Tesla Motors, the electric car manufacturer Tesla is planning a massive expansion of its production and wants to build its very own USD$5 billion battery factory. Tesla’s stock performance has been remarkable; its share price (NASDAQ: TSLA) has bewitched Wall Street, rising from USD$ 78 in February of 2013, when the Company was first listed on the NASDAQ to the present USD$ 236. This performance, which reflects the rising sales success of Tesla automobiles, explains the Company’s very ambitious plan to build its own Lithium-ion (Li-ion) battery factory. Tesla expects such demand as to not be able to rely on current availability. Moreover, Tesla is concerned by the rising consumption of lithium in China and the fact it is not even able to meet that demand.
Lithium is recovered from brine from salt lakes or as a bi-product from minerals. Lithium deposits are found all over the world, but it is more difficult to find direct occurrences of lithium carbonate, such that Lithium oxide has to be mixed with a specific ratio of carbonate to produce the industry standard of lithium carbonate. Bolivia has one of the largest lithium deposits in the world, and could be a supply source; however, Bolivia is wrought with political risk. While lithium has also been used also to build the tritium for hydrogen bombs and a large supply of lithium has accumulated in the United States, this would be difficult to recycle. Lithium supply is getting tighter; the price of lithium has increased from USD 2,000/ton to USD 5,500/t (as of 2013) in the past decade but it is not traded in the stock exchange and its price is destined to increase significantly.
Texas Rare Earth Resources Corp. (“Texas Rare Earths” | OTCQX: TRER), is a rare earths explorer in Texas that has identified its main project as the development of rare earth minerals at Round Top mountain in Texas (about 85 miles east from El Paso). The deposit is rich in two by-product assets: beryllium and lithium carbonate. Beryllium is one of the metals slated for an appreciation of value in the next decade. It is the second lightest metal after lithium and is in high demand for its low density and high strength with many applications in aerospace. The December 2013 preliminary economic assessment (PEA) suggests that the Company would be able to recover some 9,000 tons of lithium carbonate per year after the leach solution processing of its rare earth elements. The fact that Tesla is scouting Texas as one of the top four locations for its Lithium battery factory gives Texas Rare Earths a tremendous opportunity for by-product revenue, should it be able to secure a supply partnership with Tesla for which, it can be presumed, initial discussions may be underway.
The Li-ion batteries used by Tesla cars and many other modern modes of transport (the Boeing 787 for example) are one of the components that make electric cars so much more expensive than internal combustion ones. Tesla’s strategy is to lower the price of its electric cars so as to vastly increase their market potential. Tesla’s battery factory is intended to achieve a 30% cost reduction In order to make electric cars more affordable for the masses. Tesla’s planned facility, which will employ over 6,000 people, will produce more lithium -ion batteries than all the battery factories in the world put together. Tesla, meanwhile, plans to go from selling 22,500 cars to 500,000 cars in the next few years. Tesla’s current flagship, the Model-S, sells for over USD 90,000. Tesla expects to offer a mass market model starting in about three years’ time, for which it absolutely needs cheaper batteries. According to Elon Musk, Tesla’s CEO, construction of the new battery factory will begin in 2014.Tesla is scoping four possible States to build the so-called ‘battery gigafactory’: Nevada, Arizona, New Mexico and Texas. The factory should be productive by 2017 in time to launch the new Tesla economy model. Tesla’s stock has increased sevenfold since opening over a year ago and it has continued to rise following the announcement of the battery factory plans.
Many Li-ion batteries and mass market electric cars means that Tesla will be in the market for lithium. Elon Musk hasn’t mentioned anything about constructing his own lithium mine – for the time being – so Tesla will need to secure reliable sources able to supply large quantities of the metal without supply risks of the kind experienced by rare earth users in the United States, Europe and Japan with rare earths. Lithium at 0.065 parts per million in the earth’s crust is rarer than copper, zinc or nickel. Metallic lithium is highly corrosive and reacts to form lithium nitride and hydroxide; ideally, lithium is sold as a carbonate. Lithium is used in the production of aluminum, in metallurgy as an additive, in lubricants as an additive, in glass and ceramic manufacturing and of course in batteries (22-27% of current world consumption). By 2020, battery production, Tesla’s factory notwithstanding, is expected to account for 47% of demand.