Tesla targets lithium bottleneck, aims to undermine China: Investor day follow-up

You’re here (TSLA) announced at Wednesday’s Investor Day near-term plans to expand domestic lithium refining capacity as the company seeks to gain more control over key parts of its supply chain. TSLA shares fell on Thursday as investors pulled back from speculative betas made ahead of Tesla’s Investor Day. Lithium shares also fell.


The global electric vehicle giant said Wednesday that its Corpus Christi refinery is expected to start processing raw lithium by the end of 2023, with a capacity of 50 gigawatt hours per year.

The headlines and investor chatter entering Tesla’s Investor Day raised some expectations for major announcements. Despite speculation about the possible unveiling of a new electric vehicle, Tesla executives said Wednesday that a next-generation platform or vehicle would arrive at a “later date.”

Tackling the lithium bottleneck

CEO Elon Musk has presented an ambitious “Master Plan 3” focused on promoting clean energy.

Executives also highlighted cost reduction efforts. The company’s goal is to reduce assembly costs for its next-generation vehicle platform by 50%. Tesla also plans to reduce its factory footprint by 40%.

Musk pointed out Wednesday that lithium is abundant and that the United States alone has enough untapped lithium ore for the world’s energy needs.

“No country has a lithium monopoly, or even comes close to it,” Musk said. “If the United States were the only place to produce lithium, there is enough domestic material to electrify the Earth.”

“The limiting factor is the refining of lithium into battery-grade lithium hydroxide or lithium carbonate, that’s the real limiting factor,” he added.

During Tesla’s second quarter earnings call in late July, Musk called the lithium refining business “a license to print money.”

The IRA against China and lithium supply

The federal Inflation Reduction Act (IRA), launched by the Biden administration in August. includes billions of dollars in incentives for electric vehicles. A significant part of this support encourages domestic lithium operations, in an effort to loosen China’s grip on lithium processing.

There are benchmarks that electric vehicles must meet to be eligible for tax credits in the new law. By 2024, electric vehicle batteries must contain at least 40% domestically mined or processed minerals. This minimum increases to 80% in 2027. The other option is to source from a country that has a free trade agreement with the United States.

China dominates the world’s lithium refining capacity. The country accounted for about 75% of global lithium-ion battery production in 2021, according to the International Energy Agency. China itself has extremely limited lithium reserves. However, the country is increasingly engaging in lithium mining in South America. This includes a recent $2 billion investment in two exploration projects in Argentina.

Automakers and battery suppliers are currently scrambling to lock in lithium supplies to meet electric vehicle sales targets for 2024, 2025 and beyond. In July, General Motors (GM) has agreed to pay for the lithium stock Livent (LTHM) $198 million upfront to secure supply from 2025.

The International Energy Agency (IEA) has also predicted that annual lithium demand will increase to 2.5 million tonnes by 2030 from around 500,000 tonnes today.

Spot lithium prices in China fell slightly from their November peak to around $52,800 per ton of lithium carbonate from around $84,000. However, prices have still more than doubled since the start of 2022. Prices in China started 2022 at 244,510 yuan, or $34,700 per ton.

Tesla Stock: Taking Control

Tesla executive Andrew Baglino said Wednesday that the company has already opened its Texas factory and plans to invest $365 million in the lithium plant. Baglino added that the facility is 30 minutes from the ports of Corpus Christie and is strategically located directly on the train tracks. Tesla’s goal is to produce battery-grade lithium within 12 months.

Speaking about Tesla’s lithium refinery and cathode facility, Baglino said the electric vehicle giant is trying to pick up the pace of the industry.

Tesla also reportedly made an offer for lithium shares Sigma-Lithium (SGML), according to Bloomberg. Sigma Lithium has no sales, but is set to start commercial lithium production at its Brazilian site in April.

Meanwhile, Tesla on Wednesday announced plans to remove rare earths from its electric motors. PM materials (MP) came across this news.

Tesla stocks and lithium stocks

Shares of TSLA fell 6.6% to 189.31 on Thursday. On Wednesday, Tesla stock closed down 1.4% at 202.77 in below-average traffic. Shares opened sharply below their 21-day moving average on Thursday, pointing the stock to a second straight weekly decline after a strong six-week rise.

Prior to the Tesla event, TSLA shares had doubled from bear market lows of 101.81 on Jan. 6. Much of that surge reflected buzz from Tesla’s Investor Day. This followed a historic trend of TSLA shares rallying ahead of similar events. In 2016, Tesla stock was up 22% for a month before Musk’s second “master plan” was announced on July 20, 2016.

Lithium stocks Chemical Society and Minra (m²), Albemarle (ALB) and Livent all fell on Thursday. ALB fell 1.4%, SQM fell 2.8% and Livent fell 1.8%. Sigma Lithium fell slightly.

The Global X Lithium & Battery Tech (LIT) ETF was also down 1.3% and the Amplify Lithium & Battery Technology (BATT) ETF was down 1.4% on Thursday.

TSLA stock ranks fourth in IBD’s automaker industry group. Tesla stock has a composite rating of 73 out of 99. The stock also has a relative strength rating of 23. The EPS rating is 99.

Please follow Kit Norton on Twitter @KitNorton for more coverage.


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