Tesla Signs Five-Year Deal With Chinese Company to Supply Lithium

Tesla has signed a five-year lithium supply deal with the Chinese company Sichuan Yahua Industrial Group that will go into effect in 2021. The deal could be worth between US$680 million and $880 million and provide up to 88,000 tonnes of lithium over the course of the contract, according to filings by Sichuan Yahua.

Lithium is a critical element for Tesla’s automobile batteries. The company probably goes through a lot of it, considering that analysts predict that Tesla will deliver as many as 181,500 vehicles in Q4 2020 alone. This is up from the original prediction of 156,500.

Tesla is currently working on increasing its production capacity with Gigafactories being constructed in Texas and Germany, although plans for Gigafactory Berlin is likely to be hampered by a recent ruling on a lawsuit brought by German-based environmentalist groups. It is also working on expanding into new markets like India, where tariffs have been prohibitively high for importing new vehicles.

Tesla is already delivering Model X and Model Y vehicles from its Gigafactory in Shanghai. Some observers have expressed concern that Tesla’s supply chain, which includes a deal with Ganfeng Lithium along with the new deal with Sichuan Yahua, may support human rights abuses in China that include forced labor. There has especially been a rise in awareness of Chinese mistreatment of Uighur Muslims, including forcing them into concentration camps that include factories where they make products for export to other countries.

Tesla has not yet issued a statement on the forced labor issue, although it is unlikely that forced labor is happening in its actual Gigafactory in Shanghai. Despite Tesla’s efforts to source metals in more human rights-friendly regions like North America, it may not have much choice in some cases, as Chinese mining companies are the largest producers of lithium.

“China is going to be very important for Tesla in the next five years, as more than half of Tesla models in 2021 will be made in China,” said car news site Torque News.

What can be done about it? Perhaps completion of Gigafactories in Europe, the United States, and elsewhere will help to reduce the issue. Musk has also indicated interest in gaining better control over the supply chain, including floating the idea of having Tesla do some of the mining for its own raw materials in places like Texas.

So far, Elon Musk has not indicated that any of his companies are interested in getting into the space mining business no matter how many quadrillion dollar asteroids might be out there. Space mining companies do exist, but a few have gone bankrupt and none have actually managed to reach an asteroid yet. It may be worth developing sources of lithium outside of China despite inevitable complaints from environmentalists about how badly mining companies can tear up the landscape.

So for now, Tesla has to make do with deals with Earthbound, and often Chinese-based, lithium mining companies like Sichuan Yahua Industrial Group to get essential metals for its batteries.