Could Tesla really get into the mining business?

Elon Musk isn’t afraid to buck conventional wisdom about sticking to your core business - Tesla builds its own batteries, and even seats, and it has branched out into stationary storage, solar panels, and flame throwers. During Tesla’s most recent shareholder meeting, Elon said the company might get into another line of business - mining. He implied that taking control of the supply chain for the raw minerals used in its batteries might be a necessity as Tesla scales up production and adds more vehicles to its lineup.

Above: Tesla's Model 3 (Instagram: fromwhereicharge)

As TechCrunch reported, Musk spoke at the meeting about plans for the Tesla Semi and the much-anticipated Tesla pickup truck, and pointed out that, to get those new vehicles on the road, Tesla would need to manufacture a lot of lithium-ion battery cells. “There’s not much point in adding product complexity if we don’t have enough batteries,” he said. (You can listen to Elon’s comments and additional analysis via the Tesla Stock Channel, scroll below for more.)

As Elon has pointed out numerous times, the EV skeptics’ trope about lithium becoming “the new oil” is not based in reality. Lithium isn’t a fuel, and it isn’t particularly scarce. However, that doesn’t mean that Tesla (or other battery makers) can be cavalier about securing reliable, long-term supplies of the light white stuff. Tesla has been nurturing its lithium supply chain for years, lining up suppliers in Mexico and China, as well as closer to home in Nevada. One of Indonesia’s top news agencies recently reported (via Teslarati) that Tesla plans to build a “lithium battery raw material factory” in the country’s Central Sulawesi province. (Asian battery producers CATL and LG are also said to be planning facilities in the area.)

Other minerals used in batteries and motors may also pose supply challenges as the EV market grows. Sarah Maryssael, Tesla’s Global Supply Manager for Battery Metals, said at a recent mining industry conference that the company foresees a global shortage of key EV minerals in the future.

The copper industry in particular has suffered from years of underinvestment, according to sources cited by Reuters, and is scrambling to develop new mines as electrification gathers momentum. Freeport-McMoRan, the world’s largest publicly traded copper producer, is expanding capacity in the US and Indonesia.

Above: A look into the possibilities surrounding Tesla, mining, and the potential for vertical integration (YouTube: Tesla Stock Channel)

Nickel is another key ingredient that may become even more important as Tesla reduces the use of cobalt in its battery cathodes. Cobalt is primarily mined in the Democratic Republic of the Congo, where extraction sometimes involves child labor and other unsavory practices.

As the Detroit News reports, batteries use a high-purity material known as class-one nickel, and global demand is expected to outrun supply within five years. “[Tesla is] getting ready to have the new factory in China, and are at full capacity in North America,” said Peter Bradford, CEO of nickel producer Independence Group NL, who recently met with Tesla’s supply chain team. “They recognize the biggest risk from a strategic supply point of view is nickel.”

Bloomberg New Energy Finance predicted in a July report that demand for nickel will grow 16-fold by 2030, driven by increased production of batteries. Prices on the commodities markets have surged - nickel prices are up by more than a third since the start of 2019.

In the past, Tesla has brought production of key vehicle components in-house after outside suppliers failed to provide them reliably and quickly enough for the fast-moving company. The same scenario could play out in regards to raw materials. Once Tesla increases production to a “very high level,” it will “look further down the supply chain and get into the mining business...maybe a little bit at least,” said Musk at the shareholders’ meeting. “We will do whatever we have to do to ensure that we can scale at the fastest rate possible.”

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Written by: Charles Morris