giant, Tesla has made a big move in the South Pacific this week. The car manufacturer has agreed to get involved with a nickel mine in New Caledonia. This comes as a way for the US-based company to secure a supply of the battery metal. Last month, Tesla CEO, Elon Musk said on Twitter, “Nickel is our biggest concern for scaling lithium-ion cell production.”
Tesla will also offer technical advisory services at the Goro mine to ensure long-term supplies of nickel. The agreement was established between the car manufacturer and the New Caledonian government. The future supply of nickel is a growing concern and it is needed for the lithium-ion batteries used in electric vehicles.
Image source: Reuters.com
New Caledonia is a French territory situated about 900 miles (1,500 km) east of Australia and the island is one of the largest producers of nickel. However, in December last year, there were protests by groups pushing for independence from France and this delayed the sale of the lossmaking Goro mine and refinery, which was owned by Brazilian miner, Vale. A consortium, Prony Resources were bidding to purchase the mine.
Tesla moved in and reached an agreement with the local government, which involved working with representatives of the independence movement to allow the sale to go through. It was also agreed to give 51% of the project to state entities based in the territory. Another 19% will be owned by a Switzerland-based company, Trafigura.
The Brazilian owner, Vale said the deal would “enable the operations to continue with a sustainable path for the future, preserving jobs and delivering economic value to the country.”
So, Tesla is not going to have an equity stake, but it will be intimately involved in the mine’s operations indicating the carmaker needs greater control over the supply chain, that goes from mine to battery and uses the process to extract and process the nickel also uses energy from coal-fired power.
Nickel is predominantly mined in Canada, Russia, Indonesia, and New Caledonia. While it is mostly used to manufacture stainless steel, the growth in electric vehicles is adding to the demand of the metal. Various Chinese companies are also investing heavily in nickel projects around Indonesia.
Currently, the only incremental nickel tonnage is coming from Indonesia but it’s not meeting Tesla’s criteria and also, Tesla is far behind in securing units because the Chinese are way more involved.
Just this week, the Chinese stainless steel producer Tsingshan agreed to sell 100,000 tonnes of nickel to two Chinese battery materials companies, Huayou Cobalt and CNGR Advanced Material.
This week, nickel prices fell 8% because traders betting that Indonesian nickel is going to alleviate a shortage in the market.
China is becoming the linchpin of growth with regards to the EV market but with Tesla’s Giga Shanghai, the US carmaker still holds a major competitive advantage against local manufacturers.
“If China stays on its current path for Tesla, Musk & Co. could hit one million delivery units globally by 2022. This speaks to our thesis that Tesla will hit a trillion dollar market cap in 2021 despite this risk-off moment for EV stocks with the bears coming back to life after a long hibernation in their caves over the past year,” said Wedbush analyst, Dan Ives.
This year, Tesla has also had to manage the shortage in the supply of chips used that control self-driving capabilities and Musk is clearly wanting more control of the supply chain so as not to disrupt vehicle production.
Massive opportunities are emerging in the space for suppliers and producers of components that are needed for electric vehicles. The golden age for electrification is growing and several industries could really take it as a chance to get in on the game.