EV carmaker remains fixated on the 20m-unit production target by 2030
Plans for an extraction site and refinery in Nevada to supply lithium for its new production plant in Texas marks the entrance of Tesla into the mining sector.
Battery supply has become an increasing headache for the automaker, which has encountered difficulties in keeping up with the pace of the rising demand. Especially since its manufacturing operation has remained almost intact during the pandemic crisis, while the competition keeps struggling.
Also, battery production costs are at the heart of the issue since the other long-lasting goal of the maker is to have a model competing in the mid-range price market. With other big automakers releasing models to challenge Tesla’s reign in the high-end EV sector, pricing would be key to prevail in a foreseeably crowded segment.
However, it doesn’t seem like the mining industry is willing to dance to Tesla’s tune of more and cheaper since upscaling the production of lithium hydroxide has fallen down in the list of priorities of the largest mining companies due to low profitability.
Fanning competitiveness in the sector, the likely rationale behind the announcement
Claims made by the company CEO, Elon Musk, stating that they would be able to reduce lithium production costs by 33%, have raised many eyebrows among experts.
In fact, the drastic differences between what the new extraction complex would be able to provide in the short term and what Tesla needs has called the reason behind this move into question.
From a strategic standpoint, it looks like Tesla may be trying to ignite competitiveness in the mining segment that has been controlled by the Livent-Albemarle duopoly in an effort to get them to increase production without raising the prices.
New extraction site and refinery plans unlikely to make a dent in the short-term production
All things considered, it still looks very difficult for the carmaker to deliver on the promise of 20 million units being produced annually by 2030. In fact, it would take the current lithium production capacity to almost eightfold in order to meet its supply needs.
Considering the scale of the project in question and the lack of experience that Tesla has in the production of high-quality chemicals, it seems unlikely for this project to solve its lithium supply issue.