As recently exposed by an anonymous source, Tesla will be purchasing the essential metal of lithium batteries from Glencore, the largest miner of raw cobalt materials in the world, in order to avoid material shortage in the future. Upon singing the contract, Tesla will be able to store a substantial amount of raw cobalt materials for its new factories in China and Germany.
The initiation of production at the Tesla Giga Shanghai this year has significantly elevated the production capacity of Tesla, and is now the dominant leader in the new energy market of China through repeated price reduction and the new energy subsidy from the government, where the surging revenue has propelled the company’s value to surpass that of Toyota. It goes without saying, investors are confident that Musk will be able to lead Tesla into becoming the most influential automotive manufacturer in the world.
Although global raw cobalt materials are yet to enter the status of excess demand, the entries of traditional automotive manufacturers, including Volkswagen and BMW, into the electrification competition, has derived a concern over material shortage for future expansion. The prolonged shortage of raw cobalt materials since 2017 had initiated the rampant price reduction, and Tesla began heavily investing in cobalt-less batteries to reduce dependency, though raw cobalt materials remain to be the necessary resources for the expansion of electric vehicle companies in the next few years due to the required R&D period for new technology.
It is reported that the contract of Tesla will be bringing an order of 6,000 tons of raw cobalt materials for Glencore each year. The executives of the two companies had begun discussing the contract terms since January this year, where the primary destination for the raw cobalt materials of Glencore at the time was the Tesla Giga Shanghai. <Financial Times> also covered on the possibility in the new super factory of Tesla using the raw cobalt materials of Glencore.
Glencore refuses to comment on the rumor regarding the collaboration between the two companies, and Tesla has also yet to respond to it.
Glencore has been receiving numerous orders lately. In addition to the orders from Tesla, the company also signed with Samsung on a 4-year contract, where the latter will be buying 21K tons of cobalt, as well as a cooperation with SK Innovation last year, which states the provision of 30K tons of raw cobalt materials within several years. Furthermore, Shenzhen-based GEM Co has also purchased at least 61.2K of raw cobalt materials from Glencore, where BMW purchases raw cobalt materials straight from Glencore’s mine concession in Australia.
Kwasi Ampofo, energy economic analyst of Bloomberg News, pointed out at the beginning of the year that the annual consumption of raw cobalt materials will arrive at 1,200 tons as the weekly production capacity of Tesla Giga Shanghai is soon to elevate to 3,000 units. The annual production volume for the Tesla Giga Berlin that is in the midst of construction is expected to be 500K units. Apart from Panasonic, Tesla also works with LG and CATL on the production of power batteries.
Despite the seemingly endless orders for Glencore, a punctual delivery is not always guaranteed. Since the price collapse (excess supply) of raw cobalt materials that occurred in the second half of 2018, numerous clients decided to not fulfill their contracts, and Glencore had sustained a colossal loss last year, for which the company must seek for new contracts that would require a prolonged period of time. Glencore shut down its mine in the Democratic Republic of Congo November last year for a maintenance that will last for two years.
It is rather a rare sight within the automotive industry to sign direct contracts with miners, and it is obvious that everyone is worried about obstruction in operation due to a shortage of cobalt under the unavoidable electrification tendency.
Currently 3/4 of raw cobalt materials come from the Democratic Republic of Congo, where sweatshops are set up all over the country for money. The country is applying pressure on the supply chain, including centralized control on the exports of raw cobalt materials, to improve on the status quo.
Battery is the essential core to electric vehicles, and a super capacity battery is also a core competitiveness for Tesla. Musk recently announced proudly that through a series of technical improvement, the 2020 Model S Long Range has become the first automobile in the world to have surpassed 400 miles, which is an additional 20% of distance in contrast to the previous generation, and resolves the issue of range anxiety once and for all (the four models of Tesla, SEXY, occupy the first four places on the EPA list).
(Cover photo source: Glencore)