Tesla warns of urgent battery supply chain policy reform needed Down Under

Tesla Inc. wants major critical minerals supplier Australia to adopt production tax credits to incubate a downstream sector, which would help cut global emissions and declutter battery supply chains.

Experts at the Australasian Institute of Mining and Metallurgy's (AusIMM) Critical Minerals Conference held this week in Perth, Australia, sought to identify underlying challenges in making the most of Australia's geological endowment in the face of increasing market intervention across North America and Europe.

Dev Tayal, Tesla's Australian policy and business development manager, told delegates Nov. 22 that Australia is "currently mostly stuck at the bottom of the supply chain, leaving much of the value behind."

Tesla's Dev Tayal addresses the AusIMM Critical Minerals conference in Perth, Australia, on Nov. 22. Source: S&P Global Commodity Insights.

"While it's fantastic to see three lithium refineries ramp up from Covalent Lithium Pty. Ltd. and Tianqi Lithium Corp. in Kwinana and Albemarle Corp. in Kemerton, we need 30, not three, if we are to compete on the world stage, which in turn requires political and societal will to enable this to happen," Tayal said.

"We at Tesla envision a world where every major timezone or region has mine-to-cell supply chains colocated with manufacturing capabilities," Tayal said. "However, this ambition for Australia is not assured ... and the rest of the world is not standing still."

Australia's "dig and ship" model is creating "massive inefficiencies in our current battery supply chains [as] battery minerals mined in Australia are shipped around the world for value adding. This creates a lot of unnecessary transport costs, supply chain vulnerabilities and emissions," Tayal said.

Lithium production tax credits that Tesla Chairman Robyn Denholm called for in September can also be applied further downstream to quickly incubate that part of the industry, Tayal said.

Tax credits and other tools used as part of various market interventions by the European Commission, the US and Canada are "bold, ambitious and working. As battery supply chains reroute and scale up in real time, Australian intellectual property, jobs and potential investments are at risk of migrating overseas," Tayal said.

Tayal said that, on average, a 10% tax credit would be "more than enough" for Australia to become competitive across refining, precursor and cathode production, according to work Tesla commissioned from economics, strategy and policy consultancy Mandala Partners.

This would complement the US Inflation Reduction Act (IRA) incentives without competing on budget and would play to the mining competitive advantage of Australia, where there is currently a "yawning policy gap when it comes to the practicalities of building, financing and operating facilities when compared with our friends overseas," Tayal said.

"The IRA has shown small tax credits linked to production are enough to move the needle and incentivize onshore value adding for these types of projects," Tayal said. The solution also "dovetails neatly into policies applying further downstream in Asia, Europe and America, allowing global companies to be rewarded for value adding in Australia without losing out on cell manufacturing credits elsewhere, as well as incentivizing new and emerging players to reach scaled production and enter the value chain alongside large established multinationals."

"The cost to manage the risk of new project entry is going to have to be shared by everyone across the value chain who needs that to be built," Jeffrey Wilson, director of research and economics at The Australian Industry Group, told S&P Global Commodity Insights on the conference sidelines.

"This includes risk being shared by investors and buyers, be they EV and renewable energy original equipment manufacturers, along with some government support recognizing the unique features of the industry," Wilson said.

Liam Franklyn, head of operations for Allkem Ltd. in Australia, told a Nov. 22 panel at the conference that Tayal's suggestion of tax credits is "a really excellent way to look at it, because we all know there's no way we're going to compete with the IRA."

No time for delay

Australian Resources Minister Madeleine King told S&P Global commodity Insights in September that tax incentives are "attractive," but that the government would not rush into a decision.

However, Tayal warned that "every week and every month we delay is another project at risk and potential lost value for Australians."

Australia also cannot rely on the Climate, Critical Minerals and Clean Energy Transformation Compact that Prime Minister Anthony Albanese signed in May with US President Joe Biden, as it still needs to clear US Congress, which will be "no mean feat," Tayal said.

Tayal acknowledged Australian government and industry are grappling with labor availability, lengthy permitting, lack of industrial-scale infrastructure, access to reagents and reuse of byproducts, while noting that they also enjoy competitive advantages in "mineral abundance, low-emission energy supply, well-developed transport and logistics hubs and skilled mining workforce."

While "the government is doing what they can, a lot of the individuals making decisions in various departments don't understand what they're analyzing," partly because government staff are "stolen by industry, which pays better," Kristie Young, nonexecutive director of MinEx CRC Ltd. and mining juniors Lithium Australia Ltd., Brazilian Rare Earths Ltd. and Corazon Mining Ltd., told the same panel.

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