Tesla Targets Lithium Bottleneck, Aims To Undercut China: Investor Day Follow Up

Tesla (TSLA) announced during Wednesday’s investor day event short-term plans to develop domestic lithium refining capacity as the company looks to take more control over key elements of its supply chain. TSLA shares dropped Thursday as investors backed out of speculative betas made ahead of Tesla’s investor day event. Lithium stocks also fell.

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The global EV giant said Wednesday its Corpus Christi refinery should begin processing raw lithium by the end 0f 2023, with 50 gigawatt hour-per-year capacity.

Headlines and investor chatter going into the Tesla investor day stirred some expectations for major announcements. Despite speculation of a possible new EV unveiling, Tesla executives said Wednesday a next-generation platform or vehicle will come at a “later date.”

Addressing The Lithium Bottleneck

CEO Elon Musk presented an ambitious “Master Plan 3” focused on making a huge push for clean energy.

Executives also stressed cost reduction efforts. The company’s goal is to cut assembly costs by 50% in its next-generation vehicle platform. Tesla also plans to reduce its factory footprint by 40%.

Musk stressed Wednesday lithium is bountiful and the U.S. alone has enough untapped lithium ore for the world’s energy needs.

“There is no country that has a monopoly on lithium, or even close to it,” Musk said. “If the United States was the only place producing lithium, there’s enough domestic material to electrify Earth.”

“The limiting factor is the refining of the lithium into battery grade lithium hydroxide or lithium carbonate, that’s the actual limiting factor,” he added.

During Tesla’s second-quarter earnings call in late July, Musk called the lithium refining business a “license to print money.”

The IRA Vs China And The Lithium Supply

The federal Inflation Reduction Act (IRA), launched by the Biden Administration in August. includes billions of dollars in EV incentives. A strong piece of that support encourages domestic lithium operations, in an effort to loosen China’s stranglehold on lithium processing.

There are benchmarks EVs must meet to be eligible for tax credits in the new law. By 2024, EV batteries must have at least 40% of minerals extracted or processed domestically. That minimum rises to 80% in 2027. The other option is sourcing from a country that has a free-trade deal with the U.S.

China dominates the world’s lithium refining capacity. The country accounted for about 75% of the global lithium-ion battery production in 2021, according to the International Energy Agency. China itself has extremely limited lithium reserves. However, the country is becoming more engaged in South American lithium mining. That includes a recent $2 billion investment into two exploration projects in Argentina.

Automakers and battery suppliers are currently scrambling to lock down the lithium supplies to meet EV sales targets for 2024, 2025 and beyond. In July, General Motors (GM) agreed to pay lithium stock Livent (LTHM) $198 million in advance to secure supply starting in 2025.

The International Energy Agency (IEA) has also predicted annual lithium demand will increase to 2.5 million tons by 2030, up from around 500,000 tons today.

Spot lithium prices in China have come down moderately from their November peak, easing to around $52,800 per ton of lithium carbonate from around $84,000. However, prices have still more than doubled since the start of 2022. Prices in China started 2022 at 244,510 yuan, or $34,700 per ton.

Tesla Stock: Taking Control

Tesla executive Andrew Baglino said Wednesday the company has already broken ground on its Texas facility with plans to invest $365 million in the lithium plant. Baglino added the facility is 30 minutes from the Corpus Christie ports and is strategically located directly on rail tracks. Tesla’s goal is battery-grade lithium production within 12 months.

Discussing the lithium refinery and Tesla’s cathode facility, Baglino said the EV giant is attempting to accelerate the pace of the industry.

Tesla has also reportedly made a bid for lithium stock Sigma Lithium (SGML), according to Bloomberg. Sigma Lithium has no sales, but is poised to start commercial lithium production at its Brazil site in April.

Meanwhile, Tesla announced Wednesday plans to cut out rare earths from its electric motors. MP Materials (MP) tumbled on that news.

Market Rally Stages Bullish Comeback; AI Stock Surges Late

Tesla Stock And Lithium Stocks

TSLA shares tumbled 5.9% at 190.90 Thursday. On Wednesday, Tesla stock closed 1.4% lower at 202.77 amid lower-than-average traffic. Shares opened sharply below their 21-day moving average on Thursday, pointing the stock toward a second straight weekly drop following a steep six-week climb.

Ahead of the Tesla event, TSLA shares had doubled from bear-market lows 0f 101.81 on Jan. 6. Much of that run-up reflected Tesla investor day buzz. This followed a historical pattern of TSLA shares rallying ahead of similar events. In 2016, Tesla stock went on a monthlong 22% run ahead of Musk’s second “Master Plan” announcement on July 20, 2016.

Lithium stocks Sociedad Quimica Y Minra (SQM), Albemarle (ALB) and Livent all fell Thursday. ALB dipped 0.8%, SQM slumped 2.4% and Livent dropped 1%. Sigma Lithium edged 2% lower.

The Global X Lithium & Battery Tech ETF (LIT) also retreated 0.7% and the Amplify Lithium & Battery Technology ETF (BATT) dumped 1.3% Thursday.

TSLA stock ranks fourth in IBD’s Auto Manufacturers industry group. Tesla stock has a 73 Composite Rating out of 99. The stock also has a 23 Relative Strength Rating. The EPS Rating is 99.

Please follow Kit Norton on Twitter @KitNorton for more coverage.

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