Tesla agreed to buy nickel from a mine in New Caledonia in a move to secure its supply of metal for batteries, which its chief executive, Elon Musk, called the group’s “biggest concern”.
The electric car maker will become technical advisor to the Pacific Island Goro mine and will also obtain long-term nickel supplies from the project as part of an agreement with the New Caledonia government, according to a person familiar with the matter.
The move comes amid growing concerns about future nickel supplies, after a 26% rise in metal prices last year and the growing investment by Chinese companies in Indonesia. Nickel is needed for the most powerful lithium-ion batteries used in electric vehicles.
“Nickel is our biggest concern for increasing the production of lithium-ion cells,” said Musk on Twitter last month.
New Caledonia is one of the largest nickel producers, but protests in French territory have delayed Vale’s sale of the deficient Goro mine and refinery to a consortium called Prony Resources.
The deal reached in New Caledonia on Thursday will allow the sale and give 51 percent of the project to state entities based in the territory, according to a Reuters report citing the text of the agreement released by New Caledonia political parties. Commodity trader Trafigura will have a 19 percent stake, according to the Swiss-based company.
Although Tesla does not have a shareholding, its close involvement in the mine signals its efforts to have greater control over its entire supply chain, from the mine to the battery, as production increases. A Tesla spokesman in the UK declined to comment on the news. Vale could not be reached immediately for comment.
Last year, Tesla agreed to buy cobalt, another metal battery, from Swiss mining company Glencore.
Nickel, which is extracted mainly from Russia, Canada, New Caledonia and Indonesia, is used mainly to make stainless steel. But the growth of electric vehicles is adding a new source of demand for the metal.
Although Chinese companies have invested heavily in new nickel projects in Indonesia in recent years, the nickel extraction and processing process uses energy from coal.
“The only nickel tonnage increase is coming from Indonesia, but the problem with Indonesia from an ESG perspective is that it may not meet Tesla’s criteria,” said Jim Lennon, an analyst at Macquarie. “Tesla is long overdue in security units and the Chinese are done with it.”
On Tuesday, Chinese stainless steel producer Tsingshan said it had signed an agreement to sell 100,000 tonnes of nickel to two Chinese battery material companies, Huayou Cobalt and CNGR Advanced Material.
The Chinese company said it started producing nickel of higher purity at its factory in Indonesia since last July, a form suitable for electric vehicle batteries, according to a statement in its official WeChat account.
Following the news, nickel prices fell 8 percent on Thursday, with traders betting that Indonesian nickel would ease any shortages in the market.
Nickel was last traded at $ 16,225 a ton, down 13% this week.