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Tesla's Battery Day had hype for future commodity plans but little else

SNL Image

Tesla CEO Elon Musk speaks during a September 2015 event to launch the Tesla Model X Crossover SUV in Fremont, California.
Source: Justin Sullivan/Getty Images News via Getty Images

Tesla Inc. CEO Elon Musk has proclaimed the electric vehicle giant is ready to move upstream and enter the mining industry as part of an effort to vertically integrate its supply chain. However, analysts have dampened the hype Musk laid out and assert that the billionaire's plot will need to be seen to be believed.

Musk and other executives announced a raft of downstream plans at Tesla's Sept. 22 Battery Day, including expectations to grow vehicle deliveries by 30% to 40% year over year in 2020 even amid the coronavirus pandemic. Similar to his plea over the summer for environmentally friendly nickel supplies, the illustrious CEO used the event to detail Tesla's mineral supply needs and its ambitions of entering the mining sphere, including confirmation that the company acquired a 10,000-acre lithium deposit in Nevada.

Analysts noted two announcements as particularly significant for commodities: Tesla's plan to transition from graphite to silicon in its battery anodes, and its aspiration to build a cathode facility in North America that would rely on domestic sources of nickel and lithium.

Tesla aims to leverage silicon to its full potential in the manufacturing of anodes, targeting a 20% increase in EV range and a 5% reduction in U.S. dollar costs per kilowatt-hour at the battery pack level, senior vice president of powertrain and energy engineering Andrew Baglino said at the event.

Wood Mackenzie analysts said in a Sept. 23 statement that graphite has been the "go-to anode material" for lithium-ion batteries since they were commercialized in 1991, and noted that researchers have been focused on developing innovative ways to increase the silicon used in the anode.

While Tesla's method is "apparently simpler, cheaper and would even provide a 20% boost in range," such a plan "almost seems to good to be true," the analysts said. "A transition to silicon-based anodes has always been a risk for graphite demand in the battery sector. Although the risk might seem slightly more tangible now, we still expect graphite-based anodes to dominate in the short to medium term," Wood Mackenzie said.

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Tesla also made it clear the company plans to move into mine production, asserting it developed a new lithium extraction method using sodium chloride, or table salt. According to Bagliano, the method "simply" consists of mixing clay with salt and then removing the salt after bathing the mixture in water.

The company's mining plans are "unlikely to be needle-moving" for the global lithium market, according to Raymond James analyst Pavel Molchanov. Molchanov speculated in a Sept. 23 note on whether the company will actually want to become its own miner while asking, "Could this be the latest of Musk's PR stunts?"

"According to [Musk], the environmental impact will be minimized, but he acknowledged that this is a brand-new process that has never been used before – so, at a minimum, some operational complications are likely, which means we should not hold our breath for Tesla's in-house lithium supply over at least the next 12 to 18 months," Molchanov said.

Molchanov also said the U.S. lacks sufficient lithium reserves to supply Tesla's demand, with federal figures estimating proven lithium resources of 630,000 tonnes – far lower than what is available in Chile, Australia or Argentina. Even if unproven resources are considered, the U.S. still has less lithium than Chile and Argentina, as well as Bolivia. "Thus, if in fact the in-house mining plan is for real, it would be best to look at this as a modest-sized complement to what will inevitably remain a high degree of reliance on third-party supply," Molchanov said.

Wood Mackenzie noted that the method will need to be proven at a commercial scale before the lithium industry takes it seriously and moves away from its proven methods of mineral extraction.

"It is very difficult to believe that all the world's mineralogy and processing experts would not have realized it was so simple to extract lithium this way," the Wood Mackenzie analysts said. "Many new methods of extracting lithium have been discussed in recent years as the needs of electrification have been realized. Most have numerous challenges. It would be surprising, although of course not impossible, for Tesla to discover the 'Holy Grail' of extraction so soon."