Tesla to Source Nickel from Western Australia

Tesla has signed a contract with Australian commodity provider BHP’s Nickel West division to purchase an undisclosed amount of nickel mined in western Australia. The two companies will also work together to improve the sustainability of the supply chain for Tesla’s vehicle batteries.

At last year’s Battery Day, Elon Musk had announced a more efficient battery making process that will be implemented in Tesla’s factories and plans to produce batteries with nickel-rich, cobalt-free cathodes for improved energy density. Tesla also plans to increase its capacity to make batteries to as much as 3 terawatt-hours per year by 2030.

This follows a trend of expected increases in demand for raw materials like nickel which are critical for making lithium-ion batteries over the next couple of decades. Industry analyst International Energy Agency estimates that demand for nickel in the electric vehicle and energy sectors could grow as much as 4,000 percent by 2040.

In July 2020, Elon Musk had told nickel producers, “Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way. … Please make more nickel, it’s very important.”

Since then, Tesla has talked to Canadian nickel producers about the possibility of sourcing nickel that is sourced in an environmentally friendly manner and floated the idea of mining its own nickel near its factory in Nevada. The latter would have boosted its rating for American-made vehicles on Cars.com even further, considering that it already makes a lot of its own parts for vehicles that are assembled at its Gigafactories in the United States.

Analysts say that Tesla could source as much as $1 billion worth of nickel from Australia this year. Despite the importance of the Chinese market to Tesla and a recent deal to source lithium from a Chinese firm, it is likely looking at diversifying its sources of raw materials to account for possible diplomatic tensions between China and the United States and China’s recent heaping on Tesla over possible espionage concerns involving Tesla vehicles’ cameras and recalls of Tesla vehicles within the country.

Australia may be a little friendlier toward Tesla and also has some fairly good environmental regulations for its mining industry. Australians may have been impressed with Tesla Powerpacks’ handling of a recent meltdown of a coal-fired power plant that knocked out power for hundreds of thousands of residents in the country.

The current shortage of a semiconductor chip that is critical for electric vehicle batteries has especially highlighted Musk’s desire to control as much of the supply chain as possible, including the possibility of acquiring a semiconductor chip manufacturer.

Sourcing environmentally-friendly nickel is especially a challenge, partly due to the nature of mining operations and often due to lax environmental regulations, illegal mining activity, and questionable business practices. Nickel mining operations in Indonesia were recently criticized for its use of coal and questionable water disposal practices in its mining operations. China has repeatedly made efforts to clamp down on illegal mining operations and metals smuggling with mixed success, and illegal operators likely wouldn’t care much about their impact on the environment.

Despite the lack of information on how much nickel Tesla plans to buy from BHP, analysts say that the deal could be worth as much as 18,000 tons of nickel a year.