Individual recruitments at big companies like Tesla don’t ordinarily attract outside attention. But when, in mid-April, an exploration geologist announced on LinkedIn that he’d left Rio Tinto to join Tesla, it sparked speculation. Why a geologist? Why Tesla? What kooky plans did Elon Musk have in store now?
Individual recruitments at big companies like Tesla $TSLA don’t ordinarily attract outside attention. But when, in mid-April, an exploration geologist announced on LinkedIn that he’d left Rio Tinto to join Tesla, it sparked speculation. Why a geologist? Why Tesla? What kooky plans did Elon Musk have in store now?
On Apr. 8, having complained about the skyrocketing price of lithium—an indispensable element in Tesla’s batteries—Musk suggested that his company might have to mine the metal itself.
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The prices of many of these metals are soaring. Lithium prices have risen nearly 500% over the past year, from $17,000 per ton to almost $80,000 per ton. Cobalt is in the same price vicinity; the cost of nickel briefly exceeded $100,000 a ton in early March. The reasons for these surges are manifold: a steep boom in demand for electric vehicles; covid-related supply chain disruptions; sanctions on Russia, which produces 15% of the purest grade of nickel.
Electric batteries are material-intensive. Lithium, for instance, is not scarce, but the average electric vehicle battery requires around 10 kg of the metal. In turn, 5.3 tons of lithium carbonate ore yield one ton of lithium. Cobalt and nickel ores, similarly, have to be clawed out of the earth and then processed heavily to achieve the requisite purity levels. The mining industry isn’t ready yet to deliver supplies of these metals in the kind of vast, purified quantities that battery manufacturers need—which means, as RJ Scaringe, the CEO of Rivian $RIVN Automotive, told the Wall Street Journal, that “90% to 95% of the supply chain does not exist.”
As a result, manufacturers of electric vehicles are trying to abbreviate the supply chains of these metals by bringing their sources closer to them. Last year, General Motors $GM invested in a lithium extraction project in California, and BMW did the same in Argentina. Volkswagen signed a binding purchase agreement for lithium from a German mine. Tesla already owns the rights to a lithium claim deposit spread over 10,000 acres of Nevada. CATL, the Chinese battery manufacturer, bought a Canadian lithium mining company for nearly $300 million. And, in a reversal of roles, the mining giant Glencore bought a British battery maker last year.
Most of these moves were made over the last year as metal prices rose, but new projects will take time to come on stream. Analysts worry that the transition to low-carbon vehicles will stall if metal prices remain high. More people will buy EVs if the cost of their batteries declines, as they did between 2014 and 2020, from $290 per kilowatt-hour to $110. Persuading people to buy EVs instead of gas-powered cars to save the planet is hard enough. If battery prices go up, persuading people to buy more expensive EVs will be an even more thankless job.
