In a first for electric vehicle (EV) manufacturers, Tesla is evaluating the possibility of building a lithium refinery in the US. Will this strategy work?
The facility, which is set to be constructed in either Texas or Louisiana, would process raw ore material into lithium hydroxide to then feed Tesla’s EV gigafactories in Nevada and Texas.
If the plant is approved, Tesla said construction could begin as early as the December quarter of 2022, paving the way for first commercial production in the December quarter of 2024.
Fitch Solutions believes the proposed facility represents an “important shift” in EV manufacturers’ upstream strategy.
“We believe this decision foreshadows that automakers will increasingly vertically integrate upstream operations in the EV supply chain by onshoring or nearshoring refining facilities, particularly in North America and Europe,” Fitch said in a recent report.
“This is due to the string of upside risks presented by bringing refining methods in-house, mainly that this plant will enable Tesla to have a local, reliable and, most importantly, cost-effective source of lithium.”
Fitch said the project also offers synergy potential for the local EV supply chain as the US, Canada and Mexico all look to increase lithium refining in years to come.
The facility doesn’t come without its risks, however, with the main concern Tesla’s ability to secure a cost-effective, long-term source of lithium to support the plant.
Lithium supply continues to be a concern in the EV sector, with lithium carbonate prices hitting a new record of 500,500 yuan ($109,861) per tonne in China on September 16.
EV manufacturers are increasingly partnering with mining companies and refining facilities to insulate themselves from lithium price volatility and ensure consistent supply of the metal.
Tesla’s refining facility would be a further extension of this protective approach.
Fitch said the recent passing of the Inflation Reduction Act in the US also offered support for Tesla’s lithium refining plans.
“The US Inflation Reduction Act, passed in August 2022, has driven automakers to source EV battery metals from regionally-based producers and refiners,” Fitch said.
“This is because the bill has introduced a critical metals policy to its EV tax credit, requiring that 40 per cent of metals included in EV batteries must be extracted or processed in North America, or in a country that the US has a free trade agreement (FTA) with.”