China's Yahua Agrees to a Five-year Deal to Supply Lithium to Tesla for EV Batteries

China's Yahua Agrees to a Five-year Deal to Supply Lithium to Tesla for EV Batteries

Author: FutureCar Staff    

China's Sichuan Yahua Industrial Group Co Ltd said on Tuesday it had signed a deal to supply battery-grade lithium hydroxide to Tesla for the next five years. The deal would give Tesla a steady supply of lithium, a key ingredient for electric vehicle batteries in the world's biggest auto market.

As reported by Reuters, Yahua put the total value of the contract, signed by its wholly-owned subsidiary Yaan Lithium, at $630-$880 million through 2025, according to a Shenzhen Stock Exchange filing.

Analysts at Daiwa Capital Markets that spoke to Reuters said that value translated into a total lithium hydroxide procurement amount of 63,000-88,000 metric tons, or roughly 12,600-17,600 tons per year.

The supply deal highlights Tesla's "huge demand" for battery-grade lithium hydroxide, "particularly in view of the ramp-up of Model Y production" in Shanghai, the Daiwa analysts wrote in a note.

Yahua has been expanding lithium production even before the deal was announced with Tesla. In May, the company ramped up production at its lithium hydroxide plant in Yaan city to 20,000 tonnes per year, more than doubling its prior capacity.

Tesla, which started delivering the first vehicles from its gigafactory in Shanghai in December last year, already sources lithium from China's Ganfeng Lithium, one of the world's biggest producers. Gangfeng is the third largest lithium producer in China.

"We expect Ganfeng will continue to be the major if not largest lithium hydroxide supplier of Tesla on the back of this strong demand."

Last month, Tesla was granted permission to start selling the Model Y crossover in China. The Model Y is being built at Tesla's new Shanghai factory, which started producing the Model 3 for the China market last year.

Producing vehicles locally allows Tesla to avoid import tariffs, giving the California company an advantage over other overseas automakers that export vehicles to China.

Tesla Chief Executive Elon Musk once said that the Model Y crossover has the potential to outsell all of Tesla's other vehicles combined. The success of the Model Y and Model 3 in China is also key for Tesla to maintain profitability, so the company will require a reliable source of lithium for all of the vehicles it plans to sell in China.

Some of the Tesla vehicles built in China are also headed to Europe. In October, Tesla confirmed that its will ship Model 3 sedans built in Shanghai to customers in Europe. The electric cars will be shipped to 10 countries in Europe, including Germany, France, Italy and Switzerland.

In February, Chinese battery maker CATL inked a two-year deal to supply batteries to Tesla for its vehicles built in China. Previously, Tesla worked with Japan's Panasonic Corp. and South Korea's LG Chem to supply batteries. Panasonic is Tesla's battery partner in the U.S.

Tesla did not immediately respond to a request for comment.

FutureCar Staff
FutureCar Staff
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