Telsa strikes deal to source cobalt directly from Glencore

June 19, 2020

According to reports, electric auto manufacturer Tesla has stuck a deal to buy 5.4 kt/a (6,000 stpy) of cobalt from mining giant Glencore Plc.
The metal that is used in the batteries for electric vehicles will be sourced from Glencore’s mining operations in the Democratic Republic of Congo.

The contract could be viewed as win for both parties. Telsa will be able to shore up its cobalt supply for new plants in China and Germany including its so-called gigafactory in China that is being built. Glencore will be in a prime position to benefit from a boom in electric-vehicle sales, it has so far struggled to make that happen. The company booked losses last year related to cobalt after prices collapsed in mid-2018 from too much supply. In November, it shut one of its cobalt mines in the Democratic Republic of Congo for a maintenance program that could last two years.

Terms of the deal have not been announced and the reporting from Bloomberg cites a source who asked not to be identified as the details are private.

While there’s enough cobalt supply for now, demand is expected to surge in the coming years as Tesla expands in China and Europe and Volkswagen AG to BMW AG roll out fleets of electric vehicles. Warnings about long-term shortages caused cobalt prices to spike in 2017 and 2018, prompting Tesla owner Elon Musk to work on reducing Tesla’s reliance on the metal. Even so, the accord signals that the metal will remain key to the company’s expansion over the next few years.

Executives from the two companies had previously been hammering out terms for Glencore to supply raw materials for vehicles being produced at Tesla’s car facility in Shanghai, people familiar with the matter said in January.

Glencore declined to comment and Tesla didn’t immediately respond to a request for comment. The Financial Times earlier reported details of the agreement to sell material for use at Tesla’s new factories.

The accord is in line with other recent contracts the Glencore has struck, including a four-year deal in February to supply as much as 19 kt (21,000 st) to battery producer Samsung SDI Co. Ltd. Glencore last year agreed multi-year plans to sell about 27 kt (30,000 st) of cobalt to SK Innovation Co. and at least 55.5 kt (61,200 tons) to China’s GEM Co. BMW AG also agreed to buy cobalt directly from Glencore’s Murrin Murrin Mine in Australia.

With Tesla’s China plant expected to manufacture 1,000 to 3,000 cars per week, that would translate to about 1,1 kt (1,200 st) of cobalt demand annually at full capacity, BloombergNEF analyst Kwasi Ampofo said in January. LG Chem Ltd. and Contemporary Amperex Technology Co. have agreed to supply batteries for the Shanghai factory. Tesla’s Germany plant near Berlin may produce about 500,000 vehicles a year once complete.

 

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