Tesla Shoots Itself in Its Blue Suede Shoes

Green Tesla may have a problem sourcing a blue mineral for EV batteries.

Global warming has been good for Tesla. The Model E, Tesla’s electric car for the masses, garnered 400 thousand pre-orders before the design was even finished.[1] Tesla built its own battery plant, known as the Gigafactory, to supply the huge lithium-ion battery demand of Model E production. To enhance its positive environmental impact, Tesla committed to sourcing the plant’s materials from North America to reduce supply chain emissions.[2]

But is that even possible? Can a factory that doubles global lithium-ion battery capacity be solely supplied by local material?[3] Did Tesla’s promise to restrict supply to North America go too far?

There are many kinds of lithium-ion batteries, but only those with the highest energy density are fit for use in EVs. These batteries require lithium, graphite, and cobalt (colloquially known for its impure oxide, which is blue).[4] The sheer scale of the Gigafactory will likely cause short-term supply issues for all three key ingredients. However, relative abundance and cheap refining costs of North American lithium and graphite should allow for local sourcing in a few years.[5] Cobalt is a different story.

Before we examine North American cobalt supplies, it is important to understand why the cobalt supply is tricky to begin with on a global level.

1) About 97% of cobalt is generated as a byproduct of nickel and copper refining.[6] When prices for these minerals fall or fluctuate, as they have over the last few years, mines suspend operations and produce less cobalt byproduct.[7] For example, global cobalt production fell from 126 megatons to 123 megatons from 2015 to 2016 in spite of increasing demand.[8]

2) Cobalt rarely occurs in concentrations high enough to justify primary mining (initiating and operating mines specifically for cobalt).[9]

3) More than 50% of cobalt production and known reserves are in the D.R. of Congo where it is often mined by children in deadly working conditions. Recent Amnesty International and Washington Post reports shed light on the issue, forcing many buyers to re-evaluate their cobalt supplies.[10] Apple, for example, announced that it would classify cobalt as a conflict mineral and only source responsibly mined material.[11] D.R.C. mining improvements will take time, inhibiting parts of the world’s largest cobalt supply. To further complicate the scenario, the D.R.C. continues to experience political strife. Peaceful transfer of power has been delayed twice in the last year, and many fear conflict in the coming year.[12]

The cobalt pipeline becomes even tougher if you restrict supply to North America, where the mineral is far less abundant. Some simple math reveals why Tesla may have a problem:

  • InvestorIntel conducted an in-depth analysis to estimate that Tesla’s Model 3 batteries will require approximately 7.8 megatons of cobalt per year. Critically, this is new demand for cobalt.[13]
  • The U.S. Geological Survey estimates that the U.S. and Canada produced about 8.0 megatons of cobalt in 2016, of which only 0.3 megatons was incremental production.[14]
  • This implies Tesla would require the entire North American cobalt output, all of which is currently accounted for by other customers.

Couldn’t North America just mine more cobalt? While reserves are estimated at 291 megatons, there are few viable mine prospects in the near term. Several sources concur that the eCobalt Solutions project in Idaho has the most near-term potential, though expected yield is only 1.5 megatons per year.[15]

To make matters worse for Tesla, EV production is set to skyrocket, further stressing global cobalt supply. Global 2016 EV sales were approximately 750 thousand, but the IEA predicts EV sales could reach 15 million by 2020 and 55 million by 2025.[16] Most major automakers have announced plans for EV model lines. Volkswagen, the world’s largest automaker, recently committed to building 30 EV models by 2025 and VW predicts the need for 40 additional Gigafactory-equivalents by 2025 to meet EV battery demand.[17] Analysts at Macquarie Research agree that cobalt deficits are around the corner. They anticipate shortages of 5.3 megatons by 2020.[18]

Tesla appears to have a long-term cobalt issue on its hands and has shot itself in the foot by committing to North American sourcing. So what are they doing about it?

Calls between Tesla’s CTO and investors suggest that Tesla is trying to develop battery chemistry to rely less on cobalt and more on elements like nickel.[19] Other than that, it’s unclear, as their focus appears to be on lithium resources.

In my opinion, that is not enough. Battery breakthroughs may be around the corner, but cobalt appears critical for high energy density batteries for now. To better control future cobalt supplies, Tesla should consider:

  • Investing in exploration companies like US Cobalt Inc.
  • Investing in cobalt refining
  • Investing in cobalt recycling

Tesla is a green company, but cobalt could make them blue if their supply chain is not addressed.

(Word count sans citations: 791)

 

Endnotes:

[1] Reuters. (2017). Tesla CEO Musk: almost 400,000 orders received for new Model 3. [online] Available at: http://www.reuters.com/article/us-tesla-model3/tesla-ceo-musk-almost-400000-orders-received-for-new-model-3-idUSKCN0XI0NR [Accessed 15 Nov. 2017].

[2] Automotive News. (2017). Tesla, citing environment, to use North American materials for battery plant. [online] Available at: http://www.autonews.com/article/20140329/OEM01/303299983/tesla-citing-environment-to-use-north-american-materials-for-battery [Accessed 15 Nov. 2017].

[3] Insideevs.com. (2017). Tesla Motors Gigafactory Announcement – All The Details | Inside EVs. [online] Available at: https://insideevs.com/tesla-motors-gigafactory-announcement/ [Accessed 15 Nov. 2017].

[4] Institute, C. (2017). Lithium-ion batteries | Cobalt Institute – formerly the Cobalt Development Institute (CDI). [online] Cobalt Institute. Available at: https://www.cobaltinstitute.org/lithium-ion-batteries.html [Accessed 15 Nov. 2017].

[5] Olivetti, E., Ceder, G., Gaustad, G. and Fu, X. (2017). Lithium-Ion Battery Supply Chain Considerations: Analysis of Potential Bottlenecks in Critical Metals. [online] Cell.com. Available at: http://www.cell.com/joule/fulltext/S2542-4351(17)30044-2 [Accessed 15 Nov. 2017].

[6] Institute, C. (2017). Lithium-ion batteries | Cobalt Institute – formerly the Cobalt Development Institute (CDI). [online] Cobalt Institute. Available at: https://www.cobaltinstitute.org/lithium-ion-batteries.html [Accessed 15 Nov. 2017].

[7] Manufacturing.net. (2017). Copper Slide Triggers Mine Closure, Layoffs. [online] Available at: https://www.manufacturing.net/news/2015/01/copper-slide-triggers-mine-closure-layoffs [Accessed 15 Nov. 2017].

[8] U.S. Geological Survey, 2017, Mineral commodity summaries 2017: U.S. Geological Survey, 202 p., https://doi.org/10.3133/70180197.

[9] Institute, C. (2017). Lithium-ion batteries | Cobalt Institute – formerly the Cobalt Development Institute (CDI). [online] Cobalt Institute. Available at: https://www.cobaltinstitute.org/lithium-ion-batteries.html [Accessed 15 Nov. 2017].

[10] Washington Post. (2017). This is where your smartphone battery begins. [online] Available at: https://www.washingtonpost.com/graphics/business/batteries/congo-cobalt-mining-for-lithium-ion-battery/ [Accessed 15 Nov. 2017].

[11] Apple Newsroom. (2017). Raising the bar: Apple’s 11th annual Supplier Responsibility progress report released. [online] Available at: https://www.apple.com/newsroom/2017/03/raising-the-bar-apples-11th-annual-supplier-responsibility-progress-report-released.html [Accessed 15 Nov. 2017].

[12] Reuters. (2017). Congo delays presidential vote to 2018, opposition plans strike. [online] Available at: https://www.reuters.com/article/us-congo-politics/congo-delays-presidential-vote-to-2018-opposition-plans-strike-idUSKBN12G09T [Accessed 15 Nov. 2017].

[13] Clausi, P., Clausi, P., Clausi, P., Smith, L., Smith, L., Bird, K. and Smith, L. (2017). Cobalt: The Bass Player in the Tesla Band. [online] InvestorIntel. Available at: https://investorintel.com/sectors/technology-metals/technology-metals-intel/cobalt-the-bass-player-in-the-tesla-band/ [Accessed 15 Nov. 2017].

[14] U.S. Geological Survey, 2017, Mineral commodity summaries 2017: U.S. Geological Survey, 202 p., https://doi.org/10.3133/70180197.

[15] Ibid.

[16] International Energy Association. (2017). Global EV Outlook 2017. [online] Available at: https://www.iea.org/publications/freepublications/publication/GlobalEVOutlook2017.pdf [Accessed 15 Nov. 2017].

[17] Szymkowski, S. (2017). VW says it needs ’40 gigafactories’ for electric-car batteries by 2025. [online] Green Car Reports. Available at: https://www.greencarreports.com/news/1111473_vw-says-it-needs-40-gigafactories-for-electric-car-batteries-by-2025 [Accessed 15 Nov. 2017].

[18] Reuters. (2017). Electric Car Boom Spurs Investor Scramble For Cobalt. Available at: http://www.reuters.com/article/us-cobalt-demand-investors/electric-car-boom-spurs-investor-scramble-for-cobalt-idUSKBN15T1VR.

[19] Hull, M. and Deaux, M. (2017). Elon Musk Is Squaring Off Against China for the Future of Tesla. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2016-06-23/elon-musk-is-squaring-off-against-china-for-the-future-of-tesla [Accessed 15 Nov. 2017].

 

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5 thoughts on “Tesla Shoots Itself in Its Blue Suede Shoes

  1. Interesting point about the mining of this scarce supply. To your point I do not think it is realistic for them to expect to be able to monopolize the cobalt market. And your ideas about how to get ahead of the demand are certainly good ones.

    Considering all of the research going on in the space, it seems feasible Tesla may be able to find a more abundant similar element. Furthermore perhaps it was overly restricting to only source the cobalt from North America as you pointed out.

    All of the challenges of finding new cobalt raise the question if recycling spent batteries might become financially viable going forward. This article shows additional research in that space where they seemed to have devised an economically efficient answer. [1]

    [1] https://www.sciencedaily.com/releases/2017/02/170207105348.htm

  2. Super interesting. I didn’t realize that Tesla had committed to mining cobalt exclusively from North America (despite writing my TOM paper about Tesla and their Li-ion batteries :D). It seems they will definitely have a challenge getting enough material for the skyrocketing demand of both their Model 3 cars and Powerwall battery systems. I think your suggestions to invest in cobalt exploration companies and cobalt recycling will be important components of Tesla’s strategy moving forward.

  3. Thank you very much for writing this interesting essay!

    One question I have about how Tesla prioritizes this project is whether or not they can align their incentives for sustainability. Teslas obviously don’t consume fossil fuel, but this mining production seems incredibly energy intensive. Perhaps Tesla could justify a different type of mining or R/D into new materials if they try to focus on a more sustainable production pipeline.

  4. Wow; that’s a pretty large gap that Tesla needs to overcome in order to meet it’s goal! It occurs to me that, as more companies pursue battery-powered vehicles and consumers increasingly shift towards desiring supply chains that don’t generate harm to local populations, it would be beneficial for all the corporations that will require increasingly large amounts of cobalt to band together and create pathways towards ensuring the material can be sourced sustainably. I think it would be extraordinarily impactful if, instead of just sourcing materials from North America, corporations worked towards eliminating the child labor in cobalt mining in the DR.

  5. Minecraft, thanks for the beautifully written article about the cobalt-related risks facing
    all EV manufacturers. You highlight that oftentimes green initiatives come with hidden environmental and/or ethical costs – leading to headlines like “Clean Electric Cars Are Built on Pollution in Congo.” [1]

    Should Tesla use vertical integration to gain control over its supply chain, as you recommend? One possible danger is that if/when a viable substitute to cobalt or cobalt-intensive batteries emerges, Tesla may face the difficult choice of abandoning its capital-intensive efforts to expand the North American cobalt supply. And given that exploratory mining is such a risky endeavor (as we have been discussing in FIN1), Tesla may be better-served by doubling down on cobalt recycling.

    [1] https://www.ft.com/content/427b8cb0-71d7-11e7-aca6-c6bd07df1a3c

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