Tesla Inc. will have to pay more for the lithium that powers its electric cars because a supplier changed their contract as the price of the metal continues to rise.
A statement released Tuesday said that Piedmont Lithium Inc. will now send the EV giant an extra 125,000 metric tonnes of lithium concentrate from the second half of this year until the end of 2025. The statement says that, unlike previous deals, Piedmont’s deal with Tesla is based on a mechanism that lets prices change based on the market.
Analyst David Deckelbaum at Cowen & Co. says that the change in the supply agreement between Piedmont and Tesla is “significant” because the electric vehicle (EV) giant usually has fixed prices for the materials it needs to make batteries. “ As more contracts shift toward variable pricing, Tesla’s lithium costs inevitably move higher ,” Deckelbaum said in an email.
As the biggest buyer in a market full of new miners, Tesla has had a lot of power to set terms, usually locking in long-term deals with fixed prices. But the prices of key battery materials like lithium keep going up, and traditional automakers are working hard to get these metals. This is slowly changing the situation.
In the past few years, the price of lithium has gone up 1,200% because supply hasn’t been able to keep up with demand. That hurts manufacturers, who have had to raise prices as a result. BloombergNEF says that the average price of a lithium-ion battery pack went up by 7% in 2022. This is the first time the price has gone up since the group started keeping track in 2010.
The first deal between Piedmont and Tesla was announced more than two years ago. At that time, lithium prices were at an all-time low because of the pandemic, which lowered demand for EVs at a time when there was plenty of supply.
Cowen’s Deckelbaum says that the new supply deal with Tesla should give Piedmont “highly attractive margins.” Based on the current spot price of lithium hydroxide, he thought ...
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