Tesla faces rising lithium prices as suppliers amend contracts

Tesla Inc.Set to pay more for the lithium that powers EVs battery After suppliers amended deals amid constant price increases for metals.

Piedmont Lithium Inc. will supply the EV giant with 125,000 tons of lithium concentrate later this year through the end of 2025, according to a statement Tuesday. Unlike previous agreements where prices were fixed, the Piedmont-Tesla deal relies on a volatility mechanism based on market prices, according to the statement.

According to Cowen analyst David Deckelbaum, the change in the supply contract between Piedmont and Tesla is “significant.”

“As more contracts move to variable prices, the cost of Tesla’s lithium will inevitably rise,” Deckelbaum said in an email.

As the largest buyer in the startup miner-heavy space, Tesla wields tremendous power to determine terms, typically entering into long-term supply agreements at fixed prices. However, the situation is gradually changing due to the ever-increasing prices of key battery materials, including lithium, and aggressive efforts by traditional automakers to secure these metals.

The price of lithium has skyrocketed by 1,200% in the last few years. This is hurting manufacturers who have been forced to raise prices. According to BloombergNEF, the average price of lithium-ion battery packs will rise 7% in 2022. This is the first rise since the group began its investigation in 2010.

The previous deal between Piedmont and Tesla was announced more than two years ago. Lithium prices were at historic lows then, and the pandemic crushed demand for EVs when supply was plentiful.

Cohen’s Deckelbaum said the new supply deal with Tesla “should provide very attractive margins” for Piedmont. He estimates that based on the current spot price of lithium hydroxide, it could boost annual cash flow for the Belmont, N.C.-based company to his $550 million.

Tesla’s metal will come from Sayona Mining’s North American lithium project in Quebec. It was originally going to be sourced from a project in Piedmont, North Carolina, which is still in the pre-licensing stage.