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(Bloomberg) — Tesla Inc. will pay more for the lithium that powers its electric vehicles after suppliers amended deals amid rising metal prices.
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Piedmont Lithium Inc. will now supply the electric car giant with an additional 125,000 metric tons of lithium concentrate from the second half of this year through the end of 2025, according to a statement Tuesday. Unlike previous agreements that locked in prices, the Piedmont-Tesla deal relies on a floating mechanism based on market prices, the statement said.
Cowen & Co analyst David Deckelbaum said the change in the supply agreement between Piedmont and Tesla was “significant” because the electric car giant typically has limited confidence in the materials needed for batteries. There is a fixed price. “As more and more contracts move to variable pricing, the cost of Tesla’s lithium will inevitably go higher,” Deckelbaum said in an email.
As the largest buyer of an industry full of start-up miners, Tesla wields strong leverage over terms, often locking in long-term supply deals at fixed prices. But continued price increases for key battery materials, including lithium, and aggressive efforts by traditional automakers to acquire the metals are gradually changing that.
Read more: Tesla’s lithium supply in jeopardy as rivals speed up mining deals
Lithium has soared 1,200% over the past few years as supplies struggle to meet rampant demand. This hurts manufacturers, who are forced to raise prices. According to BloombergNEF, the average price of a lithium-ion battery pack will rise 7% in 2022, the first increase since the group began surveying in 2010.
The previous agreement between Piedmont and Tesla was announced more than two years ago when lithium prices were at historically low levels as the pandemic dampened demand for electric vehicles amid ample supplies.
Tesla shares were down 13.3% at $106.76 as of 11:51 a.m. in New York, the biggest drop since September 2020, as analysts downgraded their outlook after the company missed vehicle deliveries last quarter. stock price expectations. Piedmont fell 4.2 percent after initially gaining on news of the revised agreement.
Cowen’s Deckelbaum said the new supply deal with Tesla would “deliver very attractive margins” for Piedmont. Based on current spot prices for lithium hydroxide, the deal could add $550 million in annualized cash flow to the Belmont, N.C.-based company, he estimates.
Tesla’s metal will now come from Sayona Mining Ltd.’s North American lithium project in Quebec — it originally came from the North Carolina project in Piedmont, which is still in the pre-licensing stage.
(Add protocol details and analyst commentary starting in third paragraph.)
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