Tesla Avoids a Nickel Crisis by Making a Secret Supply Deal

Key Highlights

• Tesla Inc. has been scouring the globe for the metal since 2021, negotiating agreements with a number of nickel suppliers.
• This includes a multiyear supply agreement with Vale SA, the world's largest mining company.
• There will be a lot more nickel needed to make batteries by 2030 than there was this year, BloombergNEF says.
• Since the February 24 attack on Ukraine, the price of nickel has risen by 30% on the London Metal Exchange.
• Tesla Dodges Nickel Crisis With Secret Deal to Get Supplies , Russia produces 17 percent of the world's Class 1 nickel, which is used in electric vehicle batteries.

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Electric-vehicle manufacturers have become more worried about their supplies because Russia is one of the world's top producers of nickel, which is used in the batteries of electric cars.

On the other hand, Tesla Inc. has been scouring the globe for the metal since 2021, negotiating agreements with a number of nickel suppliers.

This includes a multiyear supply agreement with Vale SA, the world's largest mining company. According to people familiar with the situation who asked not to be identified because they were discussing private matters, the unnamed arrangement covers nickel from Canada.

Unlike most of its competitors, Tesla has put a lot of time and effort into making sure it has enough nickel to make its cars.

Elon Musk, Tesla's CEO, is focusing on vertical integration in order to maintain control over the company's supply chain. Panasonic Corp. of Japan and the firm jointly manage a huge battery-cell factory south of Reno, Nevada. Tesla purchases cells from other major manufacturers in addition to producing its own.

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Furthermore, the organisation is continually pushing for improvements in the processing of raw materials and the manufacturing of batteries. At a presentation in 2020, executives discussed shortening the processing chain from mine to cathode.

"What Tesla has done with nickel is a secret competitive edge," Loup Ventures managing partner Gene Munster said. "Tesla continues to be a step ahead of the competition."

Musk has often stated that nickel supply is the company's top issue as it ramps up production, and the metal's availability is a cause of concern for the whole electric vehicle industry. There will be a lot more nickel needed to make batteries by 2030 than there was this year, BloombergNEF says. That's up from just over 400,745 tonnes this year.

On a two-year-ago earnings call, Musk urged manufacturers to "mine more nickel." "If you mine nickel efficiently and environmentally sensitively, Tesla will give you a huge contract for a long time."

Sanctions against Russia for its invasion have heightened the urgency, as the country produces around 17% of the world's refined Class 1 nickel, which is essential for EVs. Since the February 24 attack on Ukraine, the price of nickel has risen by 30% on the London Metal Exchange.During that time, prices tripled in two days due to a short squeeze, although much of that gain was reversed. If there are hints that the battle may be finished, the market may calm down.

Analysis: "BloombergNEF says that battery manufacturers, especially here in America, will be forced to set up new supply chains because of nickel's price rise and Russia's invasion of Ukraine."

Tesla's agreement with Vale is one of several the company has made in the last year. The Austin, Texas-based electric vehicle manufacturer agreed to buy 75,000 metric tonnes of nickel concentrate from a Talon Metals Corp. plant in Minnesota in January. 

This followed agreements for material from Australia with BHP Group, the world's largest mining business. Tesla also has a deal with the owners of a nickel mine in New Caledonia, a South Pacific island.

"People don't appreciate how far ahead Tesla is in terms of securing the supply chain for raw materials and taking an integrated strategy to battery materials," Talon Metals spokesperson Todd Malan said.

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Nickel Needs

Russia produces 17 percent of the world's Class 1 nickel, which is used in electric vehicle batteries.

Vale has stated that it intends to boost its EV sales by between 30% and 40%, up from the current 5%. The miners from Brazil remained tight-lipped about their Tesla deal. Requests for comment were not returned by Tesla.

After Bloomberg News reported on the nickel contract with Tesla, Vale's American depositary receipts climbed less than 1% in New York at 9:56 a.m. Wednesday. The automaker's stock remained relatively unchanged.

Tesla is focusing on nickel-based chemistries for longer-range vehicles since nickel is a vital component in the cathodes of electric-vehicle batteries. For shorter-range vehicles, iron-phosphate is used.

Meanwhile, according to people familiar with the situation, President Joe Biden's administration is considering adding battery materials to the list of things covered by the 1950 Defense Manufacture Act as soon as this week, in order to stimulate domestic production. On Thursday, the Senate Committee on Energy and Natural Resources will host a hearing on domestic vital mineral supplies.

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