Though not the main ingredient in batteries, lithium metal is an essential component for EVs
What’s slowing down production of the Tesla Model 3?
Battery module production is one stumbling block, the company acknowledged last week. And while it’s unclear whether a shortage of lithium is part of the problem, Tesla is making moves to ensure it can access enough of the light metal — a growing concern for the entire industry.
Tesla reportedly has been in talks with Chilean lithium supplier SQM to invest in the company and secure a steady supply of the metal. Lithium is a key component in lithium ion batteries used to power electric vehicles, and its future supply could be a major concern for long-term battery production.
First, however, Tesla must address getting its current batteries off the line.
“Battery module production has been a limiting factor on Model 3 output,” Musk said last week on a call with analysts to discuss fourth-quarter earnings. The company posted a $675.4 million net loss for the fourth quarter of 2017, compared with a net loss of $121.3 million in the year-earlier period, largely due to problems ramping up production of the Model 3. “We were a little overconfident and complacent in thinking this is something we know and understand.”
Tesla’s battery struggles show that the massive transition to electric vehicles won’t be without significant hurdles. Much of the demand for lithium is taken up by the consumer electronics industry. As automakers ramp up plans for EVs, lithium demand is expected to hit new highs, and competition for lithium will soar.
That means manufacturers need to secure strong supplier relationships with lithium producers in the short term or brace for major price fluctuations.
“In the last two years, lithium production has not been enough to meet demand. As a result, lithium stockpiles have diminished,” said James Frith, an energy storage analyst at Bloomberg New Energy Finance, adding that producers have been working to replenish supplies to meet demand during the next five years.
By 2030, demand is expected to hit 250,000 metric tons a year, up from less than 50,000 metric tons in 2017, “so the industry will need to keep ramping up production,” Frith said.
Sanford C. Bernstein & Co. estimates companies will have to spend between $350 billion and $750 billion to find and develop new lithium mines to support this rising demand.
Increasing demand
SQM said it does not comment on specific customers, but it has been in talks with automakers to play a “more active role” in the supply chain.
Supplies of the metal can be difficult to predict because of the variety of ways it can be produced. Lithium is primarily mined in Australia through a process called hard-rock mining, which produces the metal in weeks, or in South America through brine mining, which is cheaper but can take up to two years.
Tesla, General Motors, Nissan Motor Co. and Chinese automakers are the primary companies producing fully electric vehicles, but in the last year, automakers from Volvo Cars to Ford Motor Co. to Mercedes-Benz have pledged to beef up their EV offerings in the next five years. And those numbers are expected to rapidly increase in the next decade — Bloomberg New Energy Finance projects EV sales to reach 24.4 million by 2030, compared with global sales of just more than 1 million now, according to Navigant Research.
These commitments have yet to include supply chain plans for increased battery production, begging the question of whether lithium supply can keep up.
“No major automaker has yet got a lithium contract in place that is consuming supply,” said Simon Moores, managing director of Benchmark Mineral Intelligence, a data collection company focused on the lithium ion battery supply chain. “This means that it becomes a longer-term issue.”
