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Tesla Investor Day – thoughts on raw materials implications

Avatar photo   By: Matt Fernley

Posted on - 02 Mar 2023


Yesterday was Tesla’s Investor Day and there were some really interesting takeaways from the point of view of the battery raw materials industry that I’d like to give some of my thoughts on.

Before I address the biggest elephant in the room (raw materials supply), I want to talk about a few other important takeaways from the presentation:

● Continuous improvement. There were a few hours on this so I’ll just pick out the bits that mattered most to me. Tesla noted its investments in powertrain development and also manufacturing, saying that since 2017 the drive unit is 20% lighter, uses 25% less HREE and the factory is 75% smaller and 65% cheaper to run. Tesla has previously suggested that its Next Gen EV platform could be 50% cheaper to make. This is fantastic news, in my view, because one of the big risks for the EV industry is that EVs never make it to price parity with ICEs. At another point during the presentation Tesla noted that it has seen substantial price elasticity with EV demand and that’s certainly something that worries us as well. We need to be reassured that the EV industry can continue to realise greater manufacturing efficiencies to offset likely increases in raw materials prices, which will probably translate into higher cell and battery prices.

Battery sizes of NextGen EVs. Now Tesla didn’t state anything directly about this but we got the very strong impression that the NextGen of EVs will have smaller batteries. One of the presenters said “we’ve analysed patterns in the way the fleet drives and charges to optimally size battery packs for our next generation of vehicles”. Smaller batteries means more resource efficiency – while there’s a shortage of lithium and other raw materials, smaller batteries means that we can manufacture more vehicles for the same amount of raw materials consumption.

● LFP vs ternary. Tesla said “The vast majority of heavy lifting for electrification will be iron-rich [LFP] cells” and “you’ll only need nickel for aircraft, long range boats and very long range cars or trucks”. As we expected, Tesla is very much going down the LFP route for its mass-market vehicles, and likely its ESS product, with nickel now the focus for solutions which require high energy density. That’s pretty much in line with the trend we’ve seen elsewhere, particularly in the Chinese market, which prioritises cheaper LFP for mass market vehicles.

Lithium demand. Mr Musk stated that to get to 100% electrification we would need 240,000GWh of cells. He and Drew Baglino suggested that to do that in 10 years would represent a tiny proportion of global GDP and was eminently viable. Assuming that all of the 240,000GWh of cells were lithium-ion (which they won’t be, but just to illustrate the magnitude), that would mean a total requirement of c.160Mt of lithium carbonate equivalent (LCE). Given that current production is of the order of 0.7-0.8Mtpa of LCE, you can understand the magnitude of the bottleneck. Let’s be realistic – there are other techs out there, particularly in the ESS space where there are flow batteries, sodium-ion, etc, but the magnitude of the likely demand increase for lithium-ion in general and lithium, graphite, phosphate, nickel and manganese in particular still looks off the scale.

Now obviously, as with all things Tesla we shouldn’t pay too much attention to timelines. They’re not noted for hitting their indicated timelines, but they do normally get to where they’re aiming for eventually. But we can’t see the world hitting this timeline in 10 years given the raw material constraints, and we really think we’re looking at a minimum of 20-30 years to hit those targets. And it’s raw materials supply that will be the primary constraint in our view, not willingness to make the change.

The elephant in the room

So let’s talk about the elephant in the room. Raw materials supply. Now, in their comments Tesla’s management team referred to the bottleneck in the refining part of the industry. Mr Musk referred, as he has in the past, to the abundance of lithium and other battery raw materials in the Earth’s crust and how we won’t run out of these materials. And we agree with that, at least.

He talked about the importance of refining and noted how Tesla is building its own lithium hydroxide refinery in Texas and it intends to show the refining industry what it’s doing wrong and build it in less than a year and have it in commercial production shortly after…a feat that has never been done before. Tesla’s contention is that it will show the industry what it’s doing wrong and then share that technology with the industry.

And we hope that that will be the case. But we don’t expect it to be. Remember, it was less than three years ago that Mr Musk stated that processing lithium clay was as easy as pouring salty water on it. Yet where are its clay projects? Nowhere close to completion.

But the focus on refining also avoids another major issue. And let’s consider that.

Lithium Li, chemical element. 3D rendering isolated on black background

Think about lithium in the Earth’s crust. Mr Musk is right with his contention that it’s not a rare material. The problem is and always has been finding orebodies with high enough grades to make it economic to extract. In hard rock lithium deposits the key minerals are called spodumene and lepidolite. Spodumene rich deposits have average grades of about 1.1% Li2O in situ, lepidolite deposits average lower grades, maybe 0.6-0.7% Li2O – although in some Chinese mines, it’s much less than that. That’s an equivalent of 2.7% lithium carbonate (LC) and 1.6% LC for lepidolite, yet battery grade lithium carbonate has a grade of 99.9% LC.

Let’s look at brine deposits. The most concentrated lithium brine in the world, the stuff that’s produced in the Atacama in Chile has grades of 1800ppm Li, other economic salar brines are 800-1000ppm and the DLE deposits which make up the tail of the resources available average maybe 300ppm Li and get down to less than 100ppm Li. To precipitate lithium as carbonate, grades of c.30,000ppm Li are needed.

So there’s another industry out there that’s needed to get this material from its natural state to a level where it can be refined. For the time being, let’s call it the “Concentrating industry”. In the Concentrating industry, material needs to be extracted from the Earth’s crust and concentrated into a higher grade form of lithium that can then be refined.

And it’s a difficult industry because the in-situ material is very chemically variable. And the chemical variability is as important in terms of non-lithium elements (impurities) as it is in terms of lithium ones. And this is what mostly trips up companies that are looking to develop projects in this space. The requirement for consistency and purity in battery raw materials streams is an order of magnitude above streams for other industry applications of raw materials. Which means that it takes longer to bring these operations on stream, and costs more.

So, you say, if there’s such a bottleneck in this industry and it’s absolutely vital to the Energy Transition, why aren’t people investing in this Concentrating industry?

It’s because another name for the Concentrating industry is Mining. And mining is perceived as a dirty industry by many investors.

But it’s absolutely vital to the Energy Transition.

It’s all very well for Tesla and companies like Tesla to invest in refining, but they need to make capital available to invest in mining too. And we’re just not seeing enough of that at the moment. I publish a chart every quarter in Battery Materials Review which looks at the amount of capital raised or allocated in Mining vs that raised or allocated in Batteries or EVs. And the Downstream industries are outpacing funds raised in Mining by 10 to 1.

You can find more commentary on my views on the capital imbalance in the industry in the subscription section of our website or in our FREE Yearbook at Did I mention that it’s FREE?

But the key fact is that unless we get that necessary investment in mining, raw materials prices are only likely to go in one direction and that endangers the economics of the Energy Transition.

Matt Fernley is Head of Research for Westbeck Capital’s Volta Fund and Editor of Battery Materials Review.