Ernest Scheyder

(Reuters) – Elon Musk’s thoughts that lithium prices could force Tesla (NASDAQ) Inc to produce its own electric vehicle battery metal has fueled some hopes that Musk will opt instead for a purchase of an existing mining company.

Already, the automaker has contracts with suppliers around the world for supply of nickel, lithium, and other EV metals. Industry analysts believe Tesla will soon realise that it is difficult to build a mine or processing plant from scratch. The automaker may need more and should consider buying out.

The price of lithium has risen to absurd levels. Tesla might actually have to get into the mining & refining directly at scale, unless costs improve,” the Tesla chief executive tweeted earlier this month. The price of lithium is up by more than 80% and the nickel prices have fluctuated a lot amid London trading turmoil.

The billionaire entrepreneur complained already about the “significant” rise in raw material costs at Tesla which have led to twice-yearly increases in prices for its cars.

Morningstar analyst Seth Goldstein stated that if management is serious about entering lithium, the best route to take would be for them to acquire an existing company.

After unsubstantiated claims that Lithium Corp and its Nevada brine reserves had been sold by Tesla (a rumor which the company refuted), Lithium Corp shares rose more than 30%. The shares of bigger lithium producers such as Albemarle Musk’s tweets were not well received by (NYSE:) Corp.

“Elon, you can talk to us if we want to,” stated Tom Lewis, CEO of Lithium Corp, who claimed that the buyout rumors were likely an “orchestrated scheme to boost (our) shares”

Musk made last week a $43 Billion cash offer to purchase a social media platform, amid all the talk about minerals Twitter Inc (NYSE:).

Joe Lowry, a consultant in the lithium industry said that if you are going to spend $43 trillion and run Tesla and understand Tesla’s future lithium requirements better than anybody else, it might be worth spending a little more and buying a few lithium companies.

A ‘HUGE DISCONNECT’

Tesla has not operated any mines, however it is currently building a Texas lithium processing plant and might need to construct a nickel refinery.

Corby Anderson of Colorado School of Mines said, “There is a tremendous disconnect in this country regarding metals refining.” The public still expects that the right materials are available in order to accomplish the tasks they desire.

U.S. President Joe Biden indicated this month that he would use Cold War-era legislation to raise government funding for metals processing. However, he wouldn’t be using it for new mines.

Tesla stated in January it was going to buy 75,000 tons of nickel concentrate at Talon Metals Corp’s Tamarack project in Minnesota. It will start in 2026.

Musk requested that the mining industry produce more nickel in 2020 “in an environmentally sensitive manner,” and Talon said it had plans to fulfill his request.

It is unclear what Tesla will do to the nickel concentrate. This product needs to be further refined and melted to make it suitable for use in building battery parts.

With the exception a tiny salt byproduct facility, no American facilities are available for this type of processing. Canada is home to a small number of nickel smelters or refineries. However, Canada mines far more than the facilities are capable of handling and depends on Norwegian and British refineries.

Tesla could either construct its own facility to process nickel or rely upon overseas companies to do so, increasing the carbon footprint of nickel.

Musk hinted that Tesla may be working on a method to convert nickel into the necessary material for batteries, but he did not provide details. Tesla didn’t respond to our request for comment.

According to media reports, the automaker recently signed a contract with Brazilian mining firm Vale SA (NYSE 🙂 for nickel supply. Vale did not respond to media reports.

LITHIUM

Tesla has built a Texas facility to convert spodumene concentration – a processed rock that contains the metal – into lithium hydroxide. It is an important building block of EV batteries.

According to records from Texas, the automaker applied last year for Texas permits. However, it’s not clear when the facility will be open.

Piedmont Lithium Inc has put on hold a deal for lithium supplies. Tesla has also signed lithium supply agreements with Ganfeng Lithium Company, Core Lithium Ltd and Liontown Resources Ltd.

Analysts believe Musk’s tweets are likely a result of a desire for lower spot lithium prices. However, most lithium producers prefer to sell their metal under long-term agreements with fixed prices, which allows them to plan for future demand.

Albemarle and Livent (NYSE:) Corp, who are both suppliers to Tesla, said that they would not be building any more plants if the automakers do not sign long-term contracts.